Deck 14: Investing in Stocks and Bonds

Question 1

The returns on common stocks have historically been half as high as the returns on cash savings.

Answer 1

False

Question 2

The term securities refers to the ownership instruments of common stock and preferred stock only.

Answer 2

False

Question 3

Common stock and bond investments are suitable for only speculative investors.

Answer 3

False

Question 4

Common stockholders in a corporation that goes bankrupt could lose not only their original investment but might need to come up with more money to cover the corporation's obligations.

Question 5

Typically,preferred stockholders receive voting rights.

Question 6

Shares of a privately-held corporation can only be purchased on an public stock exchange such as the New York Stock Exchange.

Question 7

The dividend income on preferred stock is generally fixed and limited to a stated amount per share.

Question 8

The losses of common stockholders are limited to the amount of their investment in the corporation.

Question 9

Stocks and bonds are the primary examples of negotiable instruments of ownership or debt.

Question 10

The dividends promised to preferred stockholders must be paid before the common stockholders are paid.

Question 11

Preferred stockholders are the first to receive extra dividends resulting from higher than expected profits.

Question 12

In making a common stock investment,the investor becomes an owner of the assets and earnings of a business corporation.

Question 13

Both preferred and common stockholders normally share in capital appreciation when a company grows.

Question 14

A shareholder is also called a stockholder.

Question 15

A common stockholder would receive corporate assets only after the claims of bondholders and preferred stockholders were satisfied.

Question 16

A corporation is a state-chartered legal entity that can conduct business operations in its own name.

Question 17

Common stocks pay interest to the stockholder.

Question 18

The market price of preferred stock is sensitive to interest rates.

Question 19

Owners of common stock vote to elect the corporation's management.

Question 20

Securities are negotiable instruments of ownership or debt.

Question 21

In the case of noncumulative preferred stock,the preferred stockholders would have a claim to previously skipped dividends.

Question 22

Pre-emptive rights enable stockholders to purchase additional shares before new shares are offered to the public.

Question 23

The market price of bonds are sensitive to interest rates.

Question 24

Any after-tax profit a company earns but does not pay out as dividends is called its retained earnings.

Question 25

The average corporation pays out 40 to 60 percent of its after-tax profit in cash dividends to stockholders.

Question 26

All of a company's profit is available to pay dividends or retain to support the growth of the company.

Question 27

Common stockholders are guaranteed dividends.

Question 28

All bonds have a maturity date by which the principal of the debt must be paid.

Question 29

The money left over after a company pays its expenses and interest to bondholders is called profit.

Question 30

The price/earnings ratio tells how much investors are willing to pay for future earnings.

Question 31

New stock offerings are called ground floor opportunities.

Question 32

Investment banking firms specialize in serving as intermediaries between companies issuing new stocks and bonds and the investing public.

Question 33

It may take several years for a new corporation to begin paying dividends.

Question 34

The price/earnings ratio is a measure of investor confidence in a stock's future performance.

Question 35

Written authorization giving someone else the right to vote for you at the annual shareholders' meeting is called a proxy.

Question 36

Rapidly growing companies tend to have P/E ratios above those of speculative companies.

Question 37

Bonds pay dividends to the bondholder on a regular basis.

Question 38

All stocks pay dividends.

Question 39

The face amount of a bond is the principal.

Question 40

Earnings per share (EPS) indicate the income a company has available to pay as dividends and reinvest as retained earnings.

Question 41

A stock with a beta of over 1 is considered more risky than the stock market as a whole.

Question 42

Betas are used to measure the risk of a security relative to the overall market.

Question 43

Beta is a ratio measure of an investment's price volatility or risk compared with a specific market index,usually for similar investments.

Question 44

Well-known growth stocks typically are less volatile than the market.

Question 45

The PEG ratio adjusts the P/E ratio to allow for the fact that a company may be experiencing rapid growth.

Question 46

A stock with a beta that is less than 1.0 or even a negative beta is called a defensive stock.

Question 47

Income stocks are typically more volatile than the market as a whole.

Question 48

Buying cyclical stocks is a defensive investment move

Question 49

The earnings per share of a stock divided by its market price is its earnings yield.

Question 50

Both trailing and projected P/E ratios are of interest to investors.

Question 51

In general,stocks that are expected to grow rapidly have low price/earnings ratios.

Question 52

Stocks that rise and fall in value in tandem with the economy as a whole are said to be countercyclical.

Question 53

A company with a price/earnings ratio of 10 should probably be avoided.

Question 54

The higher the beta on a stock,the higher the rate of return an investor should require.

Question 55

The lower the price-to-sales ratio,the better the marketability of a stock.

Question 56

Growth companies typically pay little or no cash dividends.

Question 57

Speculative stocks typically pay little or no cash dividends.

Question 58

Beta assesses the investment's relationship to its expected performance.

Question 59

Utility company stocks are generally classified as income stocks.

Question 60

The P/E ratios of well-known growth stocks are generally higher than those of lesser-known growth stocks.

Question 61

Microcaps are firms with less than $100 million in capitalization.

Question 62

The lower the payout ratio,the greater the odds that the company's earnings will sustain future dividend payments.

Question 63

Large-cap stocks are the stocks of companies that are quite substantial in terms of capitalization,around $750 million to $3 billion in size.

Question 64

The dividend yield is the cash dividend return to an investor expressed as a percentage of the price of a security.

Question 65

Technical analysis has proved to be a prominent tool in aiding investors to choose stocks.

Question 66

An employee stock option is a gift,like a bonus,from an employer to an employee that allows employees to benefit from the appreciation of their employer's stock without putting any money down.

Question 67

The book value is the net worth of a company,which is determined by subtracting the company's total liabilities from its assets.

Question 68

As the market price of a stock increases,the dividend yield goes down if the annual dividend does not change.

Question 69

A price-to-book ratio of less than 1 indicates an overvalued company.

Question 70

\A positive price-to-book ratio indicates something is wrong with a company's use of its assets.

Question 71

The market price for a company's common stock is usually higher than its book value per share.

Question 72

A stock's book value usually exceeds its market price per share.

Question 73

Small oil exploration businesses,game companies,and genetic engineering firms are examples of speculative companies.

Question 74

Value stocks often operate within industries that benefit from a slowing economy.

Question 75

Market risk,also known as unsystematic risk,is the risk associated with the impact of the overall economy on securities markets.

Question 76

Corporate earnings are the profits a company makes during a specific time period.

Question 77

The fundamental approach presumes that current and future earnings,trends,industry outlook,and management's expertise determine a stock's price movement.

Question 78

A stock with a positive alpha statistic means the fund did better than expected for its level of risk.

Question 79

Shareholders' equity is the same thing as the market value of all outstanding stock.

Question 80

For every speculative company that succeeds,many others do poorly or fail altogether.