Deck 14: Investing in Stocks

Question 1

A stock split is a procedure in which a stockholder's common stock is exchanged for preferred stock.

Answer 1

False

Question 2

A blue chip stock is too speculative for most investors.

Answer 2

False

Question 3

A cyclical stock is one that follows the business cycle of advances and declines in the economy.

Answer 3

True

Question 4

The annualized holding period yield calculation takes into account the time the investment is held.

Question 5

An increase in a corporation's earnings per share is a healthy sign.

Question 6

By using the internet,it is possible to find market price quotations,but more detailed financial information about a corporation is unavailable to the average investor.

Question 7

If a corporation's earnings decline,generally the stock's price usually increases.

Question 8

Because of the need for secrecy,most corporations do not supply financial information about their company on their websites.

Question 9

A proxy is a legal form that lists the issues to be decided at a stockholders' meeting and requests that stockholders transfer their voting rights to some individual or individuals.

Question 10

A defensive stock is a stock that typically sells for less than $5.

Question 11

The record date is the date that the actual dividend payment is made to stockholders.

Question 12

A stock that pays higher-than-average dividends is called an income stock.

Question 13

A large cap stock is a stock issued by a corporation that has capitalization of more than $10 billion.

Question 14

Preferred stock is often referred to as a middle investment,because it represents an investment midway between common stock and corporate bonds.

Question 15

Stocks issued by large corporations in mature industries often have high P-E ratios.

Question 16

Since the end of World War II,stocks have returned almost 10 percent a year.

Question 17

It is common for websites like Morningstar and Reuters to charge fees for their more detailed financial information.

Question 18

No meaningful average for the earnings per share measure exists.

Question 19

The total return on a stock is equal to the current market value of the stock minus the investor's purchase price.

Question 20

The book value for a share of stock is determined by deducting all liabilities from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock.

Question 21

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

Question 22

A limit order is a request to buy or sell a stock at a specified price or better.

Question 23

An investment bank is a financial firm that assists corporations in raising funds,usually by helping to sell new security issues.

Question 24

The fundamental analysis theory is based on the assumption that a stock's intrinsic or real value is determined by the future earnings of the company.

Question 25

Jeff Goldblum has just purchased a security which has no maturity date and no promised dividend payments.He can recoup his investment by either selling the security to another individual.What type of security did Jeff purchase?

A)Stock option
B)Corporate bond
C)Government bond
D)Dividend
E)Common stock

Question 26

James Green just bought a stock which he expects will provide him with a quarterly cash payment,although that payment is not guaranteed.In fact,he expects the amount of the payment to vary over time.What type of payment is he expecting to receive?

A)Option premium
B)Interest
C)Capital gain
D)Dividend
E)Rebate

Question 27

Most speculators purchase stock and hold onto it for a number of years.

Question 28

A market order is a request to buy or sell a stock at the current market value.

Question 29

The minimum commission charged by most brokerage firms for buying or selling stock is between $5 and $25.

Question 30

The beta is a measure that compares the volatility associated with a specific stock issue with the volatility of the S&P 500 Stock Index.

Question 31

Beverly Frickel purchased 100 shares of Gleason Systems stock for $32.50 per share.Her commission for this purchase was $25.She sold the stock two years later for $45 per share and a commission of $40.What was Beverly's total dollar return on this stock?

A)$1,100
B)$1,185
C)$1,500
D)$3,275
E)$4,460

Question 32

A low market-to-book ratio could indicate that a stock is undervalued.

Question 33

Valerie Kilmer owns stock in the Williams Widget Company.She was just advised that in the near future she will be receiving two shares for every one share she owns today.What has the company declared that will cause this change to her shares?

A)Extra dividend
B)Capital gains distribution
C)Stock split
D)Stock repurchase
E)Stock conversion

Question 34

When investors purchase stock on margin,they borrow stock from a stockbroker or brokerage firm.

Question 35

A call option gives the purchaser the right to sell 100 shares of a stock at a guaranteed price before a definite expiration date.

Question 36

Sean Rouse owns shares of common stock in Stowaway Transportation Company.The company is getting ready to pay a dividend.Sean knows he must be registered on the corporation's books on the ________ date in order to receive the dividend.

A)record
B)ex-dividend
C)payment date
D)ex-payment
E)stockholders' meeting

Question 37

Christopher Pratt just bought shares of common stock.Which one of the following is he entitled to based on his ownership of these shares?

A)Semiannual interest payments
B)Guaranteed annual dividends
C)Right to vote at annual meetings
D)Right to declare a stock split
E)Right to declare future dividends

Question 38

Orlando Blodgett is buying stock in the Getaway Caribbean Cruise Company today.He had thought about buying the stock yesterday and if he had,he would have received this quarter's dividend.However,since he waited until today,he will not receive that dividend payment.Given this information,which one of the following dates applies to this stock today?

A)Record date
B)Ex-dividend date
C)Payment date
D)Stock split date
E)Stock repurchase date

Question 39

Dollar cost averaging helps investors avoid the pitfall of buying high and selling low.

Question 40

Amy Farmer just received a legal form in the mail from a firm in which she owns stock.This form lists the issues to be decided at the annual stockholders' meeting and asks her to give written permission for someone else to vote for her if she cannot attend.What form has she received in the mail?

A)Equity
B)Proxy
C)Voting rights
D)Dividends
E)Call option

Question 41

Equity financing is a preferred choice to provide financing for a corporation because:

A)a lender is always available to provide this type of financing.
B)it does not have to be repaid.
C)repayment doesn't have to be made for ten years or more.
D)only interest must be paid for the first five years.
E)it can wait five years before buying back the shares.

Question 42

Regarding a stock split,the earnings "pie" before the split is ________ size after the split.

A)a smaller
B)a larger
C)double the
D)the same
E)unrelated to the

Question 43

The federal government requires corporations selling new issues of securities to disclose information about itself in a prospectus.Which of the following must be disclosed?

A)Corporate earnings
B)Assets and liabilities
C)Products or services
D)Qualifications of top management
E)All of these must be disclosed.

Question 44

Which one of the following statements is true?

A)Board members are appointed by a company's management.
B)Stockholders receive a tax break on dividend income.
C)Investors should be concerned about the corporation's ability to earn profits and pay dividends in the future.
D)If a cash dividend is declared by the board of directors,each stockholder will receive a different dollar amount per share.
E)Corporate dividends are always paid in cash.

Question 45

Common stock dividends are paid out of profits and:

A)must be approved by the corporation's board of directors.
B)are guaranteed to be paid quarterly.
C)are paid prior to the firm's taxes.
D)are usually paid semiannually.
E)equal 100 percent of the firm's annual earnings.

Question 46

A stock issued by a company that has a market capitalization of between $300 million and $2 billion is called a ________ stock.

A)defensive
B)cyclical
C)growth
D)small cap
E)blue chip

Question 47

Dividends remain with the stock until:

A)one business day before the date of record.
B)two business days after the date of record.
C)three days before the date of record.
D)three days after the date of record.
E)three days before the actual payment date.

Question 48

The most common stock split is:

A)1-for-2
B)2-for-1
C)1-for-3
D)4-for-1
E)5-for-1

Question 49

ABC Corporation holds its annual meeting in April.Maxine Star,who owns stock in the company,cannot attend the meeting.She can vote by:

A)voluntary certificate.
B)preemptive right.
C)proxy.
D)cumulative certificate.
E)participatory certificate.

Question 50

If the board of directors approves a two-for-one stock split,an investor who owns 125 shares before the split will own ________ shares after the split.

A)75
B)125
C)225
D)250
E)450

Question 51

Patsy Banz owns 200 shares of a stock.For the last calendar quarter,the company paid a dividend of $0.45 a share.What is the total amount she received in her dividend check for this quarter?

A)$0.45
B)$45.00
C)$100.00
D)$90.00
E)$200.00

Question 52

Arnell Johnson bought 200 shares of Black Petroleum Company for $100 per share and paid a commission of $50.He sold the stock five years later for $125 per share and paid $65 commission.While he held the stock,it paid a dividend of $4.00 per share.What was Arnell's total dollar return on this stock?

A)$24,900
B)$20,000
C)$5,800
D)$5,700
E)$5,685

Question 53

When compared to corporate bonds,the dividend yield on preferred stocks is often _____the yield on bonds.

A)the same as
B)lower than
C)higher than
D)unrelated to
E)safer

Question 54

Which one of the following statements is true?

A)Corporate dividends for common stock must be paid in cash only.
B)Stockholders must elect the board of directors.
C)The selling price of stock is determined by how much the corporation is willing to receive.
D)Corporations are required by law to have two stockholder meetings each year.
E)Stockholders may vote only by proxy.

Question 55

A safe investment that generally attracts conservative investors is called a ________ stock.

A)penny
B)cyclical
C)growth
D)small cap
E)blue chip

Question 56

James Brewer purchased 100 shares of stock for $73 a share.James also paid a $60 commission.What was the total purchase price for this transaction?

A)$60.00
B)$73.00
C)$7,300.00
D)$7,360.00
E)$8,000.00

Question 57

When a stock splits two-for-one,you should expect the price per share to:

A)decrease to half its pre-split price.
B)decrease in value by 75 percent or more.
C)remain unchanged.
D)increase to more than twice its pre-split price.
E)increase to twice its pre-split price.

Question 58

To finance their business activities,many corporations prefer selling common stock because:

A)it does not have to be repaid until 10 to 15 years after it has been issued.
B)interest payments to stockholders are lower than interest paid to a bank.
C)common shareholders have no voting rights.
D)interest paid to stockholders is tax deductible.
E)the money obtained from stockholders does not have to be repaid.

Question 59

Jill Bower purchased 175 shares of stock for $20 a share and sold it for $30 a share.The commissions required to buy and sell her stock totaled $50 for each transaction.Assuming she received no dividends during the time she owned the stock,what is her total investment on the purchase of this stock?

A)$3,250
B)$3,550
C)$5,200
D)$5,300
E)$5,500

Question 60

Lindsey Holt owns stock in the Galloway Gems Company.She knows in advance that the dividend on this stock is a $1.50 per share.Given this,you know for sure that she purchased which type of stock?

A)Preferred
B)Common
C)Blue chip
D)Growth
E)Penny

Question 61

Sean Barber wants to invest in a stock that is relatively safe and is generally attractive to conservative investors.What type of stock best fits Sean's requirements?

A)Midcap stock
B)Cyclical stock
C)Small cap stock
D)Blue chip stock
E)Growth stock

Question 62

A stock that sells for $5 or less per share is called a ________ stock.

A)fractional
B)penny
C)dollar
D)ten-dollar
E)coin

Question 63

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(n)________ stock.

A)defensive
B)cyclical
C)growth
D)income
E)blue chip

Question 64

Barker Creek Clothing has after-tax income of $6.4 million and its earnings per share are $0.20.How many shares of stock does it have outstanding?

A)2 million
B)3.1 million
C)12.8 million
D)32 million
E)40 million

Question 65

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

A)current stock price
B)stock's original issue value
C)current earnings
D)current book value
E)current sales revenue

Question 66

Which one of the following statements is false?

A)Numerical measures can help investors decide if it is time to buy or sell a stock.
B)Future earnings may be one of the most significant factors to examine when evaluating a stock.
C)Higher earnings generally equate to higher stock prices.
D)The price for a share of stock is determined by what another investor is willing to pay for it.
E)Few investors consider earnings per share when evaluating the financial health of a corporation.

Question 67

Which one of the following statements is true?

A)It is possible to obtain financial information about a corporation that issues stock by using the internet.
B)While it is possible to obtain information about a company by accessing the internet,the information is usually out of date.
C)You can use an internet search engine to only access a company's price information.
D)Corporations have web pages but do not provide any financial information on them.
E)By using the Yahoo! Finance website,investors can access financial information only about the economy as a whole.

Question 68

Acme Widget,Inc.has one million shares of common stock outstanding at a price per share of $62.50.The company earned $6 million after taxes.The annual dividend is $2.50 per share.The company has assets of $250,000,000 and liabilities of $50,000,000.What is the dividend yield?

A)1 percent
B)2 percent
C)3 percent
D)4 percent
E)5 percent

Question 69

Which one of the following is a true statement regarding stock advisory services?

A)When choosing a stock advisory service that charges fees for their information,the quality of the information is always excellent.
B)Stock advisory services provide only printed materials to evaluate potential stock investments.
C)There are less than a hundred stock advisory services that charge fees for their information.
D)The information provided by investors' services consists of simple alphabetical listings only.
E)For stocks,Value Line,Standard & Poor's,and Morningstar are three of the most popular advisory services.

Question 70

Becky Martinez paid $65 a share for stock in GBX Corporation.The stock has a current market value of $24 a share and pays $0.80 a year in dividends per share.What is the dividend yield rounded to the nearest tenth of a percent?

A)2.5 percent
B)7.4 percent
C)3.3 percent
D)30.0 percent
E)40.0 percent

Question 71

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?

A)Defensive stock
B)Cyclical stock
C)Small cap stock
D)Blue chip stock
E)Growth stock

Question 72

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

A)defensive
B)midcap
C)growth
D)income
E)blue chip

Question 73

Regardless of a stock's classification,a stock is a(n)________ investment because there are no guarantees.

A)speculative
B)conservative
C)substitute
D)unwise
E)sound

Question 74

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?

A)Defensive stock
B)Cyclical stock
C)Small cap stock
D)Blue chip stock
E)Growth stock

Question 75

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

A)annual report.
B)quarterly report.
C)accountant's audit report.
D)prospectus.
E)stock guide.

Question 76

Masterworks Manufacturing has calculated its earnings per share as $1.25.If the corporation has 500,000 shares outstanding,what is the amount of after-tax income?

A)$12,500
B)$62,500
C)$125,000
D)$625,000
E)$6,250,000

Question 77

Last year,High-Tech Electronics earned $2.00 per share.If a share of its stock is selling for $60,what is the firm's P-E ratio?

A)0.03
B)2
C)30
D)33
E)60

Question 78

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?

A)Defensive stock
B)Cyclical stock
C)Small cap stock
D)Blue chip stock
E)Growth stock

Question 79

Mellon Manufacturing has after-tax income of $6 million.It also has 4 million shares of stock outstanding.What is the corporation's earnings per share?

A)$3.00
B)$2.00
C)$1.50
D)$0.67
E)$0.75

Question 80

Acme Widget,Inc.has 1,000 shareholders who own a total of two million shares of its common stock.The stock currently sells for $80 per share.The company earned $8 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?

A)10
B)11
C)13
D)20
E)25