Question 1

Which of the following persons would consider annual reports of a corporation as the most important factor in making investment decisions?
A)a technical analyst
B)a chartist
C)a follower of the Dow theory
D)a fundamental analyst

Accepted Answer

a fundamental analyst. These analysts are guided by computations about a company's performance using data in annual reports.

Question 2

The market theory stating that the small investor is usually wrong is called the:
A)advance-decline theory
B)odd-lot theory
C)Dow theory
D)short interest theory

Accepted Answer

The market theory stating that the small investor is usually wrong is called the odd-lot theory. The concept behind this theory is that when small lot sales are high, it is a good time to buy, as a high raito of small businmess sales is a contrary indicator of market direction.

Question 3

After an extended period of backing and filling, a stock moves up sharply through a resistance level on heavy volume. A technical analyst would likely call this a:
A)buy-in
B)technical rally
C)buying climax
D)breakout

Accepted Answer

breakout. An upward move through a resistance level that is confirmed by heavy volume is called a breakout.

Question 4

A leveraged company is best described as one that has a small portion of its capitalization represented by:
A)common stock
B)preferred stock
C)debentures
D)convertible bonds

Accepted Answer

common stock. Leverage refers to the existence of securities that are senior to common stock. There can be debt leverage and equity leverage.

Question 5

A company earns $6 per share and pays out 20% in common stock dividends. What does the stock yield if it sells at $30 per share?
A)10%
B)4%
C)2.5%
D)6%

Accepted Answer

4%. The dividend is $1.20 per share ($6 x 20%). Divide this by the stock price to obtain the yield.

Question 6

Book value of a corporation is also know as:
A)net tangible asset value per share
B)intangible value
C)par value
D)dilution value

Accepted Answer

net tangible asset value per share. Book value is much easier to say.

Question 7

Which of the following items is not deducted to determine a corporation's net income?
A)taxes
B)dividends
C)interest
D)all of the above

Accepted Answer

dividends. Net income is determined before dividends.

Question 8

Bubba Corporation has net income of $4,200,000. It has 100,000 outstanding shares of 8% preferred stock ($100 par value) and 400,000 shares of common stock ($10 par value). What are the earnings per share of common stock?
A)$8.50
B)$6.00
C)$4.20
D)$10.50

Accepted Answer

$8.50. Subtract the preferred dividend of $800,000 (100,000 x 8% x 100) from the net income. Divide the result of $3,400,000 ($4,200,000 - $800,000) by the 400,000 common shares to obtain $8.50.

Question 9

Which of the following is normally the largest asset of a manufacturing company?
A)sales
B)inventory
C)accounts receivable
D)notes receivable

Accepted Answer

inventory. A manufacturer will normally have more inventory than accounts receivable and notes receivable. Sales is not an asset category.

Question 10

A large manufacturing company has current assets of approximately $9,400,000 and current liabilities of about $4,900,000. Which of the following statements is true about the current ratio?
A)it is substantially below the standard minimum
B)it is somewhat below the standard minimum
C)it is about the standard minimum
D)it is somewhat above the standard minimum

Accepted Answer

it is somewhat below the standard minimum. The standard minimum current ratio for a manufacturing company is 2 to 1. The current ratio for this company is 1.92 (9,400,000 divided by 4,900,000).

Question 11

The Bubba Corporation has 50,000 outstanding shares and holds 20,000 shares as treasury stock. At the end of the third quarter $450,000 is distributed as a dividend on the common. How much is the dividend per share?
A)$22.5
B)$9
C)$6.43
D)None of the above

Accepted Answer

The dividend per share is $9. Since treasury stock does not receive dividends, divide $450,000 by the outstanding 50,000 shares to arrive at $9 per share.

Quiz 2: Investment and Securities

Which of the following persons would consider annual reports of a corporation as the most important factor in making investment decisions?

The market theory stating that the small investor is usually wrong is called the:

After an extended period of backing and filling, a stock moves up sharply through a resistance level on heavy volume. A technical analyst would likely call this a:

A leveraged company is best described as one that has a small portion of its capitalization represented by:

A company earns $6 per share and pays out 20% in common stock dividends. What does the stock yield if it sells at $30 per share?

Book value of a corporation is also know as:

Which of the following items is not deducted to determine a corporation's net income?

Bubba Corporation has net income of $4,200,000. It has 100,000 outstanding shares of 8% preferred stock ($100 par value) and 400,000 shares of common stock ($10 par value) . What are the earnings per share of common stock?

Which of the following is normally the largest asset of a manufacturing company?

A large manufacturing company has current assets of approximately $9,400,000 and current liabilities of about $4,900,000. Which of the following statements is true about the current ratio?

The Bubba Corporation has 50,000 outstanding shares and holds 20,000 shares as treasury stock. At the end of the third quarter $450,000 is distributed as a dividend on the common. How much is the dividend per share?