Deck 12: Investing in Stocks

Question 1

A micro cap stock is one issued by a company that has a capitalization of $500 million or less.

Answer 1

False

Question 2

When companies experience a bad year regarding earnings, they may choose to reduce or omit their dividend payments.

Answer 2

True

Question 3

When beginning an investment program, many investors do not know where to get the information they need to evaluate potential investments.

Answer 3

True

Question 4

Dividends for common stock must be in cash.

Question 5

A prospectus that contains detailed financial data may be sent annually to stockholders of publicly owned corporations.

Question 6

Detailed research for stock investors can be found on the Yahoo! Finance website instead of at a stock advisory service such as Value Line.

Question 7

Many people purchase investments without doing any research.

Question 8

Today most corporations have a website, and the information these sites provide is especially useful.

Question 9

Before investing in a company's stock, an investor should evaluate the industry in which the company operates.

Question 10

If Jodi owns 200 shares of stock, a 2-for-1 stock split will double the value of her holdings.

Question 11

A midcap stock is one issued by a company that has a capitalization of up to $300 million.

Question 12

Stocks are equity financing.

Question 13

Since 1926, the average annual return for stocks is just over 12% as measured by the Standard & Poor's 500 stock index.

Question 14

The findings of a stock advisory service is the only information that an investor should rely on in order to make decisions about buying or selling stocks.

Question 15

If the record date is Friday, April 7, then the ex-dividend date is Tuesday, April 11.

Question 16

The Yahoo! Finance website provides specific information about a particular company, including quotes and charts.

Question 17

Preferred stockholders elect the board of directors.

Question 18

Sandy has invested in a stock. She is assured of receiving a dividend.

Question 19

Companies need to repay money from equity financing.

Question 20

Stocks are guaranteed to have large returns.

Question 21

Joseph has been Leon's account executive for several years. Leon has been questioning Joseph's integrity because it appears as though Joseph might be churning. If Leon wants to take formal action about his concern, he likely will be required to use an arbitration board.

Question 22

Buying 100 shares of stock in an IPO is a primary market transaction.

Question 23

Kenny wants to sell his stock at a specified price or higher without a guarantee that his order will be executed. He should use a stop order.

Question 24

Glen bought XYZ stock on November 8, 2012, at a price of $39.20 and then sold it on March 19, 2014, at $11.20. Glen can be classified as a speculator.

Question 25

Earnings per share equals the corporation's earnings divided by the number of outstanding shares of a firm's common stock.

Question 26

Many financial experts believe that a corporation's ability or inability to generate dividends in the future may be one of the most significant factors that account for an increase or decrease in the value of a stock.

Question 27

The EPS of a company can be compared to the industry's average EPS.

Question 28

Some investors believe they have found a bargain when a stock's share price is greater than its books value.

Question 29

An investor is entitled to a dividend only if they use the long-term buy-and-hold technique.

Question 30

If you want to guarantee that your order to sell a stock will be executed, you should place a stop order instead of a limit order.

Question 31

The total return can be calculated only if a company pays dividends.

Question 32

Corporate earnings are reported in the firm's annual report, or are obtained from a professional advisory service or accessing a website such as Yahoo! Finance.

Question 33

If you purchase stock from another investor, such as your cousin Sam, then you are buying stock on the primary market.

Question 34

Most securities that are considered "over-the-counter" are traded through the NYSE.

Question 35

The execution of a limit order will be the highest priority above previously received orders if and when the specified price is reached.

Question 36

Generally, the commission paid for a stock sale will be lower with a full-service broker than for an online brokerage firm.

Question 37

A.J. wants to buy a stock at its current market price. He should use a market order.

Question 38

Any company's stock can be listed on the NYSE.

Question 39

The book value of a 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 40

Gloria bought ABC stock on March 4, 2014, at a price of $5.87 and then quickly sold it on March 19, 2014, at $11.20. Gloria is classified as a speculator.

Question 41

A direct investment plan does not allow you to take advantage of dollar cost averaging.

Question 42

Equity financing is money received from the sale of

A) Bonds.
B) Common stock.
C) Dividends.
D) A savings account.
E) A proxy.

Question 43

Amanda wants to be part of the most basic form of ownership for a corporation. She should invest in

A) Bonds.
B) Common stock.
C) Dividends.
D) A savings account.
E) A proxy.

Question 44

Alberta owns 100 shares of stock of ABC Company, and Bobby owns 200 shares of the same stock. If ABC Company pays a $5 dividend to all stockholders with a record date of Friday, June 15, then

A) Alberta will receive the same amount as Bobby if they owned the stock two business days before the record date.
B) Both will receive the dividend as long as they sell their stock three days before the record date.
C) Alberta will receive half as much as Bobby if they owned the stock two business days before the record date.
D) Both will receive the dividend if they bought the stock on the record date.
E) Alberta and Bobby will receive the same amount if they bought the shares at least one month before the record date.

Question 45

A proxy is a legal form that requests that stockholders transfer their selling rights to some individual or individuals.

Question 46

A distribution of money, stock, or other property that is paid to the stockholders of a company is called a

A) Bond.
B) Common stock.
C) Dividend.
D) Savings account.
E) Proxy.

Question 47

All of the following statements are correct except

A) Dividends are paid out of profits.
B) Dividend payments must be approved by the stockholders.
C) A dividend can be a distribution of money, stock, or other property.
D) Dividends are not mandatory.
E) Utility companies typically distribute a higher percentage of earnings than rapidly growing firms.

Question 48

Long-term investing techniques are generally more risky than short-term investing techniques.

Question 49

The main goal of dollar cost averaging is buying high and selling low.

Question 50

Dividend policies vary among corporations, but most firms distribute between 30 and 70 percent of their earnings to stockholders.

Question 51

Experts predict that the next "great" investments will be companies that produce alternative fuels, fuel cells, hybrid vehicles, and organic foods.

Question 52

A legal form that requests that stockholders transfer their voting rights to individual(s) is called a

A) Bond.
B) Common stock.
C) Dividend.
D) Savings account.
E) Proxy.

Question 53

An example of dollar cost averaging is an employee purchasing shares of his or her company's stock through a payroll deduction plan or as part of a retirement plan.

Question 54

Which of the following is incorrect?

A) There is no substitute for researching a potential investment.
B) Beginning investors sometimes worry that they won't know what the information they find about stocks really means.
C) Some investors do not know where to get the information they need to evaluate potential investments.
D) Very little information is available about stocks.
E) All of these statements are correct.

Question 55

Since 1926, the average annual return for stocks has been almost

A) 8%.
B) 10%.
C) 12%.
D) 14%.
E) 16%.

Question 56

Value Line, Standard & Poor's reports, and Mergent are three widely used advisory services that provide detailed research for stock investors.

Question 57

An investor may receive a margin call when selling stock short.

Question 58

A put option is the right to buy 100 shares of stock at a guaranteed price before a specified expiration date.

Question 59

If you sold 100 shares of ABCD stock for $40 a share that you originally purchased for $33 a share, then your capital gain would be $700.

Question 60

If you buy common stock, you may receive income from

A) Dividends.
B) Dollar appreciation of stock value.
C) Possible increases in value from stock splits.
D) Two of these are correct.
E) All of these are correct.

Question 61

Which of the following statements is correct?

A) The Internet is not to be trusted as a reliable source to evaluate potential investments.
B) Individual company websites usually charge for access to their own financial reports.
C) The Internet provides websites that may be more up to date and thorough than printed materials.
D) Websites like Yahoo! Finance are not dependable.
E) None of these is correct.

Question 62

Patrick graduated from college five years ago. He has set up an emergency fund and has been paying off his student loans. In addition, he participates in the retirement plan offered by his employer. He wants to invest $75 per month in very small companies (capitalization between $50 and $300 million or less). He should purchase _______ stocks.

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 63

An investment that pays higher-than-average dividends is called a(n) _______ stock.

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 64

MNOP Inc. declared a $1.00 dividend with a record date of Thursday, September 15, and a payment date of Thursday, October 20. Cheri wants to purchase this stock and receive the dividend. What is the latest date that she needs to have purchased the stock in order to receive the dividend?

A) September 12
B) September 13
C) September 15
D) September 19
E) October 18

Question 65

Which of the following is correct?

A) Ability to generate earnings is a minor factor in determining the value of a stock.
B) Corporate earnings are reported in the proxy statement.
C) Earnings per share uses the price of the stock in the calculation.
D) EPS is a key factor that serious investors use to evaluate stock investments.
E) The price/earnings ratio is the price of a share of stock divided by the corporation's earnings per share of stock.

Question 66

Which of the following statements about stock splits is correct?

A) If a company has a 2-for-1 split, the price will be doubled.
B) If a company has a 3-for-1 split, the price will increase by a factor of 3.
C) If a company has a 4-for-1 split, the new number of shares will be four times as many as before the split.
D) If a company has a 5-for-1 split, the new number of shares will be equal to the old number of shares divided by 5.
E) None of these is correct.

Question 67

Why does a company split its stock?

A) The stock is trading at a low price, and the company wants to increase its stock value.
B) It wants fewer shares outstanding.
C) The stock is trading at a high price, and the company wants to bring the price in line with a theoretical ideal range.
D) It wants the total market capitalization to be lower than the current level.
E) The company wants to guarantee that the stock price will increase.

Question 68

MNOP Inc. declared a $1.00 dividend with a record date of Thursday, September 15, and a payment date of Thursday, October 20. Cheri does not want receive this current dividend. What is the earliest date that she should purchase the stock in order to avoid receiving the dividend?

A) September 12
B) September 13
C) September 15
D) October 18
E) October 20

Question 69

Which of the following is not correct regarding preferred stock?

A) Preferred stocks are considered to be safer investments than common stocks.
B) Owners of preferred stock have first claim to a corporation's assets after creditors in a bankruptcy.
C) Owners of preferred stock receive cash dividends before common stockholders receive their dividends.
D) The dollar amount of the dividend on preferred stock is known before the stock is purchased.
E) The yield on preferred stocks is often lower than the yield on corporate bonds.

Question 70

Which of the following is some of the information found on a financial website such as Yahoo! Finance?

A) Company name, last price (prev close), target price, price change (day's range).
B) 52-week price range, number of shares traded (volume).
C) Market capitalization (Market Cap).
D) Dividend paid and yield.
E) All of this information is included.

Question 71

A stock issued by a stable corporation that generally attracts conservative investors is called a(n) _______ stock.

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 72

Which of the following usually offers some free information and charges for the more detailed online information you may need to evaluate a stock investment?

A) Financial websites such as www.finance.yahoo.com
B) Personal finance websites such as www.smartmoney.com
C) Professional advisory services such as Standard & Poor's Financial Services
D) Search engines such as Yahoo!
E) Securities and Exchange Commission website

Question 73

Annual reports

A) Are available only online from a corporation's internet website.
B) Are available only to current stockholders.
C) Include the same information as a prospectus.
D) May be sent to all stockholders on an annual basis.
E) Include estimated financial data only.

Question 74

A stock issued by a company that has a capitalization between $50 and $300 million or less is called a _______ stock.

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 75

A stock issued by a corporation that has a capitalization between $2 billion and $10 billion is called a(n) _______ stock.

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 76

A stock that typically sells for less than $5 per share (or in some cases, less than $1 per share) is called a(n) _______ stock.

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 77

Which of the following is true?

A) Mergent's Handbook of Common Stocks is a misnomer because it analyzes only industries.
B) Standard & Poor's reports are available only on the Internet.
C) Stock advisory services include printed materials ranging from alphabetical listings to detailed financial reports.
D) Value Line is the only reliable stock advisory service used by investors.
E) All of these are correct.

Question 78

Cliff retired 10 years ago and wants to still own a few stocks. Dividends are important to him, and he wants to invest in a large, stable corporation. He should purchase _______ stocks.

A) blue chip
B) cyclical
C) micro cap
D) midcap
E) penny

Question 79

Detailed financial reports from advisory services such as Value Line include all of the following sections except

A) Top of the report includes price information and price projections for a share of stock.
B) Middle of the report includes revenues, earnings per share, dividends, etc.
C) Bottom of the report includes information about the type of business and prospects for the future.
D) None of the above are included.
E) All of the information in A, B, and C are included in financial reports.

Question 80

Megan decided to start investing in stocks. Which of the following should she do first?

A) Base her investing decisions on hot tips she hears at work.
B) Buy stocks based solely on her stockbroker's recommendation.
C) Choose stocks based on recommendations from her family members.
D) Pick stocks at random.
E) Research the corporations she is interested in as well as their industries.