Question 1

Sean Barber wants to invest in a stock that is relatively safe,suitable for conservative investors,and less speculative than other stocks.What type of stock best fits Sean's requirements?

Accepted Answer

Blue chip stocks are known for stability, reliability, and are proven leaders in their respective industries. They are usually well-established companies with a history of steady earnings and dividend payments, making them a good choice for conservative investors looking for relatively safe investments.

Question 2

To calculate dividend yield,the annual dividend amount per share is divided by the _______ per share.

Accepted Answer

Dividend yield is calculated by dividing the annual dividend amount per share by the current stock price per share. The current stock price is the market value of the stock and is a more relevant indicator of the return on investment compared to the stock's original issue value, current earnings, current book value, or current sales revenue.

Question 3

Acme Widget,Inc.has 1,000 shareholders who own a total of one million shares of its common stock.The stock currently sells for $85 per share.The company earned $5 million after taxes.The annual dividend is $0.50 per share.The company has assets of $125 million and liabilities of $25 million.What is the P-E ratio?

Accepted Answer

$85 / ($5 million / 1 million shares) = 17.

Question 4

Acme Widget,Inc.has one million shares of common stock outstanding at a price per share of $85.The company earned $5 million after taxes.The annual dividend is $3.50 per share.The company has assets of $125,000,000 and liabilities of $25,000,000.What is the dividend yield rounded to nearest hundredth of a percent?

Accepted Answer

$3.50 / $85 = .0412 (rounded) = 4.12%.

Question 5

Masterworks Manufacturing has calculated its earnings per share as $2.50.If the corporation has 250,000 shares outstanding,what is the amount of after-tax income?

Accepted Answer

$2.50 F1F1F1S1F1F1F10250,000 = $625,000

Question 6

A stock issued by a corporation that has a market capitalization of between $2 and $10 billion is called a ____________ stock.

Accepted Answer

A stock issued by a corporation that has a market capitalization of between $2 and $10 billion is called a midcap stock.

Question 7

Regardless of a stock's classification,a stock is a _____investment because there are no guarantees.

Accepted Answer

Regardless of a stock's classification, there are no guarantees in the stock market. Therefore, all stocks are considered speculative investments.

Question 8

Which one of the following statements is true?

Accepted Answer

It is possible to obtain financial information about a corporation that issues stock by using the Internet. Many financial websites such as Yahoo! Finance, Google Finance, and Bloomberg offer various financial information about corporations, including stock price, financial statements, and news.

Question 9

Which one of the following is a true statement?

Accepted Answer

Online computer services such as Yahoo Finance, Google Finance, and other financial websites provide users with the ability to research companies and obtain current stock prices. Choice A is incorrect as the quality of information is not always excellent when paying for investment advice. Choice B is incorrect as Morningstar provides information about both stocks and bonds. Choice C is incorrect as Value Line provides information about stocks, bonds, and mutual funds. Choice D is incorrect as investors' services provide more than simple alphabetical listings.

Question 10

Barker Creek Clothing has after-tax income of $12.8 million and its earnings per share are $0.40.How many shares of stock does it have outstanding?

Accepted Answer

$12.8 million / $0.40 = 32 million.

Question 11

By using the Yahoo! Finance website,an investor can find all of the following information on a stock except its:

Accepted Answer

The Yahoo! Finance website provides a variety of information on a stock, including historical prices, stock symbol, current market value, and most recent dividend. However, it does not provide the actual rate of return for the next year, as this is dependent on future market conditions and cannot be predicted with certainty.

Question 12

A stock that sells for $1 or less per share is called a _____ stock.

Accepted Answer

A stock that sells below $1 is commonly referred to as a penny stock.

Question 13

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

Accepted Answer

A prospectus is a legal document that a corporation must file with the Securities and Exchange Commission (SEC) and provide to potential investors when issuing new securities. It includes detailed information about the company's finances, risks, management, and other relevant information necessary for investors to make an informed decision about whether to invest in the company's securities. Annual and quarterly reports provide regular updates on a company's financial performance but are not required for new security offerings, while accountant's audit reports and stock guides do not meet the disclosure requirements for new issues of securities.

Question 14

Which one of the following statements is false?

Accepted Answer

It is false to say that it is impossible to determine corporate earnings by using investment research and financial calculations. In fact, there are a variety of financial calculations and metrics that can be used to determine a company's earnings and help investors make informed decisions about buying or selling stock.

Question 15

Mellon Manufacturing has after-tax income of $3 million.It also has 2 million shares of stock outstanding.What is the corporation's earnings per share?

Accepted Answer

$3 million / 2 million = $1.50.

Question 16

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 ____________ stock.

Accepted Answer

Growth stocks are issued by corporations that have the potential to earn above-average profits due to their strong financial performance, expanding market share, and innovative products or services. These stocks typically do not pay high dividends and are considered riskier investments, but they have the potential for significant capital gains over the long term.

Question 17

Anthony Edwards wants to diversify his portfolio by adding a stock that maintains stable earnings when the economy declines.What type of stock does Anthony want to add to his portfolio?

Accepted Answer

Anthony wants to add a defensive stock to his portfolio as defensive stocks are known to have stable earnings during an economic decline. These are typically stocks from industries that provide products and services that are viewed as essential, such as healthcare, utilities, and consumer staples.

Question 18

Kay Powers wants to diversify her portfolio by investing in a firm that has the potential to earn above average profits compared to other firms in the economy.What type of stock is Kay thinking about adding to her portfolio?

Accepted Answer

Kay is looking for a stock with the potential to earn above average profits, which is typically found in growth stocks. These are stocks of companies that are expected to grow at a rate higher than the average growth in the economy and have the potential for capital appreciation.

Question 19

Last year,High-Tech Electronics earned $1.50 per share.If the current market value for a share of its stock is $45,what is the firm's P-E ratio?

Accepted Answer

45/1.50 = 30.

Question 20

George Clancy wants to diversify his portfolio by adding a stock that has a value which moves in direct relation to the business cycle.What type of stock is George thinking about adding to his portfolio?

Accepted Answer

George Clancy is looking for a stock that moves in direct relation to the business cycle, which means he is looking for a cyclical stock. Cyclical stocks are highly correlated with the economy and tend to do well when the overall economy is doing well, but suffer during economic downturns. Defensive stocks, on the other hand, are less sensitive to economic cycles and provide stability to a portfolio during market downturns. Small-cap, blue chip, and growth stocks are not necessarily tied to the business cycle, so they would not be the best choice in this situation.

Quiz 14: Investing in Stock