Business Finance: Stock Market

What is the difference between a high and low P/E ratio?

A high P/E ratio indicates the firm is expected to have a lot if growth in the future. A low P/E ratio stock pay higher dividends and has less risk with lower prices and slow growth.

What is the relationship between risk and return?

A higher rate of return = greater risk.

What is the job of a broker?

A person who is licensed to buy and sell stocks, provides investment advice, and collects commission on each purchase or sale.

What is the definition of a stock?

A stock is a share of ownership in the assets and earnings of a company.

What does beta measure?

A stocks volatility compared to overall changes in the stock market.

What are two reasons companies like to issue stocks?

Because the company does not have to repay the money and paying dividends is optional.

Why is a value stock viewed as an investment bargain?

Because they have a low price considering the historical earning records and value of assets.

Why utility and grocery companies are generally classified as countercyclical stocks?

Because they provide consistent earnings even when the economy is suffering.

What is the difference between bull and bear markets?

Bull market means the market is doing well because investors are optimistic and purchasing stock. Bear market means the market is doing poorly and investors are not purchasing stocks or selling stocks already owned.

What are the two basic types of stocks?

Common and preferred.

What is the difference between common and preferred stock?

Common stockholders have voting rights for the company's board of directors. Preferred stockholders do not have voting rights, have priority over common stockholders, and are paid fixed dividends

What is the definition of a dividend?

Dividends are distributions of earnings paid to stockholders.

What is the equation for dividend yield percentage?

Dividends paid divided by the stocks market price.

What are the three indicators of the stock market?

Dow Jones Industrial Average, Standard and Poor's 500 Composite Index, National Association of Security Dealers Automated Quotations.

If the price/earnings ratio of a company is 43 to 1, what does this mean?

For every dollar the company earns the stock's market price is worth $43.00.

What types of companies are classified as a growth stock?

Growth stocks are from companies who have a consistent record of relatively rapid growth and earnings in all economic conditions.

Speculative stocks have potential for very substantial earnings and therefore are very _____ risk.

High.

What unique characteristics do income stocks have?

Income stocks pay higher than average dividends.

What are two characteristics of the NYSE?

It is the oldest, largest, 1,366 seats available, and 2,800 companies.

The year to date percent change is measured is measured from what date?

January 1st of the current year.

What does NASDAQ stand for?

National Association of Securities Dealers Automated Quotations.

What type of company is classified as being blue-chip stock?

Nationally recognized companies with long records of profit, dividend payment, and a good reputation for management.

What does "Close" represent on a stock quote?

Price of the last share sold for the day.

What does the price/earnings ratio represent?

Relationship between the price of one share of stock and the annual earnings of the company.

Why is understanding the book value of a company important to researching a stock?

So a person knows what would happen if a company's assets were sold, debts paid, and proceeds distributed to stockholders.

What are the three ways the value of common stock can change?

The dollar value increases or decreases, a stock split occurs, there is a merger between two companies, and dividends are paid.

What is the definition of earnings per share?

The income a company has available to pay in dividends and reinvest as retained earnings on a per share basis.

If the economic business cycle is up, what is probably happening to cyclical stock prices?

The price of the stocks will be going up.

How are dividends for preferred stocks paid?

They have priority over common stock and are paid as a stated percentage known as the par value on the stock certificate.

Why do organized exchanges have minimum requirements?

To ensure only reputable companies are used.

What is the definition of dividends per share?

Total cash paid to common stockholders per share annually.