Deck 11: Investing in Stocks

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

Dividend payments on common stock are guaranteed, but the amount is determined by the board of directors.

Question 5

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

Question 6

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

Question 7

A proxy is a legal form that lists the issues to be decided at a stockholders' meeting and requests that stockholders transfer their voting rights to some individual or individuals.

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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.

Question 13

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

Question 14

A public corporation is a corporation whose stock is owned by relatively few people and is not traded openly in the stock market.

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

A securities exchange is a marketplace where member brokers who are representing investors meet to buy and sell securities.

Question 22

Capital gains yield is the stock's appreciation in value divided by its end-of-year stock price.

Question 23

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.

Question 24

The price-earnings ratio is not affected by an increase or decrease in the firm's earnings.

Question 25

A small cap stock is a stock that typically sells for less than 1$ per share.

Question 26

Most speculators use a buy and hold technique.

Question 27

The price earnings ratio is a corporation's after-tax earnings divided by the corporation's earnings per share of stock outstanding over the last 12 months.

Question 28

The minimum commission charged by most brokerage firms for buying or selling stock is between $50 and $75.

Question 29

The annual shareholder return is the beginning-of-year stock price divided by the stocks annual dividend.

Question 30

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.

Question 31

The annual dividend yield is calculated by dividing the annual dividend by the initial stock investment.

Question 32

Laws which are enforced by a federal regulatory body for the securities industry have been put in place to protect investors.

Question 33

Enron's collapse has put thousands of innocent Americans out of work and wiped out the retirement portfolios of thousands more.

Question 34

A limit order is a request that a stock be purchased or sold at the current market price.

Question 35

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

Question 36

An investment bank is a financial institution where large corporations can deposit excess cash for short periods of time.

Question 37

Dollar-cost averaging enables investors to avoid the problem of buying high and selling low.

Question 38

The beta is an index that compares the risk associated with a specific stock issue with the risk of the stock market in general.

Question 39

A bear market develops when investors are optimistic about the overall economy and purchase stocks.

Question 40

The NASDAQ is an electronic marketplace for over 10,000 different stocks.

Question 41

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

Question 42

A private corporation is a corporation whose stock is owned by relatively few people and is not traded openly in the stock market.

Question 43

A blue-chip stock is a safe investment that generally attracts conservative investors.

Question 44

PowerLight Corporation holds its annual meeting in April.Marie Stewart, who owns stock in the company, cannot attend the meeting.She can vote by a:

A)voluntary certificate.
B)preemptive right.
C)participatory certificate.
D)cumulative certificate.
E)proxy.

Question 45

Which of the following statements is not true?

A)Corporations are required by law to have two stockholder meetings each year.
B)Stockholders must approve any amendment of the corporate charter.
C)Stockholders must approve the sale of certain corporate assets.
D)Corporations are required by law to distribute annual reports.
E)Stockholders may vote in person or by proxy.

Question 46

Dividends are paid out of profits, and

A)dividends are guaranteed.
B)dividend payments must be approved by the firm's board of directors.
C)dividends are paid before a firm's taxes are paid.
D)dividends are usually paid twice a year.
E)dividends are guaranteed and paid twice a year.

Question 47

When investors purchase stock on margin, they borrow stock from a stockbroker or brokerage firm.

Question 48

Cumulative preferred stocks are stocks with unpaid dividends that accumulate and must be paid before any cash dividend is paid to the common shareholders.

Question 49

A public corporation is a corporation whose stocks are traded openly in stock markets and may be purchased by individuals.

Question 50

Because Xerox is a ____________ corporation, an investor can purchase stock with the help of an account executive through the secondary market.

A)private
B)public
C)general
D)institutional
E)securities

Question 51

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

Question 52

A penny stock typically sells for less than $.10 a share

Question 53

A private corporation is a corporation whose stocks are traded openly in stock markets and maybe purchased by individuals.

Question 54

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

Question 55

Equity financing is a popular choice to provide long-term financing for a corporation because

A)a lender is always available to provide this type of financing.
B)it does not have to be repaid.
C)repayment doesn't have to be made for ten years or more.
D)only interest must be paid for the first five years.
E)it does not cost anything to sell in the primary market.

Question 56

A stock split is a procedure in which the shares of stock owned by existing shareholders are divided into a larger number of shares.

Question 57

The right of current stockholders to purchase any new stock that the corporation issues before it is offered to the general public is called a ____________ right.

A)conversion
B)convertible
C)mandatory
D)preemptive
E)corporate

Question 58

A call option gives the owner the right to sell 100 shares of a stock at a guaranteed price before a definite expiration date.

Question 59

A corporation whose stock is owned by relatively few people and is not traded openly in stock markets is called a(n) ____________ corporation.

A)private
B)public
C)equity
D)debt
E)preferred

Question 60

A penny stock typically sells for less than $1 a share

Question 61

Typically, growth companies pay out ____________ of their earnings in dividends to their stockholders.

A)over 95 percent
B)between 65 percent and 75 percent
C)between 50 and 65 percent
D)between 30 and 50 percent
E)less than 30 percent

Question 62

When the board of directors approves a two for one stock split, the price for each share of stock

A)remains unchanged.
B)increases in value.
C)decreases in value.
D)is guaranteed to go up within a short period of time.
E)always drops to half of its former value.

Question 63

When a corporation exchanges stock for a specified amount of money, it is exercising its ____________ feature.

A)participating
B)cumulative
C)convertible
D)call
E)termination

Question 64

Which of the following statements is not true?

A)Most board members like to keep stockholders happy.
B)Few things will unite stockholders into a powerful opposition force more rapidly than omitted or lowered dividends.
C)Intelligent investors must be concerned about future after-tax profits.
D)If a cash dividend is declared by the board of directors, each stockholder by law receives an equal amount per share.
E)Corporate dividends are always paid in cash.

Question 65

Kate Babini owns 250 shares of Gildan Activewear.Suppose that for the last calendar quarter, Gildan paid $0.28 a share.What is the total amount she received in her dividend cheque for this quarter?

A)$0.28
B)$2.80
C)$70.00
D)$250.00
E)$892.00

Question 66

A stock that sells for less than $l a share is called a

A)fractional stock.
B)dollar stock.
C)penny stock.
D)ten-dollar stock.
E)bad investment.

Question 67

If the board of directors approves a two for one stock split, an investor who owns 200 shares before the split owns ____________ shares after the split.

A)75
B)200
C)225
D)400
E)450

Question 68

The type of stock that may earn more than the stated dividend if the firm has a good year is ____________ stock.

A)common
B)convertible preferred
C)participating preferred
D)cumulative preferred
E)callable preferred

Question 69

A stock that pays higher than average dividends is called a(n) ____________ stock.

A)defensive
B)income
C)growth
D)cyclical
E)blue-chip

Question 70

A stock that follows the business cycle of advances and declines in the economy is called a(n) ____________ stock.

A)defensive
B)cyclical
C)growth
D)income
E)blue-chip

Question 71

A stock that remains stable during declines in the economy is called a(n) ____________ stock.

A)defensive
B)cyclical
C)growth
D)income
E)blue-chip

Question 72

A stock issued by a corporation that has the potential of earning above-average profits when compared to other firms in the economy is called a(n) ____________ stock.

A)defensive
B)cyclical
C)growth
D)income
E)blue-chip

Question 73

Devin Scott is looking for an investment that will provide a predictable source of income.With this goal in mind, which of the following industry groups would normally be classified as an industry to invest in for income?

A)public utilities
B)electronics
C)automobile manufacturing
D)steel manufacturing
E)paper manufacturing

Question 74

Dividends remain with the stock until

A)five days after the date of record.
B)two business days after the date of record.
C)five days before the date of record.
D)two business days before the date of record.
E)five days before the actual payment date.

Question 75

A very safe investment that generally attracts conservative investors is called a(n) ____________ stock.

A)penny
B)cyclical
C)growth
D)income
E)blue-chip

Question 76

A small-cap stock is defined as a corporation that has total capitalization of

A)more than $250 million.
B)less than $150 million.
C)less than $175 million.
D)less than $200 million.
E)no capitalization.

Question 77

A stock that is issued by a corporation that has a large amount of capitalization is called a(n) ____________ stock.

A)small-cap
B)medium-cap
C)large-cap
D)unlimited-cap
E)giant-cap

Question 78

The type of stock in which stockholders are assured that omitted dividends will be paid to them before other dividends are paid is ____________ stock.

A)cumulative preferred
B)convertible preferred
C)participating preferred
D)common
E)callable preferred

Question 79

Joanne Blower owns 200 shares of Corel Corporation stock.She purchased the stock for $22 a share.She sold her stock for $28 a share.The commissions required to buy and sell her stock totaled $180.Assuming that she received no dividends during the time she owned the stock, what is her total profit from this transaction?

A)$180
B)$780
C)$1,380
D)$1,020
E)$1,200

Question 80

The type of preferred stock that may be exchanged at the stockholder's option for common stock is

A)corporate bond.
B)cumulative preferred stock.
C)participating preferred stock.
D)convertible preferred stock.
E)callable preferred stock.