Deck 12: Investing in Stocks

Question 1

An investor can rely completely on the findings of a stock advisory service in order to make decisions about buying or selling stocks.

Answer 1

False

Question 2

Many people purchase investments without doing any research.

Answer 2

True

Question 3

A micro cap stock is one issued by a company that has a capitalization of $500 million or less.

Answer 3

False

Question 4

If the record date is Friday,April 7,the ex-dividend date is Tuesday,April 11.

Question 5

Stocks are equity financing.

Question 6

The Yahoo! Finance website provides company-specific news,quotes,and charts.

Question 7

Dividends for common stock must be in cash.

Question 8

Since 1926,the average annual return for stocks is just over 12% as measured by the Standard & Poor 500 stock index.

Question 9

Many people do not know where to get the information they need to evaluate potential investments.

Question 10

A prospectus is sent annually to stockholders of publicly owned corporations.

Question 11

Companies need to repay money from equity financing.

Question 12

Before investing in a company's stock,an investor should analyze the industry in which the company operates.

Question 13

Sandy has invested in a stock.She is assured of receiving a dividend.

Question 14

A midcap stock is one issued by a company that has a capitalization of up to $300 million.

Question 15

Detailed research for stock investors can be found on the Yahoo! Finance website instead of at a stock advisory service such as Value Line.

Question 16

Stocks are guaranteed to have large returns.

Question 17

If Jodi owns 200 shares of stock,a 2-for-1 stock split will double the value of her holdings.

Question 18

The Internet provides many valid sources of stock information.

Question 19

When companies experience low earnings,they may choose to reduce or omit their dividends.

Question 20

Preferred stockholders elect the board of directors.

Question 21

Earnings per share equals the corporation's after-tax earnings divided by the number of outstanding shares of a firm's common stock.

Question 22

Gloria bought GE stock on March 4,2009,at a price of $5.87 and then quickly sold it on March 19,2009,at $11.20.Gloria is classified as a speculator.

Question 23

The book value of a stock is equal to the result of total assets less total liabilities divided by the number of outstanding shares of common stock.

Question 24

Most securities that are considered "over-the-counter" are traded through the NYSE.

Question 25

Many analysts believe that a corporation's ability or inability to generate dividends in the future may be one of the most significant factors that accounts for an increase or decrease in the value of a stock.

Question 26

Any company's stock can be listed on the NYSE.

Question 27

Corporate earnings are reported in the firm's annual report.

Question 28

Buying 100 shares of stock in an IPO is a primary market transaction.

Question 29

The market value must be higher than the book value.

Question 30

Glen bought XYZ stock on November 8,2009,at a price of $39.20 and then sold it on March 19,2011,at $11.20.Glen can be classified as a speculator.

Question 31

An investor must be classified as using the long-term buy-and-hold technique in order to receive dividends.

Question 32

The total return can be calculated only if a company pays dividends.

Question 33

Typically the commission paid for a stock sale will be lower with a full-service broker than for an online brokerage firm.

Question 34

If you want to guarantee that your order to sell a stock will be executed,you should place a stop order instead of a limit order.

Question 35

The EPS of a company can be compared to the industry's average EPS.

Question 36

A.J.wants to buy a stock at its current market price.He should use a market order.

Question 37

The execution of a limit order will be the highest priority above previously received orders if and when the specified price is reached.

Question 38

Kenny wants to sell his stock at a specified price or higher.He should use a stop order.

Question 39

If you purchase stock from your cousin Sam,you are buying stock on the primary market.

Question 40

Joseph has been Leon's account executive for several years.Leon has been questioning Joseph's integrity because it appears as though Joseph might be churning.If Leon wants to take formal action about his concern,he likely will be required to use an arbitration board.

Question 41

MNOP Inc.declared a $1.00 dividend with a record date of Thursday,September 15,and a payment date of Thursday,October 20.Cheri does not want receive this current dividend.What is the earliest date that she should purchase the stock in order to avoid receiving the dividend?

A) September 12
B) September 13
C) September 15
D) October 18
E) October 20

Question 42

A legal form that requests that owners transfer their voting rights to individual(s)is called a

A) Bond.
B) Common stock.
C) Dividend.
D) Savings account.
E) Proxy.

Question 43

Either you can take advantage of dollar cost averaging,or you can use a direct investment plan.

Question 44

Since 1926,the average annual return for stocks has been about

A) 8%.
B) 10%.
C) 12%.
D) 14%.
E) 16%.

Question 45

All of the following statements are correct except

A) Dividends are paid out of profits.
B) Dividend payments must be approved by the stockholders.
C) A dividend can be a distribution of money, but it can also be stock or other property.
D) Dividends are not mandatory.
E) Utility companies typically distribute a higher percentage of earnings than rapidly growing firms.

Question 46

MNOP Inc.declared a $1.00 dividend with a record date of Thursday,September 15,and a payment date of Thursday,October 20.Cheri wants to purchase stock and receive the dividend.What is the latest date that she needs to have purchased the stock in order to receive the dividend?

A) September 12
B) September 13
C) September 15
D) September 19
E) October 18

Question 47

An example of dollar cost averaging is an employee purchasing shares of his or her company's stock through payroll deduction as part of a retirement plan.

Question 48

A distribution of money,stock,or other property that is paid to owners of a company is called a

A) Bond.
B) Common stock.
C) Dividend.
D) Savings account.
E) Proxy.

Question 49

Long-term investing techniques are generally more risky than short-term investing techniques.

Question 50

Amanda wants to be part of the ownership for a corporation.She should invest in

A) Bonds.
B) Common stock.
C) Dividends.
D) A savings account.
E) A proxy.

Question 51

Why does a company split its stock?

A) The stock is trading at a low price, and the company wants to increase its stock value.
B) It wants fewer shares outstanding.
C) The stock is trading at a high price, and the company wants to bring the price in line with a theoretical ideal range.
D) It wants the total market capitalization to be lower than the current level.
E) The company wants to guarantee that the stock price will increase.

Question 52

Alberta owns 100 shares of stock of ABC Company,and Bobby owns 200 shares of the same stock.If ABC Company pays a $5 dividend to all stockholders with a record date of Friday,June 15,then

A) Alberta will receive the same amount as Bobby if they owned the stock two business days before the record date.
B) Both will receive the dividend as long as they sell their stock three days before the record date.
C) Alberta will receive half as much as Bobby if they owned the stock two business days before the record date.
D) Both will receive the dividend if they bought the stock on the record date.
E) Alberta and Bobby will receive the same amount if they bought the shares at least one month before the record date.

Question 53

If you own stock,you may receive income from

A) Dividends.
B) Dollar appreciation of stock value.
C) Possible increases in stock price due to stock splits.
D) Two of these are correct.
E) All of these are correct.

Question 54

Equity financing is money received from the sale of

A) Bonds.
B) Common stock.
C) Dividends.
D) A savings account.
E) A proxy.

Question 55

Which of the following statements about stock splits is correct?

A) If a company has a 2-for-1 split, the price will be doubled.
B) If a company has a 3-for-1 split, the price will increase by a factor of 3.
C) If a company has a 4-for-1 split, the new number of shares will be four times as many as before the split.
D) If a company has a 5-for-1 split, the new number of shares will be equal to the old number of shares divided by 5.
E) None of these is correct.

Question 56

An investor may receive a margin call when selling stock short.

Question 57

A put option is the right to buy 100 shares of stock at a guaranteed price before a specified expiration date.

Question 58

Which of the following is incorrect?

A) There is no substitute for researching a potential investment.
B) Beginning investors sometimes worry that they won't know what the information they find about stocks really means.
C) Some investors do not know where to get the information they need to evaluate potential investments.
D) The amount of information available about stocks is limited.
E) All of these statements are correct.

Question 59

Which of the following is not correct regarding preferred stock?

A) Preferred stocks are considered to be safer investments than common stocks.
B) Owners of preferred stock have first claim to a corporation's assets after creditors in a bankruptcy.
C) Owners of preferred stock receive cash dividends before common stockholders receive their dividends.
D) The dollar amount of the dividend on preferred stock is known before the stock is purchased.
E) The yield on preferred stocks is often much higher than the yield on bonds.

Question 60

The main goal of dollar cost averaging is buying high and selling low.

Question 61

Which of the following statements is correct?

A) The Internet is not to be trusted as a reliable source to evaluate potential investments.
B) Individual company websites usually charge for access to their own financial reports.
C) The Internet provides websites that may be more up to date and thorough than printed materials.
D) Websites like Yahoo! Finance are not dependable.
E) None of these is correct.

Question 62

If you want to compare two companies,you should use

A) Book value per share.
B) Dividend yield.
C) Price per share.
D) Net income.
E) Price-earnings ratio.

Question 63

The earnings per share equals

A) Total number of shares of preferred stock divided by earnings.
B) Total number of shares of common stock divided by earnings.
C) Total earnings divided by number of shares of preferred stock.
D) Total earnings divided by number of shares of common and preferred stock.
E) None of these.

Question 64

Megan decided to start investing in stocks.Which of the following should she do first?

A) Base her investing decisions on hot tips she hears at work.
B) Buy stocks based solely on her stockbroker's recommendation.
C) Choose stocks based on recommendations from her family members.
D) Pick stocks at random.
E) Research the corporations she is interested in as well as their industries.

Question 65

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

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 66

An investment that pays higher than average dividends is called a(n)_______ stock.

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 67

Which of the following usually offers some free information and charges for more detailed research information you may need to evaluate a stock investment?

A) Financial websites such as www.finance.yahoo.com
B) Personal finance websites such as www.smartmoney.com
C) Professional advisory services such as Standard & Poor's Financial Information Services
D) Search engines such as Yahoo!
E) Securities and Exchange Commission website

Question 68

Which of the following is true?

A) Mergent's Handbook of Common Stocks is a misnomer because it analyzes only industries.
B) Standard & Poor's reports are available only on the Internet.
C) Stock advisory services include printed detailed financial reports.
D) Value Line is the only reliable stock advisory service used by investors.
E) All of these are correct.

Question 69

A stock that typically sells for less than $1 per share is called a(n)_______ stock.

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 70

Which of the following is based on historical numbers?

A) Earnings.
B) Earnings per share.
C) Price-earnings ratio.
D) All of these.
E) None of these.

Question 71

Which of the following is a profitability ratio that uses the number of outstanding shares in the calculation?

A) Capital gain
B) Earnings per share
C) Price per share
D) Net income
E) Dividend yield

Question 72

When analyzing a price-earnings ratio,

A) A higher price-earnings ratio indicates pessimism because the price is too high compared to the earnings.
B) The higher the price-earnings ratio, the more investors are paying for earnings.
C) A low ratio indicates that investors expect higher earnings in the future.
D) Price-earnings ratios are helpful when comparing two companies in the same industry, but not to the market in general.
E) The price-earnings ratio alone provides enough information to allow an investor to decide whether to invest in a particular stock.

Question 73

Cliff retired 10 years ago and wants to still own a few stocks.Dividends are important to him,but so is growth.He is most interested in stocks that are safe investments.He should purchase _______ stocks.

A) blue chip
B) cyclical
C) micro cap
D) midcap
E) penny

Question 74

Which of the following is some of the information found on a financial website such as www.finance.yahoo.com?

A) Company name, last price, target price, price change.
B) 52-week price range, number of shares traded (volume).
C) Market capitalization.
D) Dividend paid and yield.
E) All of this information is included.

Question 75

Which of the following is correct?

A) Earnings are a minor factor in determining the value of a stock.
B) Corporate earnings are reported in the proxy statement.
C) Earnings per share uses the price of the stock in the calculation.
D) EPS is a key factor that serious investors use to evaluate stock investments.
E) The price/earnings ratio is the price of a share of stock divided by the corporation's earnings per share of stock.

Question 76

Patrick graduated from college five years ago.He has set up an emergency fund and has been paying off his student loans.In addition,he participates in the retirement plan offered by his employer.He wants to invest $75 per month in very small companies (capitalization of $300 million or less).He should purchase _______ stocks.

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 77

Annual reports

A) Are available from a company for a fee.
B) Are available only to current stockholders.
C) Include the same information as a prospectus.
D) Must be sent to all stockholders on an annual basis.
E) Include estimated financial data only.

Question 78

A stock issued by a corporation that has a capitalization of between $2 billion and $10 billion is called a(n)_______ stock.

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 79

A stock issued by a company that has a capitalization of $300 million or less is called a _______ stock.

A) blue chip
B) income
C) micro cap
D) midcap
E) penny

Question 80

Financial reports from advisory services include all of the following sections except

A) Stock prices, earnings, and dividends.
B) Business summary.
C) Prospects section.
D) Financial data.
E) All of these are included in financial reports.