Deck 14: Investing in Stock

Question 1

Preferred stock is often referred to as a middle investment as it has features similar to both common stock and corporate bonds.

Answer 1

True

Question 2

Since the end of World War II,stocks have returned on average close to 10 percent a year.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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 5

If a corporation's earnings decline,the stock's price usually increases.

Question 6

A large cap stock is a stock issued by a corporation that has capitalization of more than $10 billion.

Question 7

The total return on a stock is equal to the current market value of the stock minus the investor's purchase price.

Question 8

The book value for a share of stock is determined by deducting all liabilities from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock.

Question 9

An increase in a corporation's earnings per share is a healthy sign.

Question 10

No meaningful average for the earnings per share measure exists.

Question 11

A defensive stock is a stock that typically sells for less than $1.

Question 12

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

Question 13

By using the internet,it is possible to find market price quotations,but more detailed financial information about a corporation is unavailable to the average investor.

Question 14

It is common for stock advisory services like Morningstar,Standard & Poor's,and Value Line to charge fees for their more detailed financial information.

Question 15

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

Question 16

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

Question 17

The annualized holding period yield calculation takes into account the time the investment is held.

Question 18

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

Question 19

Stocks issued by large corporations in mature industries often have high P-E ratios.

Question 20

Because of the need for secrecy,most corporations do not supply financial information about their company on their websites.

Question 21

Most speculators purchase stock and hold onto it for a number of years.

Question 22

Dollar cost averaging helps investors avoid the pitfall of buying high and selling low.

Question 23

A market order is a request to buy or sell a stock at the current market value.

Question 24

The minimum commission charged by most brokerage firms for buying or selling stock is between $5 and $25.

Question 25

Sean Rouse owns shares of common stock in Stowaway Transportation Company.The company is getting ready to pay a dividend.Sean knows he must be registered on the corporation's books on the _______ date in order to receive the dividend.

A)record
B)ex-dividend
C)payment date
D)declaration
E)stockholders' meeting

Question 26

The fundamental analysis theory is based on the assumption that a stock's intrinsic or real value is determined by the future earnings of the company.

Question 27

Amy Farmer just received a legal form in the mail from a firm in which she owns stock.This form lists the issues to be decided at the annual stockholders' meeting and asks her to give written permission for someone else to vote for her if she cannot attend.What form has she received in the mail?

A)Equity
B)Proxy
C)Voting rights
D)Dividends
E)Call option

Question 28

James Green just bought a security which he expects will provide him with a quarterly cash payment,although that payment is not guaranteed.In fact,he expects the amount of the payment to vary over time.What type of payment is he expecting to receive?

A)Option premium
B)Interest
C)Capital gain
D)Dividend
E)Rebate

Question 29

A limit order is a request to buy or sell stock at a specified price or better.

Question 30

A low market-to-book ratio could indicate that a stock is undervalued.

Question 31

Beverly Frickel purchased 100 shares of Gleason Systems stock for $42.50 per share.Her commission for this purchase was $35.She sold the stock two years later for $55 per share and a commission of $50.What was Beverly's total dollar return on this stock?

A)$1,250
B)$1,165
C)$1,500
D)$1,315
E)$1,400

Question 32

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

Question 33

An investment bank is a financial firm that assists corporations in raising funds,usually by helping to sell new security issues.

Question 34

The Beta is a measure that compares the volatility associated with a specific stock issue with the volatility of the Standard & Poor's 500 Stock Index.

Question 35

Christopher Pratt just bought shares of common stock.Which one of the following is he entitled to based on his ownership of these shares?

A)Semi-annual interest payments
B)Guaranteed annual dividends
C)Right to vote at annual meetings
D)Right to declare a stock split
E)Right to declare future dividends

Question 36

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

Question 37

Orlando Blodgett is buying stock in the Getaway Caribbean Cruise Company today.He had thought about buying the stock yesterday and if he had,he would have received this quarter's dividend.However,since he waited until today,he will not receive that dividend payment.Given this information,which one of the following dates applies to this stock today?

A)Record date
B)Ex-dividend date
C)Payment date
D)Stock split date
E)Stock repurchase date

Question 38

Jeff Goldblum has just purchased a security which has no maturity date and no promised payments.He can recoup his investment by either selling the security to another individual or to the issuer,if the issuer ever makes an offer to buy it.What type of security did Jeff purchase?

A)Stock option
B)Corporate bond
C)Government bond
D)Dividend
E)Common stock

Question 39

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

Question 40

Valerie Kilmer owns stock in the Williams Widget Company.She was just advised that in the near future she will be receiving two shares for every one share she owns today.What has the company declared that will cause this change to her shares?

A)Extra dividend
B)Capital gains distribution
C)Stock split
D)Stock repurchase
E)Stock conversion

Question 41

Common stock dividends are paid out of profits and:

A)must be approved by the corporation's board of directors.
B)are guaranteed to be paid quarterly.
C)are paid prior to the firm's taxes.
D)usually paid semi-annually.
E)equal 100 percent of the firm's annual earnings.

Question 42

Lindsey Holt owns stock in the Galloway Gems Company.She knows in advance that the dividend on this stock is a $1.50 per share..Given this,you know for sure that she purchased which type of stock?

A)Preferred
B)Common
C)Blue chip
D)Growth
E)Penny

Question 43

Arnell Johnson bought 200 shares of Black Petroleum Company for $95 per share and paid a commission of $60.He sold the stock five years later for $120 per share and paid $75 commission.While he held the stock,it paid a dividend of $5.50 per share.What was Arnell's total dollar return on this stock?

A)$5,000
B)$4,865
C)$1,100
D)$6,100
E)$5,965

Question 44

To finance their business activities,many corporations prefer selling common stock because:

A)it does not have to be repaid until 10 to 15 years after it has been issued.
B)interest payments to stockholders are lower than interest paid to a bank.
C)common shareholders have no voting rights.
D)interest paid to stockholders is tax deductible.
E)the money obtained from stockholders does not have to be repaid.

Question 45

Which one of the following statements is true?

A)Board members are appointed by a company's management.
B)Stockholders receive a tax break on dividend income.
C)Investors should be concerned about the corporation's ability to earn profits and pay dividends in the future.
D)If a cash dividend is declared by the board of directors, each stockholder will receive a different dollar amount depending on the length of time they have owned their shares.
E)Corporate dividends are always paid in cash.

Question 46

When a stock splits two-for-one,you should expect the price per share to:

A)decrease to half its pre-split price.
B)decrease in value by 75 percent or more.
C)remain unchanged.
D)increase to more than twice its pre-split price.
E)increase to twice its pre-split price.

Question 47

Patsy Banz owns 220 shares of a stock.For the last calendar quarter,the company paid a dividend of $0.47 a share.What is the total amount she received in her dividend check for this quarter?

A)$0.47
B)$47.00
C)$94.20
D)$103.40
E)$25.85

Question 48

Jo Bower purchased 150 shares of stock for $24 a share and sold it for $30 a share.The commissions required to buy and sell her stock totaled $60 for each transaction.Assuming she received no dividends during the time she owned the stock,what is her total investment on the purchase of this stock?

A)$3,600
B)$3,660
C)$4,440
D)$4,500
E)$8,100

Question 49

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

A)penny
B)cyclical
C)growth
D)small cap
E)blue chip

Question 50

A stock issued by a company that has a market capitalization of between $300 million and $2 billion is called a ____________ stock.

A)defensive
B)cyclical
C)growth
D)small cap
E)blue chip

Question 51

Equity financing is a preferred choice to provide 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 have to buy back the shares.

Question 52

When compared to corporate bonds,the dividend yield on preferred stocks is often _____the yield on bonds.

A)the same as
B)lower than
C)higher than
D)unrelated to
E)safer

Question 53

If the board of directors approves a two-for-one stock split,an investor who owns 150 shares before the split will own ____________ shares after the split.

A)75
B)150
C)225
D)300
E)450

Question 54

Which one of the following statements is true?

A)Corporate dividends for common stock must be paid in cash only.
B)Stockholders must elect the board of directors.
C)The selling price of stock is determined by how much the corporation is willing to receive.
D)Corporations are required by law to have two stockholder meetings each year.
E)Stockholders may vote only by proxy.

Question 55

Regarding a stock split,the earnings "pie" before the split is ____size after the split.

A)a smaller
B)a larger
C)double the
D)the same
E)unrelated to the

Question 56

The most common stock splits include:

A)1-for-2
B)2-for
C)1-for-3
D)4-for
E)5-for

Question 57

ABC Corporation holds its annual meeting in April.Maxine Star,who owns stock in the company,cannot attend the meeting.She can vote by:

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

Question 58

James Brewer purchased 100 shares of stock for $72 a share.James also paid a $55 commission.What was the total purchase price for this transaction?

A)$55.00
B)$127.00
C)$7,237.50
D)$7,255.00
E)$7,347.50

Question 59

Dividends remain with the stock until:

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

Question 60

The federal government requires corporations selling new issues of securities to disclose information about itself in a prospectus.Which of the following must be disclosed?

A)Corporate earnings
B)Assets and liabilities
C)Products or services
D)Qualifications of top management
E)All of these must be disclosed.

Question 61

Sean Barber wants to invest in a stock that is relatively safe,suitable for conservative investors,and less speculative than other stocks.What type of stock best fits Sean's requirements?

A)Midcap stock
B)Cyclical stock
C)Small-cap stock
D)Blue chip stock
E)Growth stock

Question 62

To calculate dividend yield,the annual dividend amount per share is divided by the _______ per share.

A)current stock price
B)stock's original issue value
C)current earnings
D)current book value
E)current sales revenue

Question 63

Acme Widget,Inc.has 1,000 shareholders who own a total of one million shares of its common stock.The stock currently sells for $85 per share.The company earned $5 million after taxes.The annual dividend is $0.50 per share.The company has assets of $125 million and liabilities of $25 million.What is the P-E ratio?

A)10
B)11
C)13
D)17
E)20

Question 64

Acme Widget,Inc.has one million shares of common stock outstanding at a price per share of $85.The company earned $5 million after taxes.The annual dividend is $3.50 per share.The company has assets of $125,000,000 and liabilities of $25,000,000.What is the dividend yield rounded to nearest hundredth of a percent?

A)3.50 percent
B)1.43 percent
C)5.00 percent
D)4.12 percent
E)3.44 percent

Question 65

Masterworks Manufacturing has calculated its earnings per share as $2.50.If the corporation has 250,000 shares outstanding,what is the amount of after-tax income?

A)$25,000
B)$62,500
C)$250,000
D)$625,000
E)$6,250,000

Question 66

A stock issued by a corporation that has a market capitalization of between $2 and $10 billion is called a ____________ stock.

A)defensive
B)midcap
C)growth
D)income
E)blue chip

Question 67

Regardless of a stock's classification,a stock is a _____investment because there are no guarantees.

A)speculative
B)conservative
C)substitute
D)unwise
E)sound

Question 68

Which one of the following statements is true?

A)It is possible to obtain financial information about a corporation that issues stock by using the Internet.
B)While it is possible to obtain information about a company by accessing the Internet, the information is usually out of date.
C)You can use an Internet search engine to only access a company's price information.
D)Corporations have web pages but do not provide any financial information on them.
E)By using the Yahoo! Finance website, investors can access financial information only about the economy as a whole.

Question 69

Which one of the following is a true statement?

A)When choosing a stock advisory service that charges fees for their investment advice, the quality of the information is always excellent.
B)Morningstar's Investors Service only provides information about bonds.
C)Value Line provides information about bonds and mutual funds, but not common stocks.
D)The information provided by investors' services consists of simple alphabetical listings only.
E)Online computer services may be used to research companies and to obtain current stock prices.

Question 70

Barker Creek Clothing has after-tax income of $12.8 million and its earnings per share are $0.40.How many shares of stock does it have outstanding?

A)2 million
B)3.1 million
C)12.8 million
D)32 million
E)40 million

Question 71

By using the Yahoo! Finance website,an investor can find all of the following information on a stock except its:

A)historical prices.
B)stock symbol.
C)current market value.
D)most recent dividend.
E)actual rate of return for the next year.

Question 72

A stock that sells for $1 or less per share is called a _____ stock.

A)fractional
B)penny
C)dollar
D)ten-dollar
E)coin

Question 73

The federal government requires that a corporation selling a new issue of securities must disclose information about the company and its finances in a:

A)annual report.
B)quarterly report.
C)accountant's audit report.
D)prospectus.
E)stock guide.

Question 74

Which one of the following statements is false?

A)Numerical measures can help investors decide if it is time to buy or sell a stock.
B)Future earnings may be one of the most significant factors to examine when evaluating a stock.
C)Higher earnings generally equate to higher stock value.
D)The price for a share of stock is determined by what another investor is willing to pay for it.
E)It is impossible to determine corporate earnings by using investment research and financial calculations.

Question 75

Mellon Manufacturing has after-tax income of $3 million.It also has 2 million shares of stock outstanding.What is the corporation's earnings per share?

A)$3.00
B)$2.00
C)$1.50
D)$0.67
E)$0.75

Question 76

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 ____________ stock.

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

Question 77

Anthony Edwards wants to diversify his portfolio by adding a stock that maintains stable earnings when the economy declines.What type of stock does Anthony want to add to his portfolio?

A)Defensive stock
B)Cyclical stock
C)Small-cap stock
D)Blue chip stock
E)Growth stock

Question 78

Kay Powers wants to diversify her portfolio by investing in a firm that has the potential to earn above average profits compared to other firms in the economy.What type of stock is Kay thinking about adding to her portfolio?

A)Defensive stock
B)Cyclical stock
C)Small cap stock
D)Blue chip stock
E)Growth stock

Question 79

Last year,High-Tech Electronics earned $1.50 per share.If the current market value for a share of its stock is $45,what is the firm's P-E ratio?

A)0.03
B)3.30
C)30.00
D)33.00
E)45.00

Question 80

George Clancy wants to diversify his portfolio by adding a stock that has a value which moves in direct relation to the business cycle.What type of stock is George thinking about adding to his portfolio?

A)Defensive stock
B)Cyclical stock
C)Small-cap stock
D)Blue chip stock
E)Growth stock