Question 1

A securities exchange is a marketplace where member brokers who are representing investors meet to buy and sell securities.

Accepted Answer

A securities exchange is indeed a marketplace where member brokers representing investors meet to buy and sell securities.

Question 2

Capital gains yield is the stock's appreciation in value divided by its end-of-year stock price.

Accepted Answer

Capital gains yield is the stock's appreciation in value divided by its initial price, not its end-of-year stock price.

Question 3

The federal government requires corporations selling new issues of securities to disclose information about corporate earnings, assets and liabilities, products or services, and the qualifications of top management in a prospectus.

Accepted Answer

This statement is true. The federal government does require corporations to disclose this information in a prospectus when selling new securities.

Question 4

The price-earnings ratio is not affected by an increase or decrease in the firm's earnings.

Accepted Answer

The price-earnings ratio is calculated by dividing the price per share by the earnings per share. Therefore, if earnings increase, the ratio will decrease, making the stock look more affordable. Conversely, if earnings decrease, the ratio will increase, suggesting that the stock is overpriced.

Question 5

A small cap stock is a stock that typically sells for less than 1$ per share.

Accepted Answer

A small cap stock is a stock with a market capitalization between $250 million and $2 billion, regardless of its share price.

Question 6

Most speculators use a buy and hold technique.

Accepted Answer

Speculators typically engage in short-term trades and seek to profit from fluctuations in the market, rather than buying and holding assets for the long-term.

Question 7

The price earnings ratio is a corporation's after-tax earnings divided by the corporation's earnings per share of stock outstanding over the last 12 months.

Accepted Answer

The price-earnings ratio is calculated by dividing the current market price of the stock by its earnings per share (EPS), not the other way around.

Question 8

The minimum commission charged by most brokerage firms for buying or selling stock is between $50 and $75.

Accepted Answer

The minimum commission charged by most brokerage firms for buying or selling stock can vary widely and may be lower than $50 or $75. Some firms even offer commission-free trading options.

Question 9

The annual shareholder return is the beginning-of-year stock price divided by the stocks annual dividend.

Accepted Answer

The annual shareholder return is the total return on investment, including both stock price appreciation and dividends received, divided by the beginning-of-year stock price.

Question 10

It is common for professional advisory services like SEDAR, Moody's, Standard & Poor's, and Value Line to charge for more detailed financial information than provided on other Internet Web sites.

Accepted Answer

Professional advisory services typically charge for their more specialized and in-depth financial information.

Question 11

The annual dividend yield is calculated by dividing the annual dividend by the initial stock investment.

Accepted Answer

The annual dividend yield is indeed calculated by dividing the annual dividend by the initial stock investment. This metric tells investors how much they can expect to earn in dividends relative to the amount they've invested in the stock.

Question 12

Laws which are enforced by a federal regulatory body for the securities industry have been put in place to protect investors.

Accepted Answer

The answer of Laws which are enforced by a federal...

Question 13

Enron's collapse has put thousands of innocent Americans out of work and wiped out the retirement portfolios of thousands more.

Accepted Answer

Enron's collapse led to the loss of jobs for thousands of employees and caused significant financial losses for investors, including retirees who held Enron stock in their portfolios.

Question 14

A limit order is a request that a stock be purchased or sold at the current market price.

Accepted Answer

A limit order is a request to buy or sell a stock at a specific price or better. It is not placed at the current market price.

Question 15

You shouldn't be wary of any stocks that you learn about on financial bulletin boards, chat room, newsgroups or email.

Accepted Answer

It is important to exercise caution while investing and not blindly trust information provided on online forums, as it may be inaccurate or biased. It is crucial to conduct thorough research and analysis before making any investment decisions.

Question 16

An investment bank is a financial institution where large corporations can deposit excess cash for short periods of time.

Accepted Answer

An investment bank is a financial institution that helps corporations and governments raise capital by underwriting and selling securities. They do not typically accept short-term deposits from corporations.

Question 17

Dollar-cost averaging enables investors to avoid the problem of buying high and selling low.

Accepted Answer

Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of the market conditions. This approach helps investors to avoid the temptation to time the market and purchase stocks at high prices or sell them at low prices. By investing consistently over time, investors can benefit from the fluctuations in the market and potentially earn a higher return on their investment.

Question 18

The beta is an index that compares the risk associated with a specific stock issue with the risk of the stock market in general.

Accepted Answer

The beta measures the volatility of a stock relative to the overall market. A beta of 1 indicates that the stock's price will move in line with the market, while a beta greater than 1 suggests that the stock is more volatile than the market and a beta less than 1 indicates that the stock is less volatile than the market. Therefore, the statement is true.

Question 19

A bear market develops when investors are optimistic about the overall economy and purchase stocks.

Accepted Answer

A bear market actually develops when investors are pessimistic about the overall economy and begin to sell off their stocks, causing prices to fall.

Question 20

The NASDAQ is an electronic marketplace for over 10,000 different stocks.

Accepted Answer

The NASDAQ lists over 3,000 stocks, not 10,000.

Quiz 11: Investing in Stocks