Question 1

Mutual fund gains can be in the form of dividends or capital gains,which are passed on to the individual investors.

Accepted Answer

Mutual fund gains can come in the form of dividends, which are regular payments made by the mutual fund from the income it generates from its investments. They can also come in the form of capital gains, which occur when the value of the mutual fund's investments increase and the fund sells them at a profit. These gains are typically passed on to the individual investors in the form of distribution payments or reinvested back into the mutual fund.

Question 2

All of the following gains from investments are taxed as ordinary income except
A) coupon payments.
B) interest.
C) short-term capital gains.
D) long-term capital gains.

Accepted Answer

Coupon payments and interest are both taxed as ordinary income. Short-term capital gains (gains from investments held for less than a year) are also taxed as ordinary income. However, long-term capital gains (gains from investments held for more than a year) are taxed at a lower rate, but they are not taxed as ordinary income.

Question 3

Growth stocks tend to pay ________ dividends and have ________ appreciation of stock prices.
A) lower; higher
B) higher; lower
C) lower; lower
D) higher; higher

Accepted Answer

Growth stocks typically reinvest their earnings to fuel growth, leading to lower dividends but higher potential for stock price appreciation.

Question 4

If you bought stock for $3,000 a year ago,received no dividends,and sold it for $1,000,what is the return on your investment?
A) -67%
B) 0%
C) 67%
D) -33%

Accepted Answer

The return on investment (ROI) is calculated as (final value - initial value) / initial value * 100. Here, it is ($1,000 - $3,000) / $3,000 * 100 = -66.67%, which rounds to -67%.

Question 5

If you invest $1,000 in stock that pays no dividends and sell the stock one year later for $1,100,what will be your return? (Ignore commissions and trading fees.)
A) 1%
B) 5%
C) 10%
D) 100%

Accepted Answer

To calculate the return on investment, subtract the initial investment from the final selling price, and then divide by the initial investment: ($1,100 - $1,000) / $1,000 = 0.1 or 10%. Therefore, the correct choice is C.

Question 6

If you purchase 100 shares of Ajax Corporation for $15 a share and one year later sell it for $20 a share,what was your return if the stock paid $2 per share dividends? (Ignore commissions and trading fees.Round to the nearest whole percent.)
A) 10%
B) 33%
C) 47%
D) 40%

Accepted Answer

The answer of If you purchase 100 shares of Ajax...

Question 7

You can estimate the amount by which your wealth will increase from an investment using
A) standard deviation.
B) discounted range of returns.
C) time value of money.
D) analysis of past returns.

Accepted Answer

Estimating the amount by which wealth will increase from an investment involves taking into consideration the time value of money, which represents the idea that present money is worth more than the same amount in the future due to its earning potential. Therefore, by calculating the expected returns of the investment and discounting them back to their present value, one can estimate how much their wealth will increase in today's dollars. Standard deviation and analysis of past returns are useful for measuring risk and evaluating the performance of an investment, but do not provide an estimate of wealth increase. The discounted range of returns may provide a range of potential outcomes for an investment, but it does not provide a specific estimate of how much wealth will increase.

Question 8

Growth stocks tend to
A) be those of more established companies.
B) offer great opportunities for capital appreciation.
C) pay high dividends.
D) be favored by more conservative investors.

Accepted Answer

Growth stocks are associated with companies that are expected to have higher revenue and earnings growth compared to the market average. This potential for higher growth can lead to greater capital appreciation, making them popular among investors who prioritize capital gains over dividends.

Question 9

Dividends are a portion of
A) earnings returned to the investor.
B) the equity returned to the investor.
C) liabilities returned to the company.
D) assets returned to the company.

Accepted Answer

Dividends are a distribution of a portion of a company's earnings to its shareholders. This means that shareholders receive a portion of the profits that the company has generated.

Question 10

If you purchase 100 shares of XYZ Corporation for $50 per share,receive a dividend check for $200,and then sell the stock for $62 per share,what will your return on the stock be?
A) 4%
B) 424%
C) 24%
D) 28%

Accepted Answer

The answer of If you purchase 100 shares of XYZ...

Question 11

Of the following,which is not used in measuring a stock's return?
A) Price of the stock at the time of purchase
B) Average price of the stock during the period owned
C) Price of the stock at the time of sale
D) Dividends earned during the period owned

Accepted Answer

The average price of the stock during the period owned is not typically used in measuring a stock's return. Instead, the return is calculated based on the price at purchase, the price at sale, and any dividends earned during the period the stock was held.

Question 12

Regarding dividends paid on common stock,
A) older, established firms tend to pay lower dividends.
B) newer firms in growth industries tend to pay higher dividends.
C) some firms don't pay any dividends at all.
D) a firm with high dividends is likely to have high stock price appreciation.

Accepted Answer

It is possible for firms to not pay any dividends on common stock. The decision to pay dividends or not is at the discretion of the company's management and will depend on factors such as available cash, investment opportunities, and shareholder preferences. Older, established firms may also choose to pay lower dividends if they are seeking to reinvest earnings in the business for future growth. Newer firms in growth industries are more likely to pay little to no dividends as they seek to reinvest earnings for expansion and development. The relationship between dividends and stock price appreciation is not straightforward and varies depending on the company and market conditions.

Question 13

Jane has $3,200 she wants to invest in stocks.She has found an investment that she believes will earn a 9% annual return.What will be the value of Jane's investment in 20 years if she is correct?
A) $17,933
B) $16,512
C) $14,915
D) $21,526

Accepted Answer

To calculate the future value of an investment, we use the formula FV = PV x (1 + r)^n, where PV is the present value, r is the annual rate of return, and n is the number of years. Plugging in the given values, we get FV = 3200 x (1 + 0.09)^20 = $17,933. Therefore, the answer is choice A, $17,933.

Question 14

It is December 10th and you have a stock that you purchased last January 5th,which has increased in value by more than $3,000.You think the stock will not significantly increase or decrease in value over the next month or so,and you would like to take your gain.What should you do?
A) Sell the stock today and take the gain.
B) Wait until December 30th and sell the stock then.
C) Sell the stock on January 6th of next year or later.
D) Do not sell the stock until it starts to go down in value.

Accepted Answer

Selling the stock on January 6th of next year or later allows the gains to be taxed as long-term capital gains, which are typically taxed at a lower rate than short-term capital gains. Since the stock was purchased last January 5th, holding it for at least a year and a day qualifies the gains for long-term capital gains tax treatment.

Question 15

All of the following are true statements about common stock dividends except
A) dividends are based upon earnings.
B) no dividends may be paid.
C) dividends are usually between 1% and 3% of the stock's price.
D) dividends are contractually guaranteed to common stockholders.

Accepted Answer

Dividends are not contractually guaranteed to common stockholders. The declaration and payment of dividends are at the discretion of the company's board of directors and are based upon various factors including earnings, financial performance, and future growth prospects. Choices A, B, and C are all true statements about common stock dividends.

Question 16

John decides to take his annual Christmas bonus of $2,000 and invest it each year for the next five years,in stock he believes can earn an 8% annual return.How much will John's investment be worth at the end of the five years?
A) $11,972
B) $19,098
C) $11,734
D) $15,600

Accepted Answer

John is making a series of equal investments at the end of each year, which is an example of an ordinary annuity. The future value of an ordinary annuity can be calculated using the formula: FV = P * [(1 + r)^n - 1] / r, where P is the payment (annual investment), r is the annual interest rate, and n is the number of periods. Plugging in the values: P = $2,000, r = 0.08 (8%), and n = 5, we get FV = $2,000 * [(1 + 0.08)^5 - 1] / 0.08 = $11,734.

Question 17

For minimal tax consequences,when your stock increases in value it should be held for
A) four months or longer.
B) over a year.
C) under a year.
D) five years or longer.

Accepted Answer

If you hold the stock for over a year, you will qualify for long-term capital gains tax rates which are typically lower than short-term capital gains tax rates. Holding the stock for a shorter period of time could result in higher tax consequences. Option A and D have no basis in tax law, and Option C would result in short-term capital gains tax rates.

Question 18

It is December 30th and you have stock in Zero Corporation that you bought on March 1st that has increased $2,000 in value.You are thinking of selling the stock.From a tax standpoint,what should you do with the Zero stock?
A) Sell it today.
B) Sell it on January 2nd of next year.
C) Wait until after March 1st of next year and sell it then.
D) Sell half the stock today and the rest on January 2.

Accepted Answer

The answer of It is December 30th and you have...

Question 19

Income stocks tend to pay ________ dividends and have ________ appreciation of stock prices.
A) lower; higher
B) higher; lower
C) lower; lower
D) higher; higher

Accepted Answer

Income stocks typically pay higher dividends to investors but often have lower appreciation of stock prices compared to growth stocks, as they are usually well-established companies with stable earnings.

Question 20

All of the following are true regarding stock prices except they
A) are influenced by supply and demand.
B) are regulated by the Federal Reserve Board.
C) have no set limit.
D) generally increase with good financial news.

Accepted Answer

Stock prices are not regulated by the Federal Reserve Board. Federal Reserve Board has the authority to regulate interest rates, money supply and inflation but does not have regulatory control over individual stock prices.

Quiz 14: Investing Fundamentals

Mutual fund gains can be in the form of dividends or capital gains,which are passed on to the individual investors.

All of the following gains from investments are taxed as ordinary income except

Growth stocks tend to pay dividends and have appreciation of stock prices.

If you bought stock for $3,000 a year ago,received no dividends,and sold it for $1,000,what is the return on your investment?

If you invest $1,000 in stock that pays no dividends and sell the stock one year later for $1,100,what will be your return? (Ignore commissions and trading fees.)

If you purchase 100 shares of Ajax Corporation for $15 a share and one year later sell it for $20 a share,what was your return if the stock paid $2 per share dividends? (Ignore commissions and trading fees.Round to the nearest whole percent.)

You can estimate the amount by which your wealth will increase from an investment using

Growth stocks tend to

Dividends are a portion of

If you purchase 100 shares of XYZ Corporation for $50 per share,receive a dividend check for $200,and then sell the stock for $62 per share,what will your return on the stock be?

Of the following,which is not used in measuring a stock's return?

Regarding dividends paid on common stock,

Jane has $3,200 she wants to invest in stocks.She has found an investment that she believes will earn a 9% annual return.What will be the value of Jane's investment in 20 years if she is correct?

It is December 10th and you have a stock that you purchased last January 5th,which has increased in value by more than $3,000.You think the stock will not significantly increase or decrease in value over the next month or so,and you would like to take your gain.What should you do?

All of the following are true statements about common stock dividends except

John decides to take his annual Christmas bonus of $2,000 and invest it each year for the next five years,in stock he believes can earn an 8% annual return.How much will John's investment be worth at the end of the five years?

For minimal tax consequences,when your stock increases in value it should be held for

It is December 30th and you have stock in Zero Corporation that you bought on March 1st that has increased $2,000 in value.You are thinking of selling the stock.From a tax standpoint,what should you do with the Zero stock?

Income stocks tend to pay dividends and have appreciation of stock prices.

All of the following are true regarding stock prices except they