Kapoor Ch.14 Exam Prep Investing in Stocks

Personal Finance, 13e (Kapoor)

Chapter 14 Investing in Stocks

1) Since the end of World War II, stocks have returned almost 10 percent a year.

Difficulty: 1 Easy

Topic: Dollar and percentage yields and returns; Stock earnings and ratios

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

2) 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.

Difficulty: 1 Easy

Topic: Stockholder rights

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Stock splits and repurchases

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

5) Preferred stock is often referred to as a middle investment, because it represents an investment midway between common stock and corporate bonds.

Difficulty: 2 Medium

Topic: Preferred stock

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

6) A blue chip stock is too speculative for most investors.

Difficulty: 1 Easy

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 1 Easy

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 1 Easy

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

9) A defensive stock is a stock that typically sells for less than $5.

Difficulty: 1 Easy

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Stock information and advice

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

12) 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.

Difficulty: 2 Medium

Topic: Stock information and advice

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

13) It is common for websites like Morningstar and Reuters to charge fees for their more detailed financial information.

Difficulty: 2 Medium

Topic: Stock information and advice

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Stock valuation

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

17) No meaningful average for the earnings per share measure exists.

Difficulty: 2 Medium

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 3 Hard

Topic: Dollar and percentage yields and returns

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Dollar and percentage yields and returns

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

20) 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.

Difficulty: 2 Medium

Topic: Stock valuation

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

21) The beta is a measure that compares the volatility associated with a specific stock issue with the volatility of the S&P 500 Stock Index.

Difficulty: 2 Medium

Topic: Investment risks and measures

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

22) 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.

Difficulty: 1 Easy

Topic: Investment theories

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Financial institutions

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 1 Easy

Topic: Stock markets and exchanges

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 1 Easy

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Investment strategies and techniques

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Dollar cost averaging

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Margin

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Derivatives

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

33) 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

Difficulty: 2 Medium

Topic: Stockholder rights

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

34) Jeff Goldblum has just purchased a security which has no maturity date and no promised dividend payments. He can recoup his investment by either selling the security to another individual. What type of security did Jeff purchase?

A) Stock option

B) Corporate bond

C) Government bond

D) Dividend

E) Common stock

Difficulty: 2 Medium

Topic: Common stock

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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) Semiannual 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

Difficulty: 2 Medium

Topic: Stockholder rights

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

36) James Green just bought a stock 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

Difficulty: 2 Medium

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

37) 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

Difficulty: 2 Medium

Topic: Stock splits and repurchases

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

38) 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) ex-payment

E) stockholders' meeting

Difficulty: 2 Medium

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

39) 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

Difficulty: 2 Medium

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

40) Beverly Frickel purchased 100 shares of Gleason Systems stock for $32.50 per share. Her commission for this purchase was $25. She sold the stock two years later for $45 per share and a commission of $40. What was Beverly's total dollar return on this stock?

A) $1,100

B) $1,185

C) $1,500

D) $3,275

E) $4,460

Explanation: [(100 × $45) - $40] - [($32.50 × 100) + $25] = $4,460 - $3,275 = $1,185

Difficulty: 3 Hard

Topic: Dollar and percentage yields and returns

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

41) Arnell Johnson bought 200 shares of Black Petroleum Company for $100 per share and paid a commission of $50. He sold the stock five years later for $125 per share and paid $65 commission. While he held the stock, it paid a dividend of $4.00 per share. What was Arnell's total dollar return on this stock?

A) $24,900

B) $20,000

C) $5,800

D) $5,700

E) $5,685

Explanation: [(200 × $125) - $65] - [(200 × $100) + $50] + (200 × $4.00) = $24,935 - $20,050 + $800 = $5,685

Difficulty: 3 Hard

Topic: Dollar and percentage yields and returns

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Preferred stock

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

43) 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

Difficulty: 2 Medium

Topic: Preferred stock

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

44) 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.

Difficulty: 2 Medium

Topic: Stock information and advice

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

45) 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.

Difficulty: 2 Medium

Topic: Common stock

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

46) 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) are usually paid semiannually.

E) equal 100 percent of the firm's annual earnings.

Difficulty: 3 Hard

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

47) 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 can wait five years before buying back the shares.

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

48) 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.

Difficulty: 2 Medium

Topic: Stockholder rights

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

49) 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.

Difficulty: 2 Medium

Topic: Stockholder rights

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

50) 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 per share.

E) Corporate dividends are always paid in cash.

Difficulty: 3 Hard

Topic: Stock valuation; Stock earnings and ratios

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

51) Dividends remain with the stock until:

A) one business day 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.

Difficulty: 3 Hard

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

52) Patsy Banz owns 200 shares of a stock. For the last calendar quarter, the company paid a dividend of $0.45 a share. What is the total amount she received in her dividend check for this quarter?

A) $0.45

B) $45.00

C) $100.00

D) $90.00

E) $200.00

Explanation: 200 × $0.45 = $90.00

Difficulty: 1 Easy

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

53) Jill Bower purchased 175 shares of stock for $20 a share and sold it for $30 a share. The commissions required to buy and sell her stock totaled $50 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) $3,250

B) $3,550

C) $5,200

D) $5,300

E) $5,500

Explanation: (175 × $20) + $50 = $3,550

Difficulty: 2 Medium

Topic: Dollar and percentage yields and returns

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

54) James Brewer purchased 100 shares of stock for $73 a share. James also paid a $60 commission. What was the total purchase price for this transaction?

A) $60.00

B) $73.00

C) $7,300.00

D) $7,360.00

E) $8,000.00

Explanation: (100 × $73) + $60 = $7,360.00

Difficulty: 2 Medium

Topic: Stock trading

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

55) If the board of directors approves a two-for-one stock split, an investor who owns 125 shares before the split will own ________ shares after the split.

A) 75

B) 125

C) 225

D) 250

E) 450

Explanation: (125 × 2) = 250

Difficulty: 2 Medium

Topic: Stock splits and repurchases

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

56) 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.

Difficulty: 2 Medium

Topic: Stock splits and repurchases

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

57) 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

Difficulty: 2 Medium

Topic: Stock splits and repurchases

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

58) The most common stock split is:

A) 1-for-2

B) 2-for-1

C) 1-for-3

D) 4-for-1

E) 5-for-1

Difficulty: 2 Medium

Topic: Stock splits and repurchases

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

59) A safe investment that generally attracts conservative investors is called a ________ stock.

A) penny

B) cyclical

C) growth

D) small cap

E) blue chip

Difficulty: 1 Easy

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

60) 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

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

61) Regardless of a stock's classification, a stock is a(n) ________ investment because there are no guarantees.

A) speculative

B) conservative

C) substitute

D) unwise

E) sound

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

62) 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

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

63) 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

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

64) A stock that sells for $5 or less per share is called a ________ stock.

A) fractional

B) penny

C) dollar

D) ten-dollar

E) coin

Difficulty: 1 Easy

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

65) 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.

Difficulty: 2 Medium

Topic: Stock information and advice

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

66) Which one of the following is a true statement regarding stock advisory services?

A) When choosing a stock advisory service that charges fees for their information, the quality of the information is always excellent.

B) Stock advisory services provide only printed materials to evaluate potential stock investments.

C) There are less than a hundred stock advisory services that charge fees for their information.

D) The information provided by investors' services consists of simple alphabetical listings only.

E) For stocks, Value Line, Standard & Poor's, and Morningstar are three of the most popular advisory services.

Difficulty: 3 Hard

Topic: Stock information and advice

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

A) annual report.

B) quarterly report.

C) accountant's audit report.

D) prospectus.

E) stock guide.

Difficulty: 2 Medium

Topic: Stock information and advice

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

68) 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

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

69) 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

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

70) Sean Barber wants to invest in a stock that is relatively safe and is generally attractive to conservative investors. 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

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

71) 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

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

72) 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 prices.

D) The price for a share of stock is determined by what another investor is willing to pay for it.

E) Few investors consider earnings per share when evaluating the financial health of a corporation.

Difficulty: 3 Hard

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

73) Mellon Manufacturing has after-tax income of $6 million. It also has 4 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

Explanation: $6 million / 4 million = $1.50

Difficulty: 2 Medium

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

74) Barker Creek Clothing has after-tax income of $6.4 million and its earnings per share are $0.20. 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

Explanation: $6.4 million / $0.20 = 32 million.

Difficulty: 3 Hard

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

75) Masterworks Manufacturing has calculated its earnings per share as $1.25. If the corporation has 500,000 shares outstanding, what is the amount of after-tax income?

A) $12,500

B) $62,500

C) $125,000

D) $625,000

E) $6,250,000

Explanation: $1.25 × 500,000 = $625,000

Difficulty: 3 Hard

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

76) Last year, High-Tech Electronics earned $2.00 per share. If a share of its stock is selling for $60, what is the firm's P-E ratio?

A) 0.03

B) 2

C) 30

D) 33

E) 60

Explanation: $60/$2.00 = 30

Difficulty: 3 Hard

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

77) Acme Widget, Inc. has 1,000 shareholders who own a total of two million shares of its common stock. The stock currently sells for $80 per share. The company earned $8 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) 20

E) 25

Explanation: $80 / ($8 million / 2 million shares) = 20

Difficulty: 3 Hard

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

78) Acme Widget, Inc. has one million shares of common stock outstanding at a price per share of $62.50. The company earned $6 million after taxes. The annual dividend is $2.50 per share. The company has assets of $250,000,000 and liabilities of $50,000,000. What is the dividend yield?

A) 1 percent

B) 2 percent

C) 3 percent

D) 4 percent

E) 5 percent

Explanation: $2.50 / $62.50 = 0.04 = 4%

Difficulty: 3 Hard

Topic: Stock dividends and yields

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

79) 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

Difficulty: 2 Medium

Topic: Stock dividends and yields

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

80) Becky Martinez paid $65 a share for stock in GBX Corporation. The stock has a current market value of $24 a share and pays $0.80 a year in dividends per share. What is the dividend yield rounded to the nearest tenth of a percent?

A) 2.5 percent

B) 7.4 percent

C) 3.3 percent

D) 30.0 percent

E) 40.0 percent

Explanation: $0.80 / $24 = 0.033 = 3.3%

Difficulty: 3 Hard

Topic: Stock dividends and yields

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

81) The stock of ABC Company has a dividend yield of 4%. The corporation has paid a dividend of $3.00 a share over the last 12 months and has earnings per share of $5. What is the current market price per share?

A) $13

B) $25

C) $75

D) $93

E) $225

Explanation: $3.00 / 0.04 = $75

Difficulty: 2 Medium

Topic: Stock dividends and yields

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

82) Assume that you purchased 100 shares of a stock for $50 a share, that you received an annual dividend of $2.50 a share, and that you sold your stock for $60 a share at the end of one year. What is the total return on your investment?

A) $200

B) $1,000

C) $1,250

D) $1,500

E) $2,200

Explanation: (100 × $2.50) + [100 × ($60 − $50)] = $250 + $1,000 = $1,250

Difficulty: 3 Hard

Topic: Dollar and percentage yields and returns

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

83) Assume that you purchased 100 shares of a stock for $60 a share, that you did not receive any dividends, and that you sold your stock for $70 a share at the end of one year. What is the total return for your investment?

A) $60

B) $70

C) $100

D) $700

E) $1,000

Explanation: 0 dividends + [100 × ($70 − $60)] = $1,000

Difficulty: 3 Hard

Topic: Dollar and percentage yields and returns

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

84) A yield calculation that takes into account the total return, the original investment, and the number of years that the investment is held is called ________ yield.

A) current

B) dividend

C) annualized holding period

D) capital gain

E) original investment

Difficulty: 2 Medium

Topic: Dollar and percentage yields and returns

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

85) Acme Widget, Inc. has 1,000 shareholders who own a total of two million shares of its common stock. The company earned $20 million after taxes and paid out $8 million in dividends. The company has assets of $250 million and liabilities of $50 million. What is the book value per share?

A) $2

B) $8

C) $20

D) $100

E) $250

Explanation: ($250 million − $50 million) /2 million shares = $100

Difficulty: 3 Hard

Topic: Stock valuation

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

86) Assume the beta for the stock market in general is 1.0 and the beta for World-Wide Television Productions is 2.8. If the stock market increases in value by 5 percent, what is the expected increase in value for the World-Wide Productions stock?

A) 1 percent

B) 5 percent

C) 14 percent

D) 28 percent

E) 30 percent

Explanation: 0.05 × 2.8 = 0.14 = 14%

Difficulty: 1 Easy

Topic: Stock valuation; Investment risks and measures

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

87) Which of the following is true regarding book value?

A) A direct correlation exists between the market value and book value of a stock.

B) Book value calculations may be misleading to investors.

C) Book value is seldom reported in financial publications.

D) Book value is never used to calculate market-to-book ratio.

E) Some investors believe a stock is a bargain when the stock's market value is above its book value.

Difficulty: 3 Hard

Topic: Stock valuation

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

88) ABC Corporation has assets that total $24 million and liabilities that total $8 million. It also has 1,000,000 shares of stock outstanding. What is the ABC's book value per share?

A) $32

B) $24

C) $16

D) $8

E) $0

Explanation: ($24,000,000 − $8,000,000) / 1,000,000 shares = $16 per share

Difficulty: 2 Medium

Topic: Stock valuation

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

89) Martin Manufacturing stock has a market value of $24 a share. If the book value is $20 a share, the corporation's market-to-book ratio is:

A) 0.8

B) 1.0

C) 1.2

D) 2.0

E) 2.4

Explanation: $24 / $20 = 1.2

Difficulty: 2 Medium

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

90) In addition to expected earnings, fundamental analysis theorists consider:

A) the financial strength of the company

B) the type of industry the company is in

C) new product development

D) the economic growth of the overall economy

E) All of these

Difficulty: 2 Medium

Topic: Investment theories

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

91) An investment theory based on the assumption that a stock's market value is determined by the forces of supply and demand in the stock market as a whole is called the ________ theory.

A) fundamental

B) technical analysis

C) efficient market

D) primary

E) market

Difficulty: 2 Medium

Topic: Investment theories

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

92) An investment theory based on the assumption that stock price movements are purely random is called the ________ theory.

A) fundamental

B) technical

C) efficient market hypothesis

D) primary

E) market

Difficulty: 2 Medium

Topic: Investment theories

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

93) The Arnold Fertilizer Company's stock is selling for $64 in the market and its earnings per share is $8. The company is projected to grow at a rate of 16% over the next year. What is this company's price/earnings to growth ratio?

A) 8.00

B) 6.40

C) 0.50

D) 16.00

E) 64.00

Explanation: ($64/$8) / 16 = 0.50

Difficulty: 3 Hard

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

94) Fred Manufacturing Company pays an annual dividend of $0.80 per share, has earnings per share of $2.50, and sells for $35 a share. What is this company's dividend payout ratio?

A) 8 percent

B) 25 percent

C) 28 percent

D) 32 percent

E) 35 percent

Explanation: $0.80 / $2.50 = 0.32 = 32%

Difficulty: 3 Hard

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

95) A market in which an investor purchases financial securities from the issuer of those securities using an investment bank or other representative is called the ________ market.

A) technical

B) fundamental

C) efficient

D) secondary

E) primary

Difficulty: 1 Easy

Topic: Stock markets and exchanges

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

96) A market for existing financial securities that are currently traded among investors is called the ________ market.

A) technical

B) fundamental

C) efficient

D) secondary

E) primary

Difficulty: 1 Easy

Topic: Stock markets and exchanges

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

97) Which one of the following is a true statement regarding account executives?

A) They are generally not liable for client losses that result from their recommendations.

B) It is wise to allow an account executive to make investment decisions without the client's approval.

C) An account executive cannot buy and sell securities for clients and help them develop an investment program.

D) An account executive is not licensed to buy or sell securities for clients.

E) The arbitration clause allows clients to sue the brokerage firm that an account executive represents.

Difficulty: 3 Hard

Topic: Stock information and advice

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

98) Which of the following is an electronic marketplace for buying and selling global stocks and securities?

A) New York Stock Exchange

B) Over-the-counter market

C) NASDAQ

D) Tokyo foreign securities exchange

E) London foreign securities exchange

Difficulty: 3 Hard

Topic: Stock markets and exchanges

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

99) Which one of the following is a true statement?

A) The over-the-counter market is a network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange.

B) Account executives buy or sell a particular stock to maintain an orderly market.

C) OTC trading is for investors who want to buy or sell stocks in stores.

D) Specialists are not members of the NYSE.

E) Most NYSE members represent brokerage firms that do not charge commissions on security trades.

Difficulty: 3 Hard

Topic: Stock markets and exchanges

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

100) Both limit and _____orders may be good for one day, one week, one month, good until canceled, or a specified date.

A) stop loss

B) limit

C) stop

D) round

E) discretionary

Difficulty: 3 Hard

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

101) Which order is executed if and when the specified price or better is reached and all other previously received orders have been fulfilled?

A) Market

B) Limit

C) Stop

D) Round

E) Discretionary

Difficulty: 2 Medium

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

102) An order to sell a particular stock at the next available opportunity after the market price of the stock reaches a specified price is called a ________ order.

A) market

B) limit

C) stop

D) round

E) discretionary

Difficulty: 1 Easy

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

103) Jennifer Fritz is thinking about purchasing the stock of the Sunshine Corporation at the current market price. What type of order should she place?

A) Market order

B) Limit order

C) Stop order

D) Discretionary order

E) Common order

Difficulty: 2 Medium

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

104) Ashley Riley wants to buy the stock of XYZ Company at a specified price or better. What type of order should she place?

A) Market order

B) Limit order

C) Stop order

D) Discretionary order

E) Common order

Difficulty: 2 Medium

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

105) Carol Fisher wants to sell the stock of Hathaway International at the next available price after the market price reaches $50 per share. What type of order should she place?

A) Market order

B) Limit order

C) Stop order

D) Discretionary order

E) Common order

Difficulty: 2 Medium

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

106) A long-term technique used by investors who purchase an equal dollar amount of the same stock at equal intervals in time is called:

A) dollar cost averaging.

B) dividend reinvestment plan.

C) buy and hold technique.

D) regulated transaction.

E) secured transaction.

Difficulty: 2 Medium

Topic: Dollar cost averaging

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

107) A long-term investment technique used by investors to purchase stock directly from a corporation without paying a commission to an account executive or broker is called:

A) dollar cost appreciation.

B) direct investment plan.

C) unregulated transaction.

D) regulated transaction.

E) over-the-counter transaction.

Difficulty: 3 Hard

Topic: Investment strategies and techniques

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Remember; Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

108) Which one of the following statements is true regarding buying stock on margin?

A) When buying stock on margin, an investor borrows stock from the brokerage firm.

B) Usually, a bank arranges for the loan in a margin transaction.

C) Investors buy on margin because doing so offers them the potential to buy more stock and therefore earn larger returns.

D) The margin requirement is established by the New York Stock Exchange.

E) The current margin requirement is 25 percent.

Difficulty: 3 Hard

Topic: Margin

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

109) Which one of the following statements is true regarding selling short?

A) When an investor buys stocks and assumes they will increase in value, he or she is using a procedure called selling short.

B) Selling short is selling stock that has been borrowed from a brokerage firm.

C) When you sell short, you buy today, knowing you must sell or cover your short transaction, at a later date.

D) In a short transaction, if the stock increases in value, the investor makes money.

E) To make money in a short transaction, you must hold on the stock for at least one year.

Difficulty: 3 Hard

Topic: Short-selling

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

110) Stock owners who believe the price of their stock will go down during an option period will purchase a:

A) futures contract.

B) long contract.

C) call option.

D) put option.

E) margin contract.

Difficulty: 1 Easy

Topic: Derivatives

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

111) On May 24, 2018, Kurt Rogers bought 100 shares of stock from XYZ Corporation. The quarterly dividend is $1.50 per share and the record date is May 25. How much will Kurt receive for this quarterly dividend?

A) $0.00

B) $1.50

C) $15.00

D) $150.00

E) $0.15

Difficulty: 3 Hard

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

112) On May 20, 2018, Tony Blackman bought 100 shares of stock from XYZ Corporation. The quarterly dividend is $1.50 per share and the record date is May 25. How much will Tony receive for this quarterly dividend?

A) $0.00

B) $1.50

C) $15.00

D) $150.00

E) $0.15

Explanation: 100 × $1.50 = $150.00

Difficulty: 3 Hard

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand; Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

113) If a stock has a 2-for-1 split:

A) the value of the stock is guaranteed to increase.

B) the value of the stock is guaranteed to decrease.

C) total market capitalization increases.

D) total market capitalization decreases.

E) total market capitalization does not change.

Difficulty: 3 Hard

Topic: Stock splits and repurchases

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

114) Before a 2-for-1 stock split, Lisa's stock was valued at $60 per share. What is her per share value after the split?

A) $30

B) $60

C) $90

D) $120

E) $150

Explanation: $60/2 = $30

Difficulty: 2 Medium

Topic: Stock splits and repurchases

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

115) After a 2-for-1 stock split:

A) earnings per share decrease.

B) earnings per share increase.

C) capitalization decreases.

D) capitalization increases.

E) dividend yields decrease.

Difficulty: 3 Hard

Topic: Stock splits and repurchases

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

116) The beta for the S&P 500 is defined as:

A) 0

B) 1.0

C) 10.0

D) 50.0

E) 100.0

Difficulty: 3 Hard

Topic: Investment risks and measures

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

117) If Widget Corp. has a PEG value of .50, the stock is most likely:

A) undervalued based on its projected growth rate.

B) overvalued based on its projected growth rate.

C) overvalued based on its $0.50 per share dividend.

D) overvalued based on its good historical earnings.

E) undervalued based on its poor historical earnings.

Difficulty: 3 Hard

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

118) Ms. Hart's stock club uses numerous charts that plot past price movements and other market averages to predict the future direction for the market as a whole. Her club relies on ________ analysis to determine stock selections.

A) fundamental

B) technical

C) efficient market

D) chart

E) plot

Difficulty: 2 Medium

Topic: Investment theories

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

119) When a corporation sells stock to the general public for the first time, it is referred to as a:

A) primary market opportunity.

B) secondary market offering.

C) initial public offering.

D) investment bank offering.

E) primary stockholder opportunity.

Difficulty: 2 Medium

Topic: Stock markets and exchanges

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

120) Initial public offerings are a ________ investment.

A) guaranteed

B) speculative

C) safe

D) conservative

E) blue chip

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

121) Stock dividends are declared by the:

A) chief financial officer.

B) board of directors.

C) stockholders.

D) corporate employees.

E) U.S. government.

Difficulty: 2 Medium

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

122) The stock exchange known to trade stock for innovative, forward-looking growth companies is the:

A) NYSE.

B) NASDAQ.

C) American Stock exchange.

D) S&P 100.

E) STSE.

Difficulty: 2 Medium

Topic: Stock markets and exchanges

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

123) Approximately ________ percent of earnings are distributed to stockholders as dividends by most corporations.

A) 10 to 20

B) 25 to 45

C) 30 to 70

D) 75 to 95

E) 100

Difficulty: 2 Medium

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

124) A stock issued by a corporation that has a market capitalization of $300 million or less would be classified as what type of stock?

A) Micro cap

B) Penny stock

C) Midcap

D) Small cap

E) Blue chip

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

125) When stocks are trading at prices above their actual worth, the resulting situation is called a(n):

A) inflated corporate earnings.

B) low unemployment rate.

C) changes in government regulation.

D) stock market bubble.

E) economic turmoil.

Difficulty: 2 Medium

Topic: Stock valuation

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

126) A long-term investment technique that allows investors the option to reinvest cash dividends to purchase stock of the corporation is called:

A) a direct investment plan.

B) a dividend reinvestment plan.

C) dollar cost averaging.

D) buy-and-hold.

E) day trading.

Difficulty: 2 Medium

Topic: Investment strategies and techniques

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

127) If the corporation has a bad year, the board of directors generally may vote to:

A) sell less stock.

B) decrease the stock price.

C) cease selling stock.

D) omit dividend payments.

E) increase dividend payments.

Difficulty: 2 Medium

Topic: Stock dividends and yields

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

128) A large cap stock is a stock issued by a corporation that has a capitalization in excess of how much?

A) $10 billion

B) $20 billion

C) $30 billion

D) $40 billion

E) $50 billion

Difficulty: 2 Medium

Topic: Stock classifications and characteristics

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

129) Which of the following most likely does not charge a fee for you to access any of their information that may be used to evaluate a stock investment?

A) Value Line

B) Morningstar

C) Yahoo! Finance

D) Standard & Poor's

E) Reuters

Difficulty: 2 Medium

Topic: Stock information and advice

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

130) Beta is a measure that compares the volatility associated with a specific stock issue with the volatility of which stock index?

A) S&P 500 stock index

B) Dow Jones Industrial Average

C) NASDAQ composite index

D) FTSE 100 index

E) CAC 40 index

Difficulty: 3 Hard

Topic: Investment risks and measures

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

131) When choosing a brokerage firm, an investor should consider:

A) the amount of the commissions they charge.

B) how much research information is available.

C) how much research information costs.

D) how much help you need when making an investment decision.

E) All of these

Difficulty: 2 Medium

Topic: Stock information and advice; Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

132) Many analysts believe that a corporation's ability to generate ________ in the future is one of the most significant factors that account for an increase or decrease in the price of a stock.

A) stockholder support

B) dividends

C) earnings

D) new business locations

E) new business ideas

Difficulty: 2 Medium

Topic: Stock valuation

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

133) Earnings per share for a stock investment is calculated as:

A) after-tax income divided by the number of stockholders.

B) the number of stockholders divided by after-tax income.

C) after-tax income divided by the number of shares outstanding.

D) the number of shares outstanding divided by after-tax income.

E) None of these

Difficulty: 2 Medium

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

134) The price-earnings ratio for a stock investment is calculated as:

A) price per share divided by the number of stockholders.

B) the number of stockholders divided by the price per share.

C) price per share divided by the number of shares outstanding.

D) price per share divided by the earnings per share.

E) the earnings per share divided by the price per share.

Difficulty: 2 Medium

Topic: Stock earnings and ratios

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

135) The dividend yield for a stock investment is calculated by dividing:

A) the annual dividend amount per share by the investment's past price per share.

B) the annual dividend amount per share by the investment's current price per share.

C) the annual dividend amount per share by the investment's future price per share.

D) the investment's past price per share by the annual dividend amount per share.

E) the investment's current price per share by the annual dividend amount per share.

Difficulty: 3 Hard

Topic: Stock dividends and yields

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

136) When completing stock transactions, payment for stocks is generally required within ________ business days after the transaction.

A) 3

B) 1

C) 2

D) 4

E) 5

Difficulty: 1 Easy

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

137) Today most investors buy or sell stocks ________.

A) in person at company headquarters

B) online

C) in person at NASDAQ

D) in person at the full-service brokerage firm

E) in person at the discount broker firm

Difficulty: 2 Medium

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

138) Mary Smith purchased 100 shares of Johnson electronics four years ago at $15.00 each. She paid a $30 commission on this transaction. She has decided to sell these shares at $25.00 each and will incur a $25 commission on this sale. What is the amount of her capital gain?

A) $945

B) $1,530

C) $2,475

D) $2,500

E) $3,000

Explanation: [(100 × $25) − $25] − [(100 × $15) + $30 = 2,475 − 1,530 = $945

Difficulty: 3 Hard

Topic: Dollar and percentage yields and returns

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

139) Mary Smith purchased 100 shares of Johnson electronics four years ago at $15.00 each. She paid a $30 commission on this transaction. She has decided to sell these shares at $25.00 each and will incur a $25 commission on this sale. What is the total investment amount?

A) $1,000

B) $1,500

C) $1,530

D) $2,475

E) $2,500

Explanation: [(100 × $15) + $30] = $1,530

Difficulty: 3 Hard

Topic: Dollar and percentage yields and returns

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

140) To reduce anxiety when you make stock investment decisions, you should do all of the following except:

A) Evaluate each investment.

B) Analyze the firm's finances.

C) Track the firm's product line.

D) Monitor economic developments.

E) Hold the stocks for a short time for above average returns.

Difficulty: 2 Medium

Topic: Stock information and advice

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

141) One of the oldest and most recognized measures of stock market activity is:

A) Morningstar

B) Reuters

C) Dow Jones Industrial Average

D) Market Watch

E) Value Line

Difficulty: 1 Easy

Topic: Stock valuation; Stock trading

Learning Objective: 14-02 Explain how you can evaluate stock investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

142) Warren Buffett is well known for successfully employing which theory to identify both stocks and corporations that are undervalued?

A) Technical analysis

B) Beta

C) Efficient market hypothesis

D) Fundamental analysis

E) Stock market bubble

Difficulty: 2 Medium

Topic: Stock valuation; Investment theories

Learning Objective: 14-03 Analyze the numerical measures that cause a stock to increase or decrease in value.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

143) Which of the following uses algorithm-driven software to make investment suggestions that will match the investor's profile?

A) Morningstar

B) Reuters

C) Market Watch

D) Robo-Advisor

E) Account Executive

Difficulty: 2 Medium

Topic: Stock information and advice

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

144) If the average cost of a stock is $91.86 as determined by dollar cost averaging, which of the following is true?

A) You would lose money only if you sold your stock at less than $91.86.

B) You would gain money only if you sold your stock at less than $91.86.

C) You would lose money only if you purchased additional stock at greater than $91.86.

D) You would gain money only if you purchased additional stock at greater than $91.86.

E) You would not lose nor gain money regardless of the average cost of the stock.

Difficulty: 2 Medium

Topic: Investment strategies and techniques; Dollar cost averaging

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

145) What are the 5 steps you can take to open an account with a brokerage firm?

∙ Develop investment goals and establish an emergency fund.

∙ Choose the type of brokerage account that meets your needs.

∙ Save some money.

∙ Research different brokerage firms.

∙ Do the paperwork.

Difficulty: 2 Medium

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

146) Why do corporations issue common stock? Why do investors buy that stock?

Investors purchase common stock for basically two reasons. First, an investment in common stock can provide income from dividends. Second, an investor may gain financially from dollar appreciation of the stock's value. In addition, there is the possibility of gains if a corporation splits its stock.

Difficulty: 2 Medium

Topic: Common stock

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

147) What is the primary difference between common stock and preferred stock?

If a firm is dissolved or declares bankruptcy, preferred stockholders do have first claim to the corporation's assets after creditors (including bondholders) when compared to common stockholders. In reality, preferred stockholders don't receive anything in most bankruptcies, because creditors have a priority claim and must be paid before preferred stockholders receive anything.

Difficulty: 2 Medium

Topic: Preferred stock; Common stock

Learning Objective: 14-01 Identify the most important features of common and preferred stocks.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

148) Describe information that may help you decide whether to use a full-service, discount, or online brokerage firm.

Discount: People who understand the "how to" of researching stocks and prefer to make their own decisions. Individuals who are uncomfortable trading stocks online.

Online: People who understand the "how to" of researching stocks and prefer to make their own decisions. Individuals who are comfortable trading stocks online.

Finally, consider how easy it is to buy and sell stock and other securities when using these firms.

Difficulty: 2 Medium

Topic: Stock trading

Learning Objective: 14-04 Describe how stocks are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

149) Matthew Boyd has saved $10,000 and wants to invest in common stock. Give examples of long-term techniques and short-term techniques that he could use to invest. Describe the difference between short-term and long-term investments.

Short-term techniques (1) day trading; (2) buying stock on margin; (3) selling short; and (4) trading in options.

Short-term refers to holding an investment less than a year whereas long-term refers to holding an investment for at least a year or more.

Difficulty: 2 Medium

Topic: Investment strategies and techniques

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

150) Explain what dollar cost averaging is and why an investor would use the technique.

Difficulty: 2 Medium

Topic: Investment strategies and techniques; Dollar cost averaging

Learning Objective: 14-05 Explain the trading techniques used by long-term investors and short-term speculators.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual