Deck 12: Investing in Stocks

Question 1

The dividend yield is calculated by dividing the earnings per share by the market price of the stock.

Answer 1

False

Question 2

A firm may decide that the price per share for its stock is getting too high for the smaller investor so the company "splits the stock."

Answer 2

True

Question 3

Some firms have negative earnings per share numbers.

Answer 3

True

Question 4

Limited liability associated with stock ownership means that shareholders can only lose the amount of money they have invested in the company.

Question 5

A proxy is a legal agreement a stockholder signs to allow someone else to vote for him or her at the corporation's annual meeting.

Question 6

When a corporation engages in a stock repurchase,each remaining shareholder owns a smaller proportion of the firm.

Question 7

Publicly traded stocks listed on a major exchange are not very liquid investments.

Question 8

A stock split is a tactic by a corporation to manipulate the market price of its stock.

Question 9

The market price of the stock is a reflection of the potential earnings per share of the firm.

Question 10

According to your text,over time,investing in stocks generally outperforms most other investments.

Question 11

Holding several types of stock can greatly reduce the risk in your portfolio.

Question 12

Common stockholders not only have the right to elect the board but also must approve day-to-day decisions of the chief executive officer.

Question 13

The dividend yield tells investors how much in the way of a return they would receive if the stock price and the dividend level remain constant.

Question 14

Common stockholders have a superior claim on a company's assets over creditors and bondholders.

Question 15

When a corporation repurchases its own stock,it does so in the secondary markets.

Question 16

Every company must pay dividends as a portion of the company's profits to its stockholders.

Question 17

A company's dividend distribution can be in the form of cash or additional stock.

Question 18

Stock splits increase the number of the shares you own,but decrease the value of your total holdings with the company.

Question 19

Some companies distribute earnings per share in the form of dividends and some retain these earnings for future investment in the firm.

Question 20

In the event of a corporate bankruptcy,bondholder's claims are paid before shareholders' claims are paid.

Question 21

Dividends are paid regardless if the company makes a profit.

Question 22

Proctor and Gamble is an example of a blue-chip stock.

Question 23

Stocks reduce risk by portfolio rebalancing.

Question 24

Defensive stocks frequently perform better during economic downturns.

Question 25

Both capital gains and dividends are guaranteed with common stock.

Question 26

Berkshire Hathaway's "A" stock has never split.As a result,in spring of 2017 one share of the stock was selling at a price of more than $266,000 per share.

Question 27

Most of the stocks listed in the Dow Jones Industrials have high P/E ratios and are classified as speculative stocks.

Question 28

Capital appreciation refers to an increase in the selling price of your shares of stock.

Question 29

Growth stocks are issued by companies that have exhibited sales and earnings growth well above their industry average.

Question 30

You cannot benefit from capital appreciation until you actually sell your stock.

Question 31

Amazon is an example of a company whose common stock is considered to be a growth stock.

Question 32

Income stocks are stocks that have a very high capital appreciation potential.

Question 33

When the economy slumps,the earnings of cyclical stocks drop;when the economy recovers,so do their earnings.

Question 34

You have just purchased 10 shares of a stock selling at $50 per share.Since that time,the company was found to be in violation of several environmental laws and has several major lawsuits outstanding.Which of the following statements is most correct?

A)You could lose up to your $500 investment.
B)You could lose more than your $500 investment.
C)You cannot lose your investment based on the actions of the company.
D)By owning stock in the company,you have also technically violated the law.
E)None of the above

Question 35

A growth stock is known for its high dividend yields.

Question 36

Coca-Cola is an example of a red-chip stock.

Question 37

Speculative stocks are often traded through the OTC Bulletin Board.

Question 38

Income stocks pay relatively low dividends,and offer a high potential for capital appreciation.

Question 39

While you can't be assured of what you will get when you sell your stock,you will most likely not have difficulty selling it.

Question 40

Returns on stocks can come in the form of capital appreciation.

Question 41

A(n)________ is a legal agreement signed by a stockholder allowing someone else to vote on his or her behalf at the corporation's annual meeting.

A)voting contract
B)agency contact
C)contingency contract
D)proxy
E)none of the above

Question 42

The ________ is the date on which the board of directors announces the amount of the dividend.

A)announcement date
B)declaration date
C)dividend date
D)ex-dividend date
E)maturity date

Question 43

Nathan noticed that a company that has great potential just declared a ________ because its stock price was getting too high for the small investor to buy the stock.The company will substitute more shares for the existing shares of stock without increasing the market value of the firm.

A)dividend yield
B)stock repurchase
C)claim on income
D)stock split
E)stock splice

Question 44

What are proxy fights?

A)Proxy fights are when two rival companies want the same voters.
B)Proxy fights are battles for proxy votes between rival groups of share holders in separate companies.
C)Proxy fights are battles for proxy votes between rival groups of share holders in the same company.
D)Proxy fights are when shareholders fight over who will cast their votes.
E)There is no such thing as a proxy fight.

Question 45

When a company buys back its own common stock it is engaging in a

A)stock split.
B)stock reissue.
C)stock repurchase.
D)stock repo.
E)none of the above.

Question 46

As a shareholder in Titanic Shipping,Inc. ,James Blue is one of the many actual owners.In case of the bankruptcy of the corporation,his liability would be limited to

A)his ownership percentage of the actual loss.
B)the amount of his investment.
C)nothing at all.
D)what is left after selling the stock and subtracting the debt.

Question 47

The dividend yield on a share of common stock is

A)available at most large companies.
B)the amount of annual dividends divided by the market price of the stock.
C)the taxes you pay on the reinvested dividends.
D)all of the above.
E)only A and B.

Question 48

You purchased 100 shares of Quantex at $150 per share for a total investment of $15,000.After your purchase the stock had a 3 for 1 split.How many shares do you now own and how much is your original investment now worth?

A)100 shares and $150 dollars
B)300 shares and $15,000 dollars
C)100 shares and $45,000 dollars
D)300 shares and $45,000 dollars

Question 49

Your investment goal is to receive a stream of income from your investment.Which of the following would be important information to determine whether a particular stock purchase would suit your plan?

A)The earnings per share
B)The market-to-book ratio
C)The book value
D)The dividend yield

Question 50

Common stockholders are entitled to elect the company's board of directors.Usually one share of stock is equal to ________ vote(s).

A)one
B)two
C)100
D)1,000

Question 51

The ________ date is the date the stock begins trading without dividend,meaning that if you buy it after this date you will not get the dividend for that year.

A)payment date
B)declaration date
C)ex-dividend date
D)reinvestment date
E)maturity date

Question 52

What point marks the purchase of common stock without a right to a declared dividend?

A)Dividend payout date
B)Declaration date
C)Ex-dividend date
D)Cut-off point
E)End of fiscal year

Question 53

The book value of a company is calculated by

A)adding the price per share to the dividends paid.
B)subtracting its price per share from the dividends paid.
C)subtracting the value of all the firm's assets from the value of its liabilities.
D)subtracting the value of all the firm's liabilities from the book value of its assets.

Question 54

Which feature of common stock ownership allows a stockholder to share in the company's earnings after the creditors are paid?

A)Limited liability
B)Claim on income
C)Claims on assets
D)Voting rights

Question 55

________ are a company's distribution of its profits in the form of cash or stock to its owners.

A)Dividends
B)Coupon interest payments
C)Equity payments
D)Shareholder divestments
E)None of the above

Question 56

You are really keen on stocks.However,you do not like stocks with regard to ________.This means that if a company you have invested in goes bankrupt,the creditors are paid first and you will be out of luck.

A)claim on income
B)limited liability
C)claims on assets
D)voting rights
E)claims on dividends

Question 57

A proxy vote means

A)filling out a voting form and having a representative turn it in for you.
B)requesting that your vote be deferred until a later date.
C)giving a representative the right to vote in your place.
D)none of the above.

Question 58

A ________ increases the number of stock shares outstanding by replacing each existing share of stock with a stated number of new shares.

A)dividend reinvestment
B)stock split
C)stock repurchase
D)stock reissue
E)none of the above

Question 59

The net income of the firm is $4 million dollars.The firm will pay $500,000 in dividends to the preferred shareholders.There are currently 1 million shares of common stock outstanding.What are the earnings per share for this firm?

A)$4.00
B)$3.50
C)$4.50
D)$3.00

Question 60

The firm will pay an annual dividend this year of $2 per share.The current market price of the stock is $40.00 per share.The book value of this stock is $24.00 per share.The earnings per share for this firm is $5.75.What is the current dividend yield of this stock?

A)14.38%
B)8)33%
C)23.9%
D)5%

Question 61

Greg Jewell read about several companies that were performing relatively well despite the current recession.Stocks like these,that in some cases actually perform better during downturns in the economy,are called ________ stocks.

A)cyclical
B)speculative
C)defensive
D)growth
E)seasonal

Question 62

Explain the common stock features and rights as though you are speaking to a novice.

Question 63

The dividend yield tells investors which of the following?

A)What their portfolio is worth on the open market
B)How much in the way of a return they would receive if the stock price and the dividend level remain constant
C)When the company will be releasing dividends
D)How much in total the company has available to pay out in dividends
E)none of the above

Question 64

Which of the following investment options is not affected by a change in the market rates of interest?

A)Common stocks
B)Corporate bonds
C)Government bonds
D)None of the above is correct;all are affected.

Question 65

Returns from shares of stock come in the form of

A)stock splits.
B)capital appreciation.
C)dividends.
D)All of the above are correct.
E)Only B and C are correct.

Question 66

Suppose that a company feels that the price of its stock is more than the average small investor can afford.To lower the price the company could engage in a

A)stock split.
B)stock repurchase.
C)proxy vote.
D)All of the above are correct.

Question 67

Explain the purpose and value of the dividend yield ratio.

Question 68

If you were to purchase common stocks issued by large,nationally known companies with sound financial histories with solid dividend and growth records you would own what are called

A)best-bet stocks.
B)blue-chip stocks.
C)performance stocks.
D)long-run performance stocks.
E)none of the above.

Question 69

As compared to growth stocks,income stocks pay ________ dividends with ________ growth in earnings.

A)relatively high;relatively high
B)the same;relatively high
C)relatively high;relatively little
D)relatively high;moderate
E)relatively high;the same

Question 70

Because of her children's immediate financial needs,your aunt Marsha has decided to switch some of her money to high-grade utility company stocks.Her reasoning is that these ________ stocks generally pay relatively high dividends that she will be able to give to her children as they need assistance.

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

Question 71

Dividends

A)are always paid,regardless of the company's profitability.
B)are always paid when the company makes a profit.
C)are never paid to common stockholders;only preferred stockholders receive them.
D)None of the above is true.

Question 72

Deborah recently purchased a stock that is considerably more risky than a typical stock.It has exhibited a high degree of earnings variability.This is an example of a(n)________ stock.

A)speculative
B)blue-chip
C)income
D)mid-cap

Question 73

Abby previously owned 200 shares of NEWAGE stock at $25 per share.Today the company split the stock in a 3:1 split.Now what is the value of Abby's stock?

A)$5,000
B)$6,000
C)$2,500
D)$200

Question 74

Which stock index will have the largest representation of small-,mid- and large -cap stocks?

A)DJIA
B)S&P 500
C)Wilshire 5000
D)None of the above

Question 75

Brenda is a 25 year old investor who recently graduated from college and has a successful career,which type of stock should represent a good portion of her portfolio?

A)Growth stocks
B)Defensive stocks
C)Income stocks
D)Risk-free stocks

Question 76

What factors can effect the market price of a stock?

Question 77

Berkshire Hathaway's "A" stock has never split.As a result,in mid-2017 one share of its stock was selling at a price of more than ________ per share.

A)$190
B)$1,900
C)$19,000
D)$266,000

Question 78

Figure 13.1 in your textbook compares the returns on various investments over the period 1951-2010.Which of the following is shown to exceed the inflation rate by the widest margin?

A)Common stocks
B)Government bonds
C)Treasury bills
D)Mutual funds

Question 79

For an investor who is retired,which category of stocks would be more appropriate for a portion of their portfolio?

A)Blue-chip stocks
B)Income stocks
C)Growth stocks
D)All of the above are correct.
E)Only A and B are correct.

Question 80

Large-caps,mid-caps,and small-caps refer to the size of the firm issuing the stock,more specifically,to its

A)book value.
B)market value.
C)dividend.
D)capacity for growth.