Deck 6: Common Stocks

Question 1

Over the long term, the capital gain on most stocks will exceed the dividend income.

Answer 1

True

Question 2

It is not unusual for bear markets to occur two or more times in any given 10 year period.

Answer 2

True

Question 3

Because common shareholders are entitled to the profits that remain after all of a corporation's other obligations have been met, common shareholders are known as

A)residual owners.
B)temporary owners.
C)debt owners.
D)owners of last resort.

Answer 3

A

Question 4

Every shareholder is a part owner of the firm and, as such, has a direct claim on a portion of the firm's assets.

Question 5

While many stocks increase in value over the long run, most of the return on stocks comes from dividends.

Question 6

For the period 2000 through 2009, the average annual price change for stocks in the S&P 500 index was

A)16%.
B)8%.
C)-1%.
D)-50%.

Question 7

Between 1956 and 2011, approximately 30% of years had positive returns.

Question 8

A market correction is defined as a stock market decline of 10% or more.

Question 9

In spite of major losses in 2008, by the end of 2014 stock prices, as measured by the S&P 500 index, were higher than their peak levels of 2007.

Question 10

The rate of return from dividends has been much higher in recent decades than it was in the 1930s and 40s.

Question 11

Which one of the following statements about common stock is true?

A)Common stock can provide attractive capital appreciation opportunities.
B)Dividends generally provide the greatest rate of return on common stocks.
C)Common stocks generally have a negative rate of return over a ten-year period.
D)The DJIA is the best indicator of the overall performance of common stocks.

Question 12

For most stocks, the returns from dividend income far exceeds the return from capital gains.

Question 13

The period from late 2007 through the end of 2014 is best described as a prolonged bear market.

Question 14

If stocks earn an average rate of return of 12 %, their value doubles every

A)4 years.
B)6 years.
C)8 years.
D)12 years.

Question 15

Which of the following are benefits related to stock ownership?
I.ease of trading
II.attractive inflation-adjusted rates of return
III.guarantee of long-term positive returns
IV.affordability

A)I and II only
B)II and IV only
C)I and III only
D)I, II and IV only

Question 16

Although bear markets on average occur every 3 to 4 years, the timing of bear markets is very hard to predict.

Question 17

Between 1930 and 2014, the average return on stocks exceeded 10%.

Question 18

Since 1960, returns on the Dow Jones Industrial Average have never been negative for 3 consecutive years.

Question 19

For stocks in the S&P 500 index, returns from dividends exceeded capital gains over the period 2000-2009.

Question 20

There is a stronger tendency for the stock market to increase in value rather than decrease in value over time.

Question 21

Many companies increased their dividends

A)whenever necessary to compensate shareholders for declining stock values.
B)in every year since 1950.
C)during the market decline of 2007-2008.
D)during the market recovery of 2009-2011.

Question 22

Which of the following periods provided particularly high returns to stock investors?

A)February 1972-October 1974
B)March 2009-December 2014
C)September 2000-September 2002
D)October 2007-March 2009

Question 23

Companies typically issue new shares through an initial public offering (IPO).

Question 24

Stocks generally have produced positive inflation-adjusted rates of return over the long-term.

Question 25

Different classes of stock generally have either different voting rights or different dividends.

Question 26

Shares of publicly traded stock can be issued either through a public offering or a rights offering.

Question 27

From March 2009 to January 2012, stock prices as measured by the S&P 500 Index

A)more than doubled in value.
B)lost more than half their value.
C)declined by nearly 10%.
D)rose by nearly 25%.

Question 28

Which of the following are true about stock market returns as measured by the S&P 500 index?
I.In 2008 alone stocks in the index lost approximately 36% of their value.
II.$10,000 invested in the index in March 2009 would have been worth more than $20,000 by the end of 2014.
III.From the beginning of 2000 to the end of 2010, the index more than doubled in value.
IV.Both stock and real estate prices recovered recovered strongly in the period between early 2009 and late 2014.

A)I II and III only
B)II, III and IV only
C)I ,II and IV only
D)I, and IV only

Question 29

Firms tend to repurchase shares of their outstanding stock when they view the shares as undervalued.

Question 30

Describe the bear market of 2008 through early 2009 and the trend of stock prices in subsequent years.

Question 31

An individual stock generally provides a

A)dividend payment that ensures total protection from purchasing power risk.
B)refuge from event risk.
C)current income that is less predictable than that available from other types of investments.
D)predictable annual rate of return.

Question 32

Shareholders must either exercise their rights granted via a rights offering or let them expire unused.

Question 33

From October 2007 to March 2009, stock prices as measured by the S&P 500 Index

A)nearly doubled in value.
B)lost more than half their value.
C)declined by nearly 10%.
D)rose by nearly 25%.

Question 34

The total value of an investor's holdings in a company will increase as a direct result of a stock split.

Question 35

$10,000 invested in the S&P 500 in March 2009 would have grown to more than $20,000 by the end of 2014.

Question 36

The extraordinary run up in stock prices during the late 1990s primarily affected

A)energy stocks.
B)retail stocks.
C)pharmaceutical stocks.
D)technology stocks.

Question 37

When residential real estate values fell sharply from 2006 to 2009, the stocks of financial institutions were hardly impacted at all.

Question 38

From 1976 through 2014, the dividend yield on stocks has been ________ the coupon yield on corporate bonds.

A)sometimes higher and sometimes lower than
B)on average, about the same as
C)consistently lower than
D)consistently higher than

Question 39

Stock held in treasury is a means of increasing the number of shares outstanding.

Question 40

Corporations often split their stocks when they believe that the price makes them less attractive to average investors.

Question 41

Electronic trading systems have increased transaction costs of odd-lot trades.

Question 42

Why do some companies split their stock?

Question 43

Stock which has been issued and subsequently reacquired by the issuing corporation is called

A)letter stock.
B)treasury stock.
C)classified stock.
D)book stock.

Question 44

What are the effects of a company repurchasing its own stock as Treasury shares?

A)usually negative in the short term but uncertain over the long term
B)usually positive in the short term but uncertain over the long term
C)usually positive in both the short term and the long term
D)no effect in either the short term or the long term

Question 45

Assume the Plum Corporation has two different issues of common stock.One issue carries voting rights, and the other issue does not.In this situation, Plum is said to have issued

A)buy-back stock.
B)treasury stock.
C)OTC stock.
D)classified stock.

Question 46

A round lot consists of

A)1 share.
B)10 shares.
C)100 shares.
D)1,000 shares.

Question 47

One motive for issuing classified stock with different voting rights is to

A)increase the market value of the company.
B)avoid SEC reporting requirements.
C)allow the company's founders to retain control of the company.
D)facilitate the issue of additional shares in the future.

Question 48

Engines, Inc.declares a 4-for-10 stock split.The stock currently sells for $3 a share.A shareholder who owned 1000 shares of stock prior to the split will now own

A)400 shares valued at about $7.50 a share.
B)40 shares valued at about $1.20 a share.
C)250 shares valued at about $7.50 a share.
D)250 shares valued at about $1.20 a share.

Question 49

Which one of the following statements about common stock is correct?

A)Each share of stock has a specified maturity date.
B)Common stock gives stockholders first title to a share of the company's earnings, prior to other corporate obligations.
C)Common stock typically provides higher levels of current income than do similar grade corporate bonds.
D)Each share of common stock of a given class entitles the holder to an equal ownership position and an equal vote in the corporation.

Question 50

Rob owns 300 shares of Blackwood common stock valued at $9 a share.Blackwood has declared a 3-for-1 stock split effective tomorrow.After the split, Rob will own

A)100 shares valued at about $27 a share.
B)100 shares valued at about $3 a share.
C)900 shares valued at about $27 a share.
D)900 shares valued at about $3 a share.

Question 51

Which of the following is unlikely to be found in an internet stock quotation?

A)earning per share (EPS)
B)beta
C)previous day's closing price
D)broker's commission per 100 shares

Question 52

In a rights offering, the

A)existing stockholders are given the first opportunity to purchase new shares in proportion to their current ownership position.
B)underwriter offers the investing public a certain number of shares at a certain price.
C)total equity remains constant while the number of shares of common stock outstanding increases.
D)amount of debt in the capital structure increases by the amount of the rights offering.

Question 53

Tiffany owned 1000 shares of GIA stock which was selling for $1.50 per share when the company declared a 1 for 10 reverse split.After the split, Tiffany owned

A)10,000 shares worth approximately $1.50 per share.
B)10,000 shares worth approximately $0.15 per share.
C)100 shares worth approximately $15 per share.
D)100 shares worth approximately $1.50 per share.

Question 54

Stock quotes on most Internet service providers such as Yahoo Finance include
I.the highest and lowest price over the last 52 weeks.
II.the closing price for the previous trading day.
III.the opening price for the day.
IV.the bid price and ask price.

A)I and III only
B)II and IV only
C)I, II and III only
D)II, III and IV only

Question 55

When a corporation declares a stock split, it usually does so because

A)the firm's retained earnings are excessive.
B)there are too many shares of stock outstanding.
C)investors sometimes require nontaxable returns.
D)it wants to make its stock more affordable to average investors.

Question 56

When a company offers the investing public a certain number of shares of its stock at a certain price, the company is making what is known as a

A)public offering.
B)rights offering.
C)stock spin-off.
D)treasury offering.

Question 57

Stocks that are readily available to the general public and that are bought and sold on the open market are known as

A)initial public offerings.
B)publicly traded issues.
C)treasury stocks.
D)blue chip stocks.

Question 58

Since each share of common stock represents ownership in a company, shares of common stock are often referred to as

A)illiquid investments.
B)equity securities.
C)fixed-income securities.
D)unit-cost securities.

Question 59

A stock's market value would normally be higher than it's book value.

Question 60

A stock's book value and par value are normally the same or nearly the same.

Question 61

The balance sheet value of a firm's assets minus the balance sheet amount of its liabilities is known as

A)par value.
B)book value.
C)liquidation value.
D)market value.

Question 62

A company's board of directors must declare a dividend if the firm is profitable.

Question 63

The value that investors place on a stock is called its

A)book value.
B)investment value.
C)liquidation value.
D)par value.

Question 64

You are given the following information on a company. Which one of the following statements is correct based on the information provided?

A)The market price is $21.34 per share.
B)The investment value is $2.67 per share.
C)The par value is $2.67 per share.
D)The book value is $21.34 per share.

Question 65

If a firm has a 2 million shares outstanding and its stock trades at $25 per share, the company has a market capitalization of $50,000,000.

Question 66

High dividend yields are typical of rapidly growing companies.

Question 67

A stock can have only one market value, but different investment values for different investors.

Question 68

The Charbridge Inc.has 4 million shares of stock outstanding.The stock has a par value of $1.00 per share and is currently trading at $36 per share.Nicole estimates the investment value of this stock at $38.50.According to this information, the market capitalization of Charbridge is

A)$144,000,000.
B)$154,000,000.
C)$4,000,000.
D)$72 million.

Question 69

As a general rule, which one of the following statements concerning the various values of common stock is correct?

A)Market values are usually below book values.
B)Par values are usually above book values.
C)Market values are usually below par values.
D)Book values are usually below market values.

Question 70

Dividend payments are usually more stable than capital gains.

Question 71

The investment value for a publicly traded stock can readily be found in the financial section of the newspaper or on the Internet.

Question 72

Which of the following will tend to increase transaction costs?

A)using a full service broker
B)buying or selling shares through an on-line broker
C)buying or selling more than 1000 shares in a single trade
D)buying or selling at times when volume is high and the exchanges are busy

Question 73

Another term for the stated value or face value of a stock is its

A)book value.
B)liquidation value.
C)par value.
D)proxy value.

Question 74

What is the relationship between a stock's market value and its investment value?

Question 75

A stock's investment value can be much higher than its book value.

Question 76

Shareholders who sell their stock on or after the ex-dividend date, but before the date of record, will still receive the declared dividend.

Question 77

Westlake Industries has total assets of $42.5 million, total debt of $29.3 million, and $2.4 million of 6% preferred stock outstanding.If the company has 250,000 shares of common stock outstanding, its book value per share would be

A)$32.33.
B)$33.60.
C)$43.20.
D)$52.80.

Question 78

Stock dividends do not increase the value of a shareholder's position.

Question 79

The par or stated value of common stock is important for

A)accounting purposes only.
B)helping the investor determine the stock's intrinsic value.
C)helping the board of directors determine the dividend payout.
D)helping the market determine the trading price of the stock.

Question 80

If a firm has a 2 million shares outstanding and its stock trades at $25 per share, the company also has $10,000,000 in debt.The company's market capitalization is

A)$40,000,000.
B)$49,000,000.
C)$50,000,000.
D)$60,000,000.