Deck 11: Investing in Stocks

Question 1

Joanne Blower owns 200 shares of Corel Corporation stock. She purchased the stock for $22 a share. She sold her stock for $28 a share. The commissions required to buy and sell her stock totaled $180. Assuming that she received no dividends during the time she owned the stock, what is her total profit from this transaction?

A) $180
B) $780
C) $1,380
D) $1,020
E) $1,200

Answer 1

$1,020

Question 2

Because Xerox is a ____________ corporation, an investor can purchase stock with the help of an account executive through the secondary market.

A) private
B) public
C) general
D) institutional
E) securities

Answer 2

public

Question 3

Kate Babini owns 250 shares of Gildan Activewear. Suppose that for the last calendar quarter, Gildan paid $0.28 a share. What is the total amount she received in her dividend cheque for this quarter?

A) $0.28
B) $2.80
C) $70.00
D) $250.00
E) $892.00

Answer 3

$70.00

Question 4

The right of current stockholders to purchase any new stock that the corporation issues before it is offered to the general public is called a ____________ right.

A) conversion
B) convertible
C) mandatory
D) preemptive
E) corporate

Question 5

The type of stock in which stockholders are assured that omitted dividends will be paid to them before other dividends are paid is ____________ stock.

A) cumulative preferred
B) convertible preferred
C) participating preferred
D) common
E) callable preferred

Question 6

If the board of directors approves a two for one stock split, an investor who owns 200 shares before the split owns ____________ shares after the split.

A) 75
B) 200
C) 225
D) 400
E) 450

Question 7

Dividends remain with the stock until

A) five days after the date of record.
B) two business days after the date of record.
C) five days before the date of record.
D) two business days before the date of record.
E) five days before the actual payment date.

Question 8

PowerLight Corporation holds its annual meeting in April. Marie Stewart, who owns stock in the company, cannot attend the meeting. She can vote by a:

A) voluntary certificate.
B) preemptive right.
C) participatory certificate.
D) cumulative certificate.
E) proxy.

Question 9

When a corporation exchanges stock for a specified amount of money, it is exercising its ____________ feature.

A) participating
B) cumulative
C) convertible
D) call
E) termination

Question 10

Equity financing is a popular choice to provide long-term financing for a corporation because

A) a lender is always available to provide this type of financing.
B) it does not have to be repaid.
C) repayment doesn't have to be made for ten years or more.
D) only interest must be paid for the first five years.
E) it does not cost anything to sell in the primary market.

Question 11

Which of the following statements is not true?

A) Most board members like to keep stockholders happy.
B) Few things will unite stockholders into a powerful opposition force more rapidly than omitted or lowered dividends.
C) Intelligent investors must be concerned about future after-tax profits.
D) If a cash dividend is declared by the board of directors, each stockholder by law receives an equal amount per share.
E) Corporate dividends are always paid in cash.

Question 12

The type of stock that may earn more than the stated dividend if the firm has a good year is ____________ stock.

A) common
B) convertible preferred
C) participating preferred
D) cumulative preferred
E) callable preferred

Question 13

A corporation whose stock is owned by relatively few people and is not traded openly in stock markets is called a(n) ____________ corporation.

A) private
B) public
C) equity
D) debt
E) preferred

Question 14

A stock that remains stable during declines in the economy is called a(n) ____________ stock.

A) defensive
B) cyclical
C) growth
D) income
E) blue-chip

Question 15

When the board of directors approves a two for one stock split, the price for each share of stock

A) remains unchanged.
B) increases in value.
C) decreases in value.
D) is guaranteed to go up within a short period of time.
E) always drops to half of its former value.

Question 16

A stock that pays higher than average dividends is called a(n) ____________ stock.

A) defensive
B) income
C) growth
D) cyclical
E) blue-chip

Question 17

Which of the following statements is not true?

A) Corporations are required by law to have two stockholder meetings each year.
B) Stockholders must approve any amendment of the corporate charter.
C) Stockholders must approve the sale of certain corporate assets.
D) Corporations are required by law to distribute annual reports.
E) Stockholders may vote in person or by proxy.

Question 18

The type of preferred stock that may be exchanged at the stockholder's option for common stock is

A) corporate bond.
B) cumulative preferred stock.
C) participating preferred stock.
D) convertible preferred stock.
E) callable preferred stock.

Question 19

Dividends are paid out of profits, and

A) dividends are guaranteed.
B) dividend payments must be approved by the firm's board of directors.
C) dividends are paid before a firm's taxes are paid.
D) dividends are usually paid twice a year.
E) dividends are guaranteed and paid twice a year.

Question 20

A very safe investment that generally attracts conservative investors is called a(n) ____________ stock.

A) penny
B) cyclical
C) growth
D) income
E) blue-chip

Question 21

A stock issued by a corporation that has the potential of earning above-average profits when compared to other firms in the economy is called a(n) ____________ stock.

A) defensive
B) cyclical
C) growth
D) income
E) blue-chip

Question 22

Marianne Walsh bought XYZ Corporation stocks for $26 a share at the beginning of 2001. At year-end, she received a dividend of $1.75 per share and then sold the stock for $30.50 a share. What was Marianne's annual shareholder return on the investment?

A) 6.25 percent
B) 10.83 percent
C) 17.31 percent
D) 20.49 percent
E) 24.04 percent

Question 23

A stock that sells for less than $l a share is called a

A) fractional stock.
B) dollar stock.
C) penny stock.
D) ten-dollar stock.
E) bad investment.

Question 24

To calculate the annual dividend yield, the annual dividend is divided by the stock's

A) current price.
B) historical average price.
C) future price.
D) beginning-of-year price.
E) end-of-year price.

Question 25

Jamie Presner purchased 100 shares of Bank of Montreal for $86.00 Jamie also paid $50 commission. What was the total purchase price for this transaction?

A) $50.00
B) $86.00
C) $8,650.00
D) $8,289.50
E) $860.00

Question 26

Assume that you purchased 50 shares of Home Depot stock for $35 a share, that you received an annual dividend of $0.30 a share, and that you sold your Home Depot stock for $40 a share at the end of one year. What is the total return for your investment? (Ignore commission amounts for this question.)

A) 10.00 percent
B) 12.50 percent
C) 13.25 percent
D) 14.29 percent
E) 15.14 percent

Question 27

A stock that is issued by a corporation that has a large amount of capitalization is called a(n) ____________ stock.

A) small-cap
B) medium-cap
C) large-cap
D) unlimited-cap
E) giant-cap

Question 28

Which of these is not a sign for potential online investment scams?

A) high pressure tactics to buy from people you do not know
B) promises of high profits and sales relating to products of a new company
C) large-cap companies that pay a generous executive salary
D) reverse splits
E) small-cap companies investing in projects unrelated to their businesses

Question 29

When investors are optimistic about the overall economy and buy stocks, it is known as a(n) ____________ market.

A) book
B) bear
C) bull
D) equity
E) declining

Question 30

A small-cap stock is defined as a corporation that has total capitalization of

A) more than $250 million.
B) less than $150 million.
C) less than $175 million.
D) less than $200 million.
E) no capitalization.

Question 31

Assume that you purchased 200 shares of C-Mac Industries stock for $110 a share, that you received an annual dividend of $4.00 a share, and that you then sold your stock for $130 a share at the end of one year. What is the total profit on your investment? (Ignore commission amounts for this question.)

A) $200
B) $400
C) $1,200
D) $800
E) $2,200

Question 32

Typically, growth companies pay out ____________ of their earnings in dividends to their stockholders.

A) over 95 percent
B) between 65 percent and 75 percent
C) between 50 and 65 percent
D) between 30 and 50 percent
E) less than 30 percent

Question 33

John Baker bought BCE stocks for $33 a share one year ago. He sold the stock a year later for $36.50 a share. What was John's capital gains yield?

A) 3 percent
B) 3.50 percent
C) 4 percent
D) 9 percent
E) 10.6 percent

Question 34

Oil-Slick Shipping stock was priced at $70 at the beginning of the year. Over the year the corporation paid a dividend of $3.25 and its stock price at year-end was $65. What is the trailing dividend yield?

A) 4.6 percent
B) 4 percent
C) 5 percent
D) 5.4 percent
E) 6 percent

Question 35

The federal government requires that a corporation selling a new issue of securities must disclose information about the company and its finances in a(n)

A) annual report.
B) quarterly report.
C) accountant's audit report.
D) prospectus.
E) stock guide.

Question 36

Becky Harie bought GBX Corporation stock for $24.38 a share. After six months, she received $2.25 in dividends and the market value the stock was $25.01 a share. If Becky decided to sell the stock at this time, what would be her shareholder return?

A) 11.52 percent
B) 23.03 percent
C) 11.81 percent
D) 23.63 percent
E) 22.62 percent

Question 37

A stock that follows the business cycle of advances and declines in the economy is called a(n) ____________ stock.

A) defensive
B) cyclical
C) growth
D) income
E) blue-chip

Question 38

Which of the following is a high-risk, short-term stock investing technique? I. Purchasing on margin
II) Dollar cost averaging
III) Hedging with options

A) I only
B) II only
C) III only
D) I, II and III are correct
E) I and II are correct

Question 39

By using the Canada.Com Finance Web site, an investor can find information on all of the following except

A) inside information.
B) the corporation's stock symbol.
C) current market values.
D) research information.
E) historical market quotes.

Question 40

Devin Scott is looking for an investment that will provide a predictable source of income. With this goal in mind, which of the following industry groups would normally be classified as an industry to invest in for income?

A) public utilities
B) electronics
C) automobile manufacturing
D) steel manufacturing
E) paper manufacturing

Question 41

One hundred shares or a multiple of 100 shares is called a(n) ____________ lot.

A) market
B) limited
C) round
D) odd
E) executive

Question 42

Which one of the following is not a true statement?

A) The over-the-counter market is a network of dealers who buy and sell the securities of corporations that are not listed on a securities exchange.
B) Account executives in the OTC market specialize or make a market in the securities of one or more specific firms.
C) Most OTC trading is conducted in person in the account executive's office.
D) Since 1971, account executives' operating in the OTC market have used an electronic quotation system called NASDAQ.
E) NASDAQ is regulated by the National Association of Securities Dealers.

Question 43

A long-term investment technique used by investors to purchase stock without paying a commission to a broker is called

A) dollar cost appreciation.
B) direct investment plan.
C) unregulated transaction.
D) regulated transaction.
E) over-the-counter transaction.

Question 44

A request that a stock be bought or sold at a specified price is called a ____________ order.

A) market
B) limit
C) stop
D) round
E) discretionary

Question 45

Which of the following statements is not true?

A) When buying stock on margin, an investor borrows part of the money necessary to buy a particular stock.
B) Usually, the brokerage firm lends the money or arranges for the loan in a margin transaction.
C) Investors buy on margin because doing so offers them the potential for greater profits.
D) The margin requirement is set by the exchanges.
E) The current margin requirement is identical for all exchanges.

Question 46

The investment bank's commission or spread:

A) depends on the quality of the issuing corporation
B) depends on the financial health of the issuing corporation
C) reflects the transfer of risk of raising funds to the investment bank
D) A and B are correct
E) A, B and C are correct

Question 47

A request that an order be executed at the next available opportunity after the market price of the stock reaches a specified price is called a ____________ order.

A) market
B) limit
C) stop
D) round
E) discretionary

Question 48

A market for existing financial securities that are currently traded between investors is called the ____________ market.

A) technical
B) fundamental
C) efficient
D) secondary
E) primary

Question 49

Assume the beta for the stock market in general is 1.0 and that the beta for World-Wide Television Productions is 2.4. Which of these statements is not true?

A) The average stock is less risky than World-Wide Television Productions stock.
B) World-Wide Television Productions stock is more risky than the average stock.
C) Beta compares the risk of a specific stock issue with the risk of the stock market in general.
D) Most stocks have betas between 0.5 and 2.
E) World-Wide Television Productions stock is less risky than the average stock.

Question 50

To safeguard investments, stock owners who believe that the price of their stock will go down during an option period will purchase a

A) futures contract.
B) short contract.
C) call option.
D) put option.
E) margin contract.

Question 51

Which of the following is not a true statement?

A) An investment bank is a financial firm that assists organizations in raising funds.
B) A large corporation often uses an investment bank to sell and distribute a new stock issue.
C) Analysts for the investment bank examine the corporation's financial position to determine whether the new stock issue is financially sound.
D) If the investment bank is satisfied that the new stock issue is a good risk, it will buy the stock and hold it for at least one year.
E) The investment bank resells a new stock issue to its customers-commercial banks, insurance companies, pension funds, mutual funds, and the general public.

Question 52

A market in which an investor purchases financial securities (via an investment bank or other representative from the issuer of those securities is called the ____________ market.

A) technical
B) fundamental
C) efficient
D) secondary
E) primary

Question 53

MasterCracked Manufacturing has after-tax profits that total $725,000. If the firm has 250,000 shares, what is the amount of earnings per share?

A) $1.25
B) $2
C) $2.90
D) $2.50
E) It is impossible to calculate earnings per share with this information.

Question 54

A request that a stock be bought or sold at the current market price is called a ____________ order.

A) market
B) limit
C) stop
D) round
E) discretionary

Question 55

Which of the following statements is not true?

A) When an investor buys stocks and assumes they will increase in value, he or she is using a procedure called buying long.
B) Selling short is selling stock that has been borrowed from a stockbroker or brokerage firm.
C) When you sell short, you buy today, knowing that you must sell or cover your short transaction at a later date.
D) In a short transaction, if the stock increases in value, the investor loses money.
E) To make money in a short transaction, you must be correct in predicting that a stock will decrease in value.

Question 56

ABC Corporation has 2 million shares outstanding. The corporation's after-tax earnings for 2004 were $2.75 million. What is ABC's EPS for 2004?

A) $2.0
B) $0.75
C) $1.0
D) $2.75
E) $.50

Question 57

Last year, Hi-Lo Electronics earned $2.50 per share. If the current market value for a share of stock is $55, what is the firm's PE ratio?

A) 0.025
B) 2.5
C) 22
D) 55
E) It is impossible to calculate a PE ratio with this information.

Question 58

An order to buy or sell a security that lets the broker decide when to execute the transaction and at what price is called a ____________ order.

A) market
B) limit
C) stop
D) round
E) discretionary

Question 59

A long-term technique used by investors who purchase an equal dollar amount of the same stock at equal intervals in time is called a

A) dollar cost averaging.
B) dividend reinvestment plan.
C) buy and hold technique.
D) regulated transaction.
E) secured transaction.

Question 60

Which of the following is not a true statement?

A) A high price-earnings ratio means high projected earnings in the future.
B) The price-earnings ratio for a corporation must be studied over a period of time.
C) The price-earnings ratio is based on the company's dividends.
D) The price-earnings ratio for one firm may be compared to the price-earnings ratio for all firms.
E) A low price-earnings ratio indicates that a stock may be a good investment and a high price-earnings ratios may indicate that it is a poor investment.

Question 61

Capitalization is ___________

A) issued by a company that has a capitalization of $150 million or less.
B) issued by a corporation that has the potential to earn profits above the average profits of all firms in the economy.
C) the total amount of securities-stocks and bonds-issued by a corporation.
D) follows the business cycle of advances and declines in the economy.
E) A safe investment that generally attracts conservative investors

Question 62

A corporation whose stock is owned by relatively few people and is not traded openly in stock markets is called a(n) ____________ corporation.

A) public
B) private
C) partnership
D) common
E) preferred

Question 63

Doug Baker bought Toronto Dominion stocks for $50 a share one year ago. He sold the stock a year later for $55.50 a share. What was John's capital gains yield?

A) 3 percent
B) 3.50 percent
C) 9.9 percent
D) 11 percent
E) 111 percent

Question 64

A public corporation is a corporation whose stock is owned by relatively few people and is not traded openly in the stock market.

Question 65

A proxy is a legal form that lists the issues to be decided at a stockholders' meeting and requests that stockholders transfer their voting rights to some individual or individuals.

Question 66

Astrid purchased 100 shares of Royal Bank for $76.00/share. Astrid also paid $29 commission. What was the total purchase price for this transaction?

A) $29.00
B) $76.00
C) $7,600
D) $7,629
E) $7,571

Question 67

The term securities encompass a broad range of investments that include stocks, bonds, mutual funds, options, and commodities.

Question 68

When the board of directors approves a three for one stock split, the price for each share of stock

A) remains unchanged.
B) increases in value.
C) decreases in value.
D) is guaranteed to go up within a short period of time.
E) always drops to a third of its former value.

Question 69

If the board of directors approves a three for one stock split, an investor who owns 300 shares before the split owns ____________ shares after the split.

A) 100
B) 200
C) 300
D) 900
E) 1,800

Question 70

Ammar purchased 100 shares of Northern Bank at $55 dollars a share in January of 2004. The shares subsequently split two-for-one on December 31, 2004 after paying an annual dividend of $1.00 per share. If Ammar sells all of his shares on the first trading day in January 2005 for $30 each, what has been his return on investment?

A) Zero
B) 9.1%
C) 10.0%
D) 10.9%
E) 15%

Question 71

A penny stock typically sells for ___________

A) $.01/share
B) Less than $.10/share
C) Less than $.50/share
D) Less than $1.00/share
E) less than $10/share

Question 72

Dividend payments on common stock are guaranteed, but the amount is determined by the board of directors.

Question 73

A long-term technique used by investors who purchase stocks and hold onto them for a number of years

A) dollar cost averaging.
B) dividend reinvestment plan.
C) buy and hold technique.
D) regulated transaction.
E) secured transaction.

Question 74

Anne owns 300 shares of Lily Industries. Suppose that for the last calendar quarter, Lily Industries paid $.30 a share. What is the total amount she received in her dividend cheque for this quarter?

A) 0
B) $.30
C) $45.00
D) $90.00
E) $180.00

Question 75

Which of the following is a long-term stock investment technique?

A) Purchasing on margin
B) Selling short
C) Dollar cost averaging
D) Trading in options
E) Buy low, sell high

Question 76

Daisy Diaz purchased 100 shares of Cameco Inc. at $40 dollars a share. The shares subsequently split three for one on December 31, 2004 and currently trade at $50 a share. If Daisy sells all of her shares, what will be his capital gain?

A) $11,000
B) $5,500
C) $4,000
D) $6,000
E) $6,500

Question 77

A speculative technique whereby an investor borrows part of the money needed to buy a particular stock.

A) dollar cost averaging.
B) dividend reinvestment plan.
C) buy and hold technique.
D) margin.
E) secured transaction.

Question 78

Colin owns 100 shares of RIM stock. He purchased the stock for $100 a share. He sold the stock for $75 a share. The commissions required to buy and sell the stock totaled $60. Assuming that he received no dividends during the time he owned the stock, what is his total profit or loss from this transaction?

A) Profit $2,500
B) Profit $60.00
C) Loss $2,500
D) Loss $2,560
E) Loss $2,440

Question 79

Why would an investor favor a common share over a preferred share?

A) To obtain a bigger potential capital gain.
B) To obtain repayment of the face value at maturity.
C) To obtain a fixed dividend.
D) To obtain a fixed coupon payment.
E) To obtain a variable dividend

Question 80

A very safe investment that generally attracts conservative investors is called a(n) ____________ stock.

A) option
B) call
C) margin
D) blue-chip
E) put