Question 1

An investment theory based on the assumption that a stock's market value is determined by the forces of supply and demand in the stock market as a whole is called the ____________ theory.

Accepted Answer

Technical analysis theory is based on the assumption that a stock's market value is determined by the forces of supply and demand in the stock market as a whole, focusing on patterns within market data to predict future price movements.

Question 2

An investment theory based on the assumption that stock price movements are purely random is called the ____________ theory.

Accepted Answer

The efficient market hypothesis (EMH) is a theory that states that financial markets are "informationally efficient," meaning that all available information is already reflected in current stock prices. This theory assumes that stock price movements are purely random and cannot be predicted based on past trends or patterns. This is in contrast to technical analysis, which attempts to predict price movements based on chart patterns and trends, and fundamental analysis, which attempts to predict price movements based on underlying financial and economic data. The primary theory is not a commonly used term in finance. The market theory does not specifically refer to the assumption of random price movements.

Question 3

In addition to expected earnings,fundamental analysis theorists consider:
A.the financial strength of the company
B.the type of industry the company is in
C.new product development
D.the economic growth of the overall economy

Accepted Answer

The answer of In addition to expected earnings,fundamental analysis theorists...

Question 4

Which of the following is true regarding book value?

Accepted Answer

Book value calculations can sometimes be misleading to investors because they may not accurately reflect the company's current market value or the true value of its assets. Factors such as depreciation, market conditions, and accounting practices can affect the book value, making it an imperfect measure for investment decisions.

Question 5

A yield calculation that takes into account the total return,the original investment,and the number of years that the investment is held is called ____________ yield.

Accepted Answer

The annualized holding period yield takes into account the total return, original investment, and number of years held. It is a more comprehensive measure of yield than just the current yield, dividend yield, or capital gain yield. The original investment and number of years held are important factors in determining the overall yield of an investment.

Question 6

Which one of the following is a true statement regarding account executives?

Accepted Answer

Account executives are typically not liable for client losses that result from their recommendations unless they engage in fraudulent activity or make unsuitable recommendations. However, clients should still carefully review and approve any investment decisions made by their account executive.

Question 7

Assume that you purchased 100 shares of a stock for $70 a share,that you did not receive any dividends,and that you sold your stock for $80 a share at the end of one year.What is the total return for your investment?

Accepted Answer

0 dividends + [100 F1F1F1S1F1F1F10(80-70)] = 1,000.

Question 8

Becky Martinez paid $65 a share for stock in GBX Corporation.The stock has a current market value of $48 a share and pays $1.60 a year in dividends per share.What is the dividend yield rounded to the nearest tenth of a percent?

Accepted Answer

$1.60 / $48 = .033 = 3.3%.

Question 9

A market in which an investor purchases financial securities from the issuer of those securities using an investment bank or other representative is called the ____________ market.

Accepted Answer

The primary market is where new securities are created, redeemed, and sold. Issuers sell securities directly to investors in a primary market through investment banks or other representatives. The secondary market is where existing securities are bought and sold between investors. The technical, fundamental, and efficient markets are not types of markets for purchasing financial securities.

Question 10

Fred Manufacturing Company pays an annual dividend of $0.65 per share,has earnings per share of $2.50,and sells for $35 a share.What is this company's dividend payout ratio?

Accepted Answer

.65 / 2.50 = .26 = 26%.

Question 11

Assume that you purchased 100 shares of a stock for $55 a share,that you received an annual dividend of $2.00 a share,and that you sold your stock for $65 a share at the end of one year.What is the total return on your investment?

Accepted Answer

(100 F1F1F1S1F1F1F10$2) + [100 F1F1F1S1F1F1F10($65 - $55)] = $200 + $1,000 = $1,200.

Question 12

Assume the beta for the stock market in general is 1.0 and the beta for World-Wide Television Productions is 2.4.If the stock market increases in value by 10 percent,what is the expected increase in value for the World-Wide Productions stock?

Accepted Answer

.10 F1F1F1S1F1F1F102.4 = .24 = 24%.

Question 13

ABC Corporation has assets that total $12 million and liabilities that total $4 million.It also has 500,000 shares of stock outstanding.What is the ABC's book value per share?

Accepted Answer

($12,000,000 - $4,000,000) / 500,000 shares = $16 per share.

Question 14

The stock of ABC Company has a dividend yield of 5%.The corporation has paid a dividend of $3.75 a share over the last 12 months and has earnings per share of $5.What is the current market price per share?

Accepted Answer

$3.75 / .05 = $75.

Question 15

Quincy Martin Manufacturing stock has a market value of $48 a share.If the book value is $40 a share,the corporation's market-to-book ratio is:

Accepted Answer

$48 / $40 = 1.2.

Question 16

Which one of the following is a true statement?

Accepted Answer

The over-the-counter market is a network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange. This statement accurately describes the OTC market.

B) Account executives typically work for brokerage firms and handle multiple stocks, not just one particular stock.

C) OTC trading actually takes place electronically, not in physical stores.

D) Specialists are members of the NYSE who are responsible for maintaining a fair and orderly market for specific stocks.

E) This statement is not true - brokerage firms typically charge commissions on security trades, and most NYSE members represent these firms.

Question 17

The Arnold Fertilizer Company's stock is selling for $55 in the market and its earnings per share is $5.The company is projected to grow at a rate of 22% over the next year.What is this company's price/earnings to growth ratio?

Accepted Answer

(55/5) / 22 = .50.

Question 18

Acme Widget,Inc.has 1,000 shareholders who own a total of one million shares of its common stock.The company earned $10 million after taxes and paid out $4 million in dividends.The company has assets of $125 million and liabilities of $25 million.What is the book value per share?

Accepted Answer

($125 million - $25 million) /1 million shares = $100.

Question 19

Which of the following is an electronic marketplace for buying and selling global stocks and securities?

Accepted Answer

NASDAQ is an electronic marketplace where investors can buy and sell global stocks and securities. The other options listed are also stock exchanges, but NASDAQ is the only one that operates as an electronic marketplace.

Question 20

A market for existing financial securities that are currently traded among investors is called the ____________ market.

Accepted Answer

The secondary market refers to a market where existing securities such as stocks, bonds, and options are traded among investors. It is also sometimes called the aftermarket. In contrast, the primary market is where new securities are issued and sold for the first time to investors. The technical, fundamental, and efficient markets are not types of markets for existing securities.

Quiz 14: Investing in Stock