Question 1

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 those that tend to perform relatively well during economic downturns, as they provide products or services that are essential to consumers regardless of the state of the economy. This is in contrast to cyclical stocks, which tend to experience greater fluctuations in performance due to changes in the business cycle. Speculative stocks are high-risk investments that may offer the potential for high returns but also carry a high degree of risk. Growth stocks are those that are expected to grow at a faster rate than the overall market. Seasonal stocks are those that are affected by seasonal factors, such as weather or holidays.

Question 2

Explain the common stock features and rights as though you are speaking to a novice.

Accepted Answer

The answer of Explain the common stock features and rights...

Question 3

The dividend yield tells investors which of the following?

Accepted Answer

The dividend yield is the annual dividend payment divided by the current stock price, expressed as a percentage. This indicates how much return an investor can expect to receive through dividends if the stock price and the dividend level remain constant. It does not indicate the value of the portfolio, release dates of dividends, or the total available amount for dividends.

Question 4

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

Accepted Answer

All the listed investment options are affected by changes in market interest rates.

Question 5

Returns from shares of stock come in the form of

Accepted Answer

Returns from shares of stock come in the form of capital appreciation, which is the increase in the value of the stock over time, and dividends, which are payments made by the company to its shareholders. Stock splits may increase the number of shares a shareholder owns, but it does not necessarily result in an increase in the overall value of the investment. Therefore, choice E, which includes only capital appreciation and dividends, is the best answer.

Question 6

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 involves increasing the number of outstanding shares while reducing the price of each share. This makes the stock more affordable for small investors without affecting the market capitalization of the company. Stock repurchases and proxy votes would not necessarily lower the price of the stock but may have other effects on the value of the company.

Question 7

Explain the purpose and value of the dividend yield ratio.

Accepted Answer

The answer of Explain the purpose and value of the...

Question 8

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

Blue-chip stocks are stocks issued by large, nationally known companies with sound financial histories and solid dividend and growth records. These stocks are considered to be reliable investments with lower risk compared to other stocks.

Question 9

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

Accepted Answer

Income stocks typically pay relatively high dividends but have limited growth in earnings. This is because they focus on generating a steady stream of income for investors rather than reinvesting profits to fuel growth. Growth stocks, on the other hand, reinvest earnings to fuel growth and typically pay little to no dividends.

Question 10

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

The term "high-grade" implies that the stocks are of high quality and reliability, which suggests a focus on stability and income over growth potential. Among the answer choices, the only option focused specifically on generating income is C, income stocks. Blue-chip stocks (B) may also pay high dividends, but are typically chosen more for their long-term growth potential. Safe (E) is a vague term that could apply to any of the answer choices, and cyclical stocks (D) are generally more volatile and not a reliable source of income.

Question 11

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 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

Speculative stocks are known for their high risk factor with the potential for high returns. They are usually associated with companies that are in their early stages of development or with companies that are experiencing financial difficulties. The high earnings variability mentioned in the question is a characteristic of speculative stocks. Blue-chip stocks, in contrast, are known for their stable earnings and low risk, while income stocks provide a regular stream of dividend income. Mid-cap stocks are stocks with a market capitalization between $2 billion and $10 billion and may have varying degrees of risk and earnings variability.

Question 13

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 14

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 that includes all publicly traded US equities, making it the broadest stock market index in the country. It includes small-, mid- and large-cap stocks, making it the index with the largest representation of all three types of stocks. DJIA and S&P 500 are both narrow indices that only represent large-cap stocks, so they do not have as much representation of small- and mid-cap stocks as the Wilshire 5000.

Question 15

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

As a young investor with a successful career, Brenda has a longer time horizon to invest and can therefore afford to take on more risk. Growth stocks offer the potential for higher returns, but also come with higher risk. These stocks are typically issued by companies that are expected to grow at a faster rate than the overall market. As Brenda is in the early stages of her career, she has time to ride out any potential market fluctuations and benefit from the long-term growth potential of these stocks.

Question 16

What factors can effect the market price of a stock?

Accepted Answer

The answer of What factors can effect the market price...

Question 17

Berkshire Hathaway's "A" stock has never split.As a result,in mid-2017 one share of its stock was selling at a price of more than ________ per share.

Accepted Answer

In mid-2017, one share of Berkshire Hathaway's "A" stock was indeed selling at a price of more than $266,000 per share, reflecting its high value and the company's decision against stock splits.

Question 18

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

Figure 13.1 shows that the returns on common stocks exceeded the inflation rate by the widest margin during the period of 1951-2010, with an average annual return of 10.4% compared to an inflation rate of 3.5%. Government bonds, Treasury bills, and mutual funds all had lower average annual returns than common stocks and did not exceed the inflation rate by as wide a margin.

Question 19

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

Accepted Answer

Blue-chip stocks are large, well-established companies that have a long track record of stable earnings and dividends. Income stocks provide a regular income stream through dividends, which can be a reliable source of income for retirees who rely on their investments to supplement their retirement income. Growth stocks are typically more volatile and may not be suitable for retirees who need stable income. Therefore, a combination of blue-chip and income stocks could be a more appropriate choice for a retired investor who seeks stability and income from their investment portfolio.

Question 20

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 the market value of the firm issuing the stock. Large-caps are companies with a market capitalization of over $10 billion, mid-caps are companies with a market capitalization between $2 billion and $10 billion, and small-caps are companies with a market capitalization between $300 million and $2 billion. Book value, dividend, and capacity for growth are important factors in evaluating a company, but they are not directly related to the size classification of the company.

Quiz 12: Investing in Stocks