Question 1

Which of the following makes common stocks more risky than corporate bonds when both are issued by the same company?

Accepted Answer

Common stocks have a higher claim on income and assets than corporate bonds, but they have unlimited liability. This means that stockholders could lose more money than they invested if the company goes bankrupt.

Question 2

As compared to growth stocks,income stocks pay ________ dividends with ________ growth in earnings.

Accepted Answer

Income stocks typically have high dividend payouts to provide regular income to investors but their growth in earnings is relatively low. This is because their focus is on generating steady income rather than reinvesting profits for growth.

Question 3

Greg Jewell read about several companies that were performing relatively well despite the current recession.Stocks like these,that in some cases actually perform better during downturns in the economy,are called ________ stocks.

Accepted Answer

Defensive stocks are typically those of companies that offer essential products or services that people will still need even during economic downturns, such as healthcare or consumer staples. These stocks may not experience as much volatility as other types of stocks during recessions.

Question 4

Which feature of common stock ownership allows a stockholder to share in the company's earnings after the creditors are paid?

Accepted Answer

The feature of common stock ownership that allows a stockholder to share in the company's earnings after the creditors are paid is their claim on income. Common stockholders are entitled to receive dividends or a portion of the profits that the company earns. They are entitled to these payments only after the company has paid all of its debts and obligations. Therefore, the correct answer is choice B.

Question 5

Brenda is a 25 year old investor who recently graduated from college and has a successful career,which type of stock should represent a good portion of her portfolio?

Accepted Answer

Since Brenda is young and has a long-term investment horizon, growth stocks would be a good choice for her portfolio. These stocks usually belong to companies that are expected to have above-average future growth rates in earnings and revenue, and therefore have the potential for long-term capital appreciation. While growth stocks may have higher volatility and risk compared to other types of stocks, Brenda has time on her side to weather any short-term fluctuations in the market, and can benefit from the compounding effect over time.

Question 6

Dividends

Accepted Answer

Dividends are not guaranteed; their payment depends on the company's profitability and the decisions made by its board of directors. They can be paid to both common and preferred stockholders, depending on the company's policies and the type of stock.

Question 7

Which stock index will have the largest representation of small-,mid- and large -cap stocks?

Accepted Answer

The Wilshire 5000 is a total market index, meaning it includes all publicly traded stocks in the U.S. Therefore, it has the largest representation of small-, mid-, and large-cap stocks compared to the DJIA and S&P 500, which have a limited number of large-cap stocks.

Question 8

Suppose that a company feels that the price of its stock is more than the average small investor can afford.To lower the price the company could engage in a

Accepted Answer

A stock split increases the number of shares outstanding and reduces the price per share, making the stock more affordable to small investors. A stock repurchase or proxy vote would not have the same effect on stock price.

Question 9

The dividend yield tells investors which of the following?

Accepted Answer

The dividend yield indicates the percentage return a shareholder would receive in the form of a dividend payout based on the current stock price.

Question 10

Figure 13.1 in your textbook compares the returns on various investments over the period 1951-2010.Which of the following is shown to exceed the inflation rate by the widest margin?

Accepted Answer

According to Figure 13.1 in the textbook, common stocks have exceeded the inflation rate by the widest margin over the period of 1951-2010. They have provided an average annual return of 7.4% while the inflation rate has been around 3.5%. In contrast, government bonds provided an average return of 2% and treasury bills provided an average return of 1.1%, both of which are significantly lower than the inflation rate. Mutual funds have a varying degree of returns depending on the type and therefore cannot be conclusively compared with the other options.

Question 11

Because of her children's immediate financial needs,your aunt Marsha has decided to switch some of her money to high-grade utility company stocks.Her reasoning is that these ________ stocks generally pay relatively high dividends that she will be able to give to her children as they need assistance.

Accepted Answer

Income stocks typically have a history of paying high dividends, making them a good choice for those looking for regular income. Blue-chip stocks may also pay high dividends, but they are typically associated with stability and long-term growth rather than immediate income needs. Growth stocks prioritize capital appreciation over dividend payments, while cyclical stocks are tied to the health of the overall economy and may not be reliable sources of income. Safe stocks may also offer stability, but they may not necessarily have a history of high dividend payments.

Question 12

Deborah recently purchased a stock that is considerably more risky than a typical stock.It has exhibited a high degree of earnings variability.This is an example of a(n)________ stock.

Accepted Answer

A stock that is considerably more risky than a typical stock and has exhibited a high degree of earnings variability is known as a speculative stock.

Question 13

Returns from shares of stock come in the form of

Accepted Answer

Stock splits do not generate returns for the investor, as they only increase the total number of shares outstanding without increasing the value of the company. On the other hand, capital appreciation and dividends are sources of returns for the investor. Capital appreciation occurs when the stock price of a company increases over time, allowing the investor to sell their shares for a profit. Dividends are periodic payments made to shareholders from a company's earnings. Therefore, the correct answer is E, as only capital appreciation and dividends generate returns for the investor.

Question 14

If you purchase stock of big companies like Proctor & Gamble,General Electric,and Texaco you would be buying shares of ________ stocks.

Accepted Answer

Blue-chip stocks are stocks of well-established companies with a long history of stable earnings, strong financials, and a good reputation in the market. Companies like Proctor & Gamble, General Electric, and Texaco are all examples of blue-chip stocks. These stocks are considered to be less risky than other types of stocks and are often favored by conservative investors.

Question 15

Berkshire Hathaway's "A" stock has never split.As a result,in mid-2014 one share of its stock was selling at a price of more than ________ per share.

Accepted Answer

Berkshire Hathaway's "A" stock was selling at a price of around $190,000 in mid-2014, based on the fact that it has never split and was trading at that price at the time. Therefore, the correct choice is D.

Question 16

Large-caps,mid-caps,and small-caps refer to the size of the firm issuing the stock,more specifically,to its

Accepted Answer

Large-caps, mid-caps, and small-caps refer to market capitalization, which is calculated by multiplying the stock price by the number of outstanding shares. Large-caps are companies with a market cap of over $10 billion, mid-caps are companies with a market cap between $2 billion and $10 billion, and small-caps are companies with a market cap below $2 billion. Therefore, the size of the firm issuing the stock refers to its market value.

Question 17

Abby previously owned 200 shares of NEWAGE stock at $25 per share.Today the company split the stock in a 3:1 split.Now what is the value of Abby's stock?

Accepted Answer

After the 3:1 stock split, Abby owns 3 times more shares than before, so she has 600 shares. However, the price per share is divided by 3, making it $25 / 3 ≈ $8.33 per share. The total value of her stock is 600 shares * $8.33 ≈ $5,000. The value of her investment remains the same before and after the split.

Question 18

If you were to purchase common stocks issued by large,nationally known companies with sound financial histories with solid dividend and growth records you would own what are called

Accepted Answer

By purchasing common stocks issued by large, nationally known companies with sound financial histories and solid dividend and growth records, you would own what are commonly referred to as "blue-chip" stocks.

Question 19

For an investor who is retired,which category of stocks would be more appropriate for a portion of their portfolio?

Accepted Answer

For a retired investor, who may be more focused on generating a steady income rather than taking on high-risk investments, blue-chip and income stocks would be more appropriate. Blue-chip stocks are shares in large, stable companies with a long history of reliable performance, while income stocks are known for their consistent dividends. Growth stocks, on the other hand, may offer higher potential returns but also carry higher risk and volatility. Therefore, only option A and B would be suitable, making the answer E.

Question 20

Which of the following investment options is not affected by a change in the market rates of interest?

Accepted Answer

The answer of Which of the following investment options is...

Quiz 12: Investing in Stocks