Question 1

Buying stock on margin allows investors to increase the potential rate of return made on a stock investment.

Accepted Answer

Buying stock on margin involves borrowing money from a broker to purchase additional shares of stock. This increases the potential rate of return because the investor can now control more shares with the same amount of money. However, it also increases the potential risk as the investor now has a larger amount of money at stake and may have to pay back the loan with interest.

Question 2

A stock split refers to buying a share of stock at a discounted price if full payment is made at the time of purchase.

Accepted Answer

A stock split is actually a process where a company increases the number of its outstanding shares by issuing more to its current shareholders. This doesn't affect the price of the stock, but it does usually result in a proportionate decrease in the price per share.

Question 3

A stock split immediately increases the value of an investor's holdings.

Accepted Answer

A stock split does not increase the overall value of an investor's holdings, but rather increases the number of shares owned while decreasing the price per share. The total value remains the same.

Question 4

Ken owns 100 shares in XYZ Company,currently selling for $60 per share.His stock split yesterday 3-for-1.The number of shares that Ken owns has tripled.

Accepted Answer

After the 3-for-1 stock split, Ken will now own 300 shares. Thus, the number of shares he owns has indeed tripled, and is no longer 100 shares.

Question 5

Lamont bought a share of stock in the ABC Corporation for $50.When he sold the stock later that year,he received $70.The par value of the stock is $5.Lamont's capital gain is $25.

Accepted Answer

The answer of Lamont bought a share of stock in...

Question 6

If you buy 100 shares of IBM for $120/share,and the margin on your account is 50%,the broker will float you an interest free loan of $6,000,until the price of IBM sufficiently rises to the point where you are willing to sell.You pay the broker back its $6,000,and you enjoy the capital gain.

Accepted Answer

The margin on the account is only 50%, which means the broker will only lend you $3,000 (half of the total cost of the shares). Also, the statement assumes that the price of IBM will rise, but there is no guarantee of this happening. Additionally, margin trading involves additional risks and potential losses, so it is important to carefully consider and understand the terms and risks before engaging in it.

Question 7

Buying on margin means you are borrowing part of the value of the stock purchase from the brokerage firm.

Accepted Answer

When buying on margin, the investor puts up a percentage of the purchase price (usually 50%) and borrows the rest from the brokerage firm. This allows the investor to control a larger amount of stock with less money upfront, but also involves higher risk because any losses will be magnified by the leverage.

Question 8

A round lot refers to the purchase of 100 shares of stock in the same company in a single transaction.

Accepted Answer

A round lot refers to the purchase of 100 shares of stock in the same company in a single transaction.

Question 9

Buying on margin is a relatively risk-free way of investing in the stock market.

Accepted Answer

Buying on margin involves borrowing money from a broker to purchase stocks, which amplifies both potential gains and losses. It is considered a high-risk strategy and not a risk-free way of investing.

Question 10

Corporations and brokers prefer to have stock purchases conducted in round lots of 100 shares.

Accepted Answer

This is true. Round lots of 100 shares are preferred because it simplifies the trading process and helps to maintain market liquidity.

Question 11

A margin call requires an investor to repay money borrowed from the broker used to purchase the stock.

Accepted Answer

When an investor purchases stocks on margin, they borrow money from the broker to finance the purchase. If the value of the stocks falls below a certain level, the investor will receive a margin call requiring them to add more cash or securities to their account to cover the borrowed funds. Failure to do so can result in the broker selling off securities in the account to repay the loan.

Question 12

Ricardo owns 100 shares of stock in the ABC Corporation that currently sell for $100 per share.ABC just announced a two-for-one stock split for all current stockholders.Ricardo now owns $20,000 worth of stock in the ABC Corporation.

Accepted Answer

The answer of Ricardo owns 100 shares of stock in...

Question 13

The stocks of high quality companies such as Coca-Cola and Microsoft are called blue chip stocks.

Accepted Answer

This statement is true, as blue chip stocks are typically stocks of large, well-established companies with a history of stable earnings, and Coca-Cola and Microsoft are examples of such companies.

Question 14

Investing in common stock can give an individual the opportunity to participate in the success or failure of a corporation.

Accepted Answer

Common stock represents ownership in a corporation and allows individuals to have a stake in the company's financial performance. As the company earns profits, the shareholder may receive dividends or the stock price may appreciate, providing potential returns on their investment. However, if the company performs poorly, the stock price may decline and the shareholder may experience losses.

Question 15

If a company announces a stock split,the investor may receive two or more shares of the company stock,for every one share that he/she holds.

Accepted Answer

When a company announces a stock split, the investor may receive two or more shares of the company stock, for every one share that they hold.

Question 16

When brokers talk about trading round lots,they are referring to 50 shares of stock.

Accepted Answer

Brokers typically refer to trading round lots as 100 shares of stock, not 50.

Question 17

Garrett's grandmother died and left him $100,000.He will invest the funds,but wants to make enough money to pay for his monthly car payment of $300/month.One suggestion might be an income stock that pays a 4% dividend.

Accepted Answer

If Garrett invests the entire $100,000 in a stock that pays a 4% dividend, he will earn $4,000 per year in dividends. This provides him with enough income to cover his $300/month car payment, with extra money left over.

Question 18

If an individual investor places a limit order at $38 and the stock currently sells for $41 per share,the broker will buy the stock for the investor.

Accepted Answer

A limit order is an instruction to buy or sell a stock at or below a specified price (in this case, $38). Since the current market price is $41, the limit order will not be executed and the broker will not buy the stock for the investor. The investor will need to wait for the stock price to drop to their specified limit price in order for the order to be executed.

Question 19

If you are willing to hold on to your growth stock long enough,at least five years or more,you will realize capital gains.

Accepted Answer

The answer of If you are willing to hold on...

Question 20

Buying stock on margin lowers the overall risk for the investor.

Accepted Answer

Buying stock on margin actually increases the overall risk for the investor because they are borrowing money to invest, which means they have to pay back the loan regardless of whether the stock goes up or down in value. If the stock price drops significantly, the investor could face margin calls and may have to sell off their shares at a loss to cover the loan.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities

Buying stock on margin allows investors to increase the potential rate of return made on a stock investment.

A stock split refers to buying a share of stock at a discounted price if full payment is made at the time of purchase.

A stock split immediately increases the value of an investor's holdings.

Ken owns 100 shares in XYZ Company,currently selling for $60 per share.His stock split yesterday 3-for-1.The number of shares that Ken owns has tripled.

Lamont bought a share of stock in the ABC Corporation for $50.When he sold the stock later that year,he received $70.The par value of the stock is $5.Lamont's capital gain is $25.

If you buy 100 shares of IBM for $120/share,and the margin on your account is 50%,the broker will float you an interest free loan of $6,000,until the price of IBM sufficiently rises to the point where you are willing to sell.You pay the broker back its $6,000,and you enjoy the capital gain.

Buying on margin means you are borrowing part of the value of the stock purchase from the brokerage firm.

A round lot refers to the purchase of 100 shares of stock in the same company in a single transaction.

Buying on margin is a relatively risk-free way of investing in the stock market.

Corporations and brokers prefer to have stock purchases conducted in round lots of 100 shares.

A margin call requires an investor to repay money borrowed from the broker used to purchase the stock.

Ricardo owns 100 shares of stock in the ABC Corporation that currently sell for $100 per share.ABC just announced a two-for-one stock split for all current stockholders.Ricardo now owns $20,000 worth of stock in the ABC Corporation.

The stocks of high quality companies such as Coca-Cola and Microsoft are called blue chip stocks.

Investing in common stock can give an individual the opportunity to participate in the success or failure of a corporation.

If a company announces a stock split,the investor may receive two or more shares of the company stock,for every one share that he/she holds.

When brokers talk about trading round lots,they are referring to 50 shares of stock.

Garrett's grandmother died and left him $100,000.He will invest the funds,but wants to make enough money to pay for his monthly car payment of $300/month.One suggestion might be an income stock that pays a 4% dividend.

If an individual investor places a limit order at $38 and the stock currently sells for $41 per share,the broker will buy the stock for the investor.

If you are willing to hold on to your growth stock long enough,at least five years or more,you will realize capital gains.

Buying stock on margin lowers the overall risk for the investor.