Question 1

The term churning is to describe the excessive buying and selling of securities to generate commissions.

Accepted Answer

Churning involves excessive trading in securities with the primary goal of generating commissions for the broker or financial advisor. This is typically done for the benefit of the broker, rather than the client, and can result in unnecessary costs and fees for the client.

Question 2

Convertible preferred stock may be exchanged, at the corporation's option, for a specified number of shares of common stock.

Accepted Answer

The answer of Convertible preferred stock may be exchanged, at...

Question 3

The federal government requires corporations selling new issues of securities to disclose information about corporate earnings, assets and liabilities, products or services, and the qualifications of top management in a prospectus.

Accepted Answer

This statement is true. The Securities and Exchange Commission (SEC) mandates that companies selling new securities must file a registration statement including a prospectus that contains detailed information about the company and the securities being offered. This is to ensure that potential investors have access to important information that could impact their decision to invest.

Question 4

If a corporation has more than one stock issue, the common stock is always listed first.

Accepted Answer

The answer of If a corporation has more than one...

Question 5

Preferred stocks are often referred to as "middle" investments.

Accepted Answer

Preferred stocks are considered to be in the middle of the risk and return spectrum between common stocks and bonds. They offer higher yields than bonds but with less volatility than common stocks.

Question 6

It is common for professional advisory services like SEDAR, Moody's, Standard & Poor's, and Value Line to charge for more detailed financial information than provided on other Internet Web sites.

Accepted Answer

Professional advisory services charge for more detailed financial information than provided on other Internet Web sites.

Question 7

A blue-chip stock is too speculative for most investors.

Accepted Answer

A blue-chip stock is actually considered less speculative and more reliable than other stocks due to its large market capitalization, strong financials, and established reputation. It is often seen as a safe long-term investment option for investors.

Question 8

Corporations issue preferred stock because it provides an alternative to financing through corporate bonds or common stock.

Accepted Answer

Preferred stock is a type of financing option available to corporations, alongside corporate bonds and common stock. It offers investors a fixed dividend payment and priority over common stockholders in the event of bankruptcy or liquidation.

Question 9

Today, it is possible for investors to access a corporation's home page in order to evaluate an investment in its stock.

Accepted Answer

This statement is true. With the advancement of technology, investors can easily access a corporation's home page to gather information and evaluate the investment potential of its stock.

Question 10

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

Accepted Answer

This is true. An income stock is a type of stock that typically pays higher dividends than the average stock, providing investors with a regular source of income.

Question 11

The Cumulative feature of a preferred stock is that a corporation may exchange, at its option, for a specified amount of money.

Accepted Answer

The cumulative feature of a preferred stock refers to the requirement that if any dividends are missed, they must be paid out to preferred shareholders before any dividends can be distributed to common shareholders. It does not relate to exchanging the stock for money.

Question 12

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

Accepted Answer

A stock split is a procedure in which a company divides its existing shares into multiple shares. Each shareholder's total number of shares increases, but the total value of their holdings remains the same. There is no exchange of common stock for preferred stock in a stock split.

Question 13

You shouldn't be wary of any stocks that you learn about on financial bulletin boards, chat room, newsgroups or email.

Accepted Answer

It is important to conduct thorough research and analysis before investing in any stock, and relying solely on information found on bulletin boards, chat rooms, newsgroups or email can be risky and unreliable.

Question 14

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

Accepted Answer

The record date is the date on which shareholders are identified and recorded as eligible to receive the dividend payment. The actual dividend payment date is separate and typically occurs a few weeks after the record date.

Question 15

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

Accepted Answer

The statement is not true. The price of a defensive stock has nothing to do with whether it is a defensive stock or not. Defensive stocks are those that are less prone to losing value during economic downturns, such as companies that provide necessities like utilities or healthcare.

Question 16

The price-earnings ratio is calculated by dividing the earnings per share of a stock by its fair market value.

Accepted Answer

The price-earnings ratio is calculated by dividing the market price per share of a stock by its earnings per share, not by its fair market value.

Question 17

The most important priority that an investor in common stock enjoys is receiving cash dividends before preferred stockholders are paid any cash dividends.

Accepted Answer

Preferred stockholders have priority over common stockholders when it comes to receiving cash dividends. Therefore, they must be paid first before any dividends are paid to common stockholders.

Question 18

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

Accepted Answer

A cyclical stock is indeed a stock that follows the business cycle, meaning that its prices tend to rise during economic upswings and fall during downturns. Examples of cyclical stocks include companies in sectors like construction, manufacturing, and automotive industries.

Question 19

A large-cap stock is a stock issued by a company that has capitalization of $150 million or less.

Accepted Answer

A large-cap stock is actually a stock issued by a company that has a market capitalization of more than $10 billion.

Question 20

If an investor owns participating preferred stock, missed or omitted dividends accumulate and must be paid before any cash dividend is paid to common stockholders.

Accepted Answer

Participating preferred stock typically refers to the feature where these shareholders can receive additional dividends beyond their fixed dividend if the company achieves certain financial goals, not to the accumulation of missed or omitted dividends. Accumulation of missed dividends is a characteristic of cumulative preferred stock, not specifically participating preferred stock.

Quiz 11: Investing in Stocks