Deck 13: Stocks

Question 1

Companies receive money from the sale of stock _________________.

A) Anytime it is traded on a stock exchange
B) Only at an IPO or secondary offering
C) When it sells bonds
D) When it sells its product or service

Answer 1

Only at an IPO or secondary offering

Question 2

Why are some stocks exchanged over the counter?

A) Lower start-up cost for the company
B) Lower trading cost for the company
C) Company is too small to meet the requirements of the exchange
D) Company has not been in business long enough to be accepted in the exchange

Answer 2

Company is too small to meet the requirements of the exchange

Question 3

What is known as "an offering"?

A) The sale of goods or services
B) Dividends
C) Coupon payments
D) An IPO

Answer 3

An IPO

Question 4

Market capitalization of a company represents the value of the company by _________________.

A) Multiplying the current stock price by the number of shares outstanding
B) Subtracting the liabilities from the assets
C) Subtracting liabilities from the adjusted market value of the assets
D) Comparing it to the value of similar companies

Question 5

A _________________ market is one in which stock prices overall are rising.

A) Bear
B) Bull
C) Depressed
D) Fast

Question 6

A _________________ market is one in which prices on multiple broad market indexes have decreased 20% or more over at least a two-month period.

A) Bear
B) Bull
C) Depressed
D) Fast

Question 7

_________________ stock has voting shares and allows stockholders to elect the board of directors,attend annual shareholder meetings,and vote on establishing corporate objectives,policy,and stock splits; thus these stockholders are able to influence the direction of the company.

A) Preferred
B) Common
C) Over-the-counter
D) Penny

Question 8

If a company declares bankruptcy,common stockholders are _________________.

A) Paid before preferred stockholders
B) Paid before bondholders
C) Usually the last to get paid
D) Not at risk of losing any money

Question 9

_________________ stock refers to stock traded in some context other than on a formal floor exchange.

A) Preferred
B) Common
C) Over-the-counter
D) Penny

Question 10

_________________ carries voting rights,but in the event of bankruptcy,investors receive their funds after _________________ holders.

A) Preferred stock; common stock
B) Common stock; preferred stock
C) Over-the-counter stock; penny stock
D) Penny stock; over-the-counter stock

Question 11

Stock represents _________________.

A) Ownership in a company
B) Profits from a company
C) Debt from a company
D) Mutual fund holdings

Question 12

_________________ stock has dividends paid as a percentage of the par value of the stock.

A) Preferred
B) Common
C) Over-the-counter
D) Penny

Question 13

Preferred stock _________________.

A) Provides voting rights
B) Pays out dividends as a percentage of par value
C) Is converted to common stock
D) Has a lower priority than common stock

Question 14

_________________ carries no voting rights but it takes priority over _________________ in the payment of dividends to stockholders and upon liquidation.

A) Preferred stock; common stock
B) Common stock; preferred stock
C) Over-the-counter stock; penny stock
D) Penny stock; over-the-counter stock

Question 15

_________________ is equity that represents ownership in a company.

A) Stock
B) An offering
C) A bond
D) An IPO

Question 16

What is involved in "going public"?

A) Offering goods and services to the public
B) Selling stock to the public in the primary market
C) Public speaking
D) Revealing corporate secrets to the public

Question 17

The first time a company sells stock to the public is called a(n)_________________.

A) FTS
B) IPO
C) ISO
D) PSO

Question 18

Common stock _________________.

A) Has guaranteed dividends
B) Is the first to be paid in the event of bankruptcy
C) Has guaranteed returns
D) Represents ownership in a company

Question 19

The term market is slang for _________________.

A) Gross domestic product
B) Quarterly retail sales numbers
C) Easy access to new stock
D) Performance of key stock market indexes

Question 20

The rights of common stock allow you to _________________.

A) Veto the board of directors' vote
B) Attend the annual shareholders meeting
C) Trump the vote of bondholders
D) Receive an SEC annual report

Question 21

Three reports you should study before buying stock in a company are the:

A) 5K,5Q,and the annual report
B) 5K,10Q,and the annual report
C) 10K,10Q,and the annual report
D) 10K,5Q,and the annual report

Question 22

What is the Dow Jones Industrial Average?

A) Thirty well-known stocks that represent the whole stock market
B) A market index that has had the same stocks since its inception
C) Another name for the S&P 500
D) A market index that is stronger than the S&P 250

Question 23

The _________________ index represents small company stocks.

A) Russell 2000
B) NASDAQ 100
C) S&P 500 Stock Index
D) Dow Jones Industrial Average (Dow)

Question 24

Which of the following describes a bear market?

A) The market prices are increasing
B) The market is going up and down with no determined trend
C) Brand market indexes have decreased 20% or more over at least a two-month period
D) Your stock portfolio is losing money

Question 25

The _________________ is a market index that represents large-company stocks.

A) Russell 2000
B) NASDAQ 100
C) S&P 500 Stock Index
D) Dow Jones Industrial Average (Dow)

Question 26

Dividend yield _________________.

A) Represents annual payments per share divided by the price per share
B) Is not reflected in the stock price
C) Should never be zero
D) All options are correct

Question 27

A _________________ P/E suggests that investors are expecting higher earnings growth in the future.

A) High
B) Low
C) Climbing
D) Falling

Question 28

Which item is typically not a consideration when researching a company in order to buy stock?

A) P/E ratio
B) Television and radio marketing
C) Future outlook for the company and the industry
D) Dividend yield

Question 29

You are trying to choose between two stocks,Widget and Gadget.Widget has a current stock price of $40.00 and earnings per share of $2.00.Gadget has a current stock price of $30.00 and earnings per share of $1.00.Both are in the media industry and the average P/E ratio for this industry is 12.Use the P/E ratio to determine which stock you anticipate will have higher earnings.

A) Widget
B) Gadget
C) Unable to predict
D) Widget and Gadget will most likely produce equivalent earnings

Question 30

In researching a company,the financial statements you should examine are the _________________ and the _________________.

A) Income statement; balance sheet
B) Income statement; changes in equity statement
C) Cash flow statement; balance sheet
D) Cash flow statement; changes in equity statement

Question 31

Assume that stock prices on multiple broad market indexes have decreased 15% over the last two months.How much more must the market indexes drop before the market is determined to be a bear market?

A) 0%
B) 5%
C) 10%
D) 15%

Question 32

The _________________ is made up of 30 very large,well-known stocks used to represent the whole stock market.

A) Russell 2000
B) NASDAQ 100
C) S&P 500 Stock Index
D) Dow Jones Industrial Average (Dow)

Question 33

Which of the following is not a stock index?

A) The DJIA
B) The Russell 2000
C) The S&P 500
D) The Buffet 10,000

Question 34

_________________ stocks are underappreciated underdogs,typically having single-digit P/E ratios.

A) Preferred
B) Common
C) Over-the-counter
D) Value

Question 35

Calculate the _________________ to assess liquidity (an indicator of a company's ability to cover its current liabilities).

A) Debt ratio
B) Current ratio
C) Times interest earned ratio
D) Asset ratio

Question 36

The indexes provide a broad snapshot of the overall U.S.equity market and include companies selected based upon their _________________.

A) Stock prices
B) Market size,liquidity,and sector
C) Payout performance
D) P/E ratios

Question 37

Review of the _________________ is important as it includes (1)an explanation of a company's operations (how it makes its money)and the markets in which it currently operates; (2)disclosures of risks the company faces,including current lawsuits; (3)the financial statements (such as the income statement and balance sheet),which show how much money the company made; and (4)its debt levels.

A) Balance sheet
B) Income statement
C) 10K
D) Cash flow statement

Question 38

What is your rate of return if you invest $1,000 in a stock and it increases in value by $100 and pays an annual dividend of $50?

A) 0%
B) 5%
C) 10%
D) 15%

Question 39

The _________________ is a technology-heavy market index.

A) Russell 2000
B) NASDAQ 100
C) S&P 500 Stock Index
D) Dow Jones Industrial Average (Dow)

Question 40

Stock values are determined by _________________.

A) The net worth of a business divided by shares outstanding
B) Calculating the price/earnings ratio
C) The past performance of the company
D) What investors are willing to pay for the stock

Question 41

What is the debt ratio if the amount of total assets financed with debt is $1,900,000 and assets total $2,700,000?

A) 0.704
B) 1.9
C) 2.7
D) 1.42

Question 42

A _________________ tells the broker to buy or sell stock at the current price.

A) Market order
B) Limit order
C) Stop order
D) Day order

Question 43

A(n)_________________ is a stock trade request placed after the close of market.

A) Bracket order
B) Extended-hours order
C) Good-til-canceled order
D) Trailing-stop order

Question 44

A _________________ sets a minimum or maximum price before your stock trade is converted to a market order and sent to the stock exchange.

A) Market order
B) Limit order
C) Stop order
D) Day order

Question 45

Calculate the _________________ to assess a company's financial leverage (an indicator of a company's reliance on debt to support its operations).

A) Debt ratio
B) Current ratio
C) Times interest earned ratio
D) Asset ratio

Question 46

What is the times interest earned ratio if the EBIT is $1,700,000 and the total interest payment is $150,000?

A) 0.882
B) 8.82
C) 11.3
D) 113

Question 47

_________________ is a plan that allows outside investors to buy shares of stock directly from the company.

A) The S&P 500
B) The SEC Plan
C) An investment club
D) A dividend reinvestment plan

Question 48

What is the current ratio if the short-term asset balance is $15,000,000 and the short-term liabilities balance is $500,000?

A) 33%
B) 30%
C) 300%
D) 1/3

Question 49

Which company has a higher degree of liquidity: Widget,with a current ratio of 2; Mouse Trap,with a current ratio of 1.7; Gadget,with a current ratio of 1.6; or Better Trap,with a current ratio of 1.5?

A) Widget
B) Mouse Trap
C) Gadget
D) Better Trap

Question 50

A _________________ is a stock trade request that expires at the end of a trading day.

A) Market order
B) Limit order
C) Stop order
D) Day order

Question 51

A _________________ tells the broker to buy or sell stock once it reaches a specific price.

A) Market order
B) Limit order
C) Stop order
D) Day order

Question 52

A(n)_________________ is a trailing-stop order with an upper price limit trigger.

A) Bracket order
B) Extended-hours order
C) Good-til-canceled order
D) Short-sell order

Question 53

A(n)_________________ is a stock trade request that stays on the books until it is completely filled or canceled or 60 calendar days have passed.

A) Bracket order
B) Extended-hours order
C) Good-til-canceled order
D) Trailing-stop order

Question 54

What indications can be derived from a firm's balance sheet and income statement when researching the firm as a stock option?

A) Liquidity and financial leverage
B) Income over liabilities ratios
C) Bankruptcy risk
D) P/E yield

Question 55

Calculate the _________________ to assess a company's ability to cover its interest payments,as compared to its peers.

A) Debt ratio
B) Current ratio
C) Times interest earned ratio
D) Asset ratio

Question 56

_________________ is an option for buying stock if you can't afford a full share.

A) Coop investment club
B) Dividend reinvestment plan (DRIP)
C) Penny stock
D) Over-the-counter stock

Question 57

Which of the following is an option for continuously investing small amounts of money in a specific company's stock?

A) The S&P 500
B) SEC Plan
C) Investment Clubs
D) A dividend reinvestment plan

Question 58

Which company has a higher reliance on debt to support operations: Widget,with a debt ratio of 2; Mouse Trap,with a current ratio of 1.7; Gadget,with a current ratio of 1.6; or Better Trap,with a current ratio of 1.5?

A) Widget
B) Mouse Trap
C) Gadget
D) Better Trap

Question 59

A(n)___________________ is a buy or sell stock order that depends on a predetermined price.

A) Bracket order
B) Extended-hours order
C) Good-til-canceled order
D) Trailing-stop order

Question 60

A(n)_________________ involves the sale of borrowed stocks.

A) Bracket order
B) Extended-hours order
C) Good-til-canceled order
D) Short-sell order

Question 61

Explain how dividends work.

Question 62

How does a bull market compare to a bear market?

Question 63

Most IPOs involve companies going through a transitory growth period,which makes it easy to predict future value.

Question 64

Evaluation criteria to pull from the balance sheet and income statement should focus on liquidity and financial leverage.

Question 65

Government officials and investors watch the stock market for signs of how businesses are doing and for a reading on consumer confidence.

Question 66

When a company declares bankruptcy,secured lenders receive their money first,followed by unsecured lenders (bondholders)and then preferred stockholders before common stockholders.

Question 67

From the cash flow statement you can extract criteria to evaluate a company's liquidity and financial leverage,which are indicators of stability and the possibility for future growth.

Question 68

Even though the process of buying,selling,and evaluating stocks takes a considerable amount of research and time,people are always better off investing in stocks over mutual funds.

Question 69

Explain how investment clubs work.

Question 70

When you buy or sell stock,_________________.

A) It is free through a discount broker
B) There is always a transaction cost,which should be calculated in your total return
C) Using a full service broker provides the least total return and is your least expensive alternative
D) You should understand that it is too expensive to make money on small orders

Question 71

Summarize the basics of buying and selling stocks.

Question 72

The following information is included in a stock quote: price information; dividend; dividend yield; and price-to-earnings (P/E)ratio.