Question 1

____ would be classified as a countercyclical industry.

Accepted Answer

Countercyclical industries are those that are not affected by changes in the economy and are not impacted by market activities. Tobacco, in particular, is a classic example of a countercyclical industry because it is not affected by changes in the economic cycle or consumer behavior. People continue to smoke regardless of economic conditions.

Question 2

Which of the following is true regarding growth stocks?

Accepted Answer

Growth stocks often have betas of 1.5 or more, indicating a higher volatility compared to the overall market. This reflects their potential for rapid growth, which can lead to significant price swings.

Question 3

Market analysts generally recommend that investors avoid companies with a price-to-sales ratio of greater than

Accepted Answer

The answer of Market analysts generally recommend that investors avoid...

Question 4

An investor using the fundamental approach would look at

Accepted Answer

The fundamental approach involves analyzing a company's financial and economic fundamentals to determine its intrinsic value. This includes looking at the management of the company, the outlook for the profitability of the industry, and the value of an individual company. Therefore, all of these options are important considerations for an investor using the fundamental approach.

Question 5

An investor who expected an economic downturn would want to put his or her stock portfolio in ____ stocks.

Accepted Answer

An investor who expects an economic downturn would want to put his or her stock portfolio in countercyclical stocks. Countercyclical stocks will still generate earnings and perform well in a recession because they provide necessary products or services regardless of the economic climate. Examples include utility companies, healthcare companies, and consumer staple companies.

Question 6

Investors who have to depend current income from their investments to supplement their living expenses should invest in ____ stocks.

Accepted Answer

Income and blue-chip stocks are generally considered stable and reliable, providing a steady stream of dividends to investors. These stocks are also typically issued by well-established companies with a history of success, making them less risky than growth or speculative stocks. This can provide a sense of financial security and stability for investors who rely on their investment income to cover their living expenses. Well-known growth and speculative stocks are generally riskier and may not provide a consistent stream of income.

Question 7

A company that has a capitalization of $300 million to $2 billion is called a ____ stock.

Accepted Answer

The answer of A company that has a capitalization of...

Question 8

The term used to evaluate the profitability of a firm on a common-stock per-share basis is

Accepted Answer

Earnings per share (EPS) is the term used to evaluate the profitability of a firm on a common-stock per-share basis. It is calculated by dividing the net income (profits) available to common shareholders by the number of outstanding common shares. EPS is a widely used metric for investors to assess a company's financial performance and potential for growth. The higher the EPS, the more profitable a company is considered to be.

Question 9

Johnson and Grubb,Inc.has 26,000 shares of common stock outstanding with a market value of $78 a share.Johnson and Grubb's total sales over the past year were $2,500,000.What is this company's price-to-sales ratio?

Accepted Answer

Price-to-sales ratio = Market value per share / Sales per share= $78 / ($2,500,000 / 26,000)= $78 / $96.15= 0.81

Question 10

____ would be classified as cyclical industries.

Accepted Answer

Cyclical industries are heavily dependent on economic cycles and tend to experience fluctuations in demand and revenue during different stages of the economic cycle. Airlines are an example of cyclical industries as demand for air travel tends to decline during economic downturns and rises during periods of economic growth. On the other hand, drug manufacturers, food retailers, and utility companies are relatively less cyclical and may be classified as defensive or non-cyclical industries.

Question 11

Blue-chip stocks typically have betas of.

Accepted Answer

Blue-chip stocks are typically large, well-established companies with a long history of stable earnings and dividends. These companies are often considered less risky than smaller, less established companies and therefore have lower betas. A beta of 1.0 indicates that a stock's price moves in line with the overall market. Since blue-chip stocks are considered less risky and more stable, they are expected to have a beta of around 1.0.

Question 12

A ____ stock is one that has little or no track record but has a potential for substantial earnings at some time in the future.

Accepted Answer

A speculative stock is one that has little to no track record and is often associated with higher risk because of its potential for substantial earnings at some point in the future. This type of stock is typically sought after by investors who are willing to take on greater risk for the promise of a larger return. A fundamental stock is one that is selected based on the company's financial, economic, and industry-specific factors, while a growth stock is typically selected based on the company's potential for above-average growth in earnings and revenue. A value stock is one that is considered to be undervalued by the market and may offer a good buying opportunity for investors.

Question 13

Anderson Equipment Corporation has total after-tax earnings of $915,000 and 400,000 shares of common stock outstanding.What are the earnings per share for Anderson Equipment?

Accepted Answer

Earnings per share (EPS) is calculated by dividing the total after-tax earnings by the number of shares of common stock outstanding. For Anderson Equipment Corporation, EPS = $915,000 / 400,000 shares = $2.29 per share.

Question 14

Maxwell Communications Corporation has after-tax earnings of $1,508,000 after paying $45,000 in dividends to its 10,000 preferred stockholders.If Maxwell has 500,000 common stockholders,its earnings per share are

Accepted Answer

First, we need to calculate the total amount paid to preferred stockholders:

$45,000 divided by 10,000 shares = $4.50 per share

Total payment to preferred stockholders = $4.50 x 10,000 shares = $45,000

Subtract this from the total after-tax earnings to get the earnings available for common stockholders:

$1,508,000 - $45,000 = $1,463,000

Divide this by the total number of common stockholders:

$1,463,000 divided by 500,000 shares = $2.926 per share

Therefore, the earnings per share for common stockholders is $2.926 or approximately $3.02 when rounded to the nearest cent. The answer is D.

Question 15

Which of the following statements regarding cash dividends is true?

Accepted Answer

Growth and speculative companies typically reinvest their earnings into the business to fund future growth opportunities rather than pay out cash dividends to their shareholders. This helps the companies maintain their liquidity and financial flexibility. Both common and preferred stockholders can receive cash dividends, but the amount may vary based on the company's financial performance and management decisions. Cash dividends are not guaranteed payments to stockholders, as the board of directors may decide to reduce or eliminate the dividend payout if the company's financial condition or outlook deteriorates. Finally, not all after-tax earnings are required to be paid out to stockholders, as companies may retain some of their profits to reinvest in the business or pay off debt.

Question 16

Jensen and Flubb,Inc.,has 17,000 shares of common stock outstanding with a market value of $86 a share.Jensen and Flubb's total sales over the past year were $2,860,000.What is this company's price-to-sales ratio?

Accepted Answer

The price-to-sales ratio is calculated by dividing the company's market capitalization by its total sales. The market capitalization is found by multiplying the number of shares outstanding by the market value per share, which is 17,000 shares * $86/share = $1,462,000. The total sales are $2,860,000. Therefore, the price-to-sales ratio is $1,462,000 / $2,860,000 = 0.51.

Question 17

Some of the least risky stocks on the market are called

Accepted Answer

Blue-chip stocks are considered to be among the least risky stocks on the market. These stocks are issued by large, well-established companies with a history of stable earnings, and are often a part of the Dow Jones Industrial Average or S&P 500 index.

Question 18

What type of investor believes that the market isn't always efficient and that it is possible to find companies that are trading for less than they are worth?

Accepted Answer

A value investor believes that the market can misprice companies and that it is possible to find undervalued companies based on their financial and economic metrics. This is different from a growth investor who is focused on finding companies with high potential for future growth, and a conservative investor who prioritizes risk management and steady returns. A fundamental investor is a broader term that can include both value and growth investors who use company financial statements and economic indicators to make investment decisions.

Question 19

A stock that tends to trade at a low price relative to its company fundamentals is labeled a

Accepted Answer

A value stock is one that is perceived to be undervalued by the market in relation to its intrinsic value or company fundamentals such as earnings, book value, or cash flow. It is often characterized by a low price-to-earnings (P/E) ratio and a high dividend yield.

Question 20

____ analysis is a method of evaluating securities that focuses on statistics generated by market activity,such as past prices and sales volume.

Accepted Answer

Technical analysis focuses on analyzing price charts, trends, patterns and other statistical data derived from market activity to make investment decisions. It does not take into account the underlying financial health and performance of the company, which is the focus of fundamental analysis. Value analysis involves assessing a company's intrinsic value relative to its current stock price. Speculative analysis involves making educated guesses about market trends and future events.

Quiz 14: Investing in Stocks and Bonds