Multiple Choice Chapter 12

If you want to compare two companies, you should use A. Book value per share. B. Dividend yield. C. Price per share. D. Net income. E. Price-earnings ratio.

E

A licensed individual who works for a brokerage firm and buys or sells securities for his or her clients is called a(n) A. Account executive. B. Account investor. C. Online executive. D. Market maker. E. All of these are correct.

A

A stock issued by a stable corporation that generally attracts conservative investors is called a(n) _______ stock. A. blue chip B. income C. micro cap D. midcap E. penny

A

Brenda purchases stock and plans to hold on to it for a number of years. She could be considered to be using a A. Buy-and-hold technique. B. Direct investment plan. C. Direct reinvestment plan. D. Dollar cost averaging technique. E. Margin technique.

A

Cliff retired 10 years ago and wants to still own a few stocks. Dividends are important to him, and he wants to invest in a large, stable corporation. He should purchase _______ stocks. A. blue chip B. cyclical C. micro cap D. midcap E. penny

A

Dividend yield equals A. Annual dividend amount/Current price per share. B. Quarterly dividend amount/Price per share. C. Annual dividend amount/Book value per share. D. Quarterly dividend amount/Book value per share. E. Annual dividend amount/Earnings per share.

A

Excessive buying and selling of securities to generate commissions is called A. Churning. B. Flipping. C. Marketing. D. Prospecting. E. Scamming.

A

MNOP Inc. declared a $1.00 dividend with a record date of Thursday, September 15, and a payment date of Thursday, October 20. Cheri wants to purchase this stock and receive the dividend. What is the latest date that she needs to have purchased the stock in order to receive the dividend? A. September 12 B. September 13 C. September 15 D. September 19 E. October 18

A

Stephen wanted to become one of the owners of GHI Corp. when it initially became available to the general public. He participated in the A. Initial public offering. B. Investment bank. C. Primary market. D. Secondary market. E. Securities exchange.

A

Amanda wants to be part of the most basic form of ownership for a corporation. She should invest in A. Bonds. B. Common stock. C. Dividends. D. A savings account. E. A proxy.

B

Tanya understands the "how to" of researching stocks and likes to make her own decisions. However, she is not comfortable using the Internet to trade stocks. She should use a(n) A. Discount broker. B. Full-service broker. C. Market maker. D. Online broker. E. All of these are correct.

A

The formula "(Assets - Liabilities)/Number of Shares outstanding" equals A. Book value. B. Dividend yield. C. Earnings per share. D. Market value. E. Price-earnings ratio.

A

The opportunity, but not the obligation, to buy a security within a specified period of time at a guaranteed price is A. A call option. B. Direct investing. C. Buying on margin. D. A put option. E. A short sale.

A

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

B

An investment that pays higher-than-average dividends is called a(n) _______ stock. A. blue chip B. income C. micro cap D. midcap E. penny

B

Book value equals A. (Assets + Liabilities)/Number of shares outstanding. B. (Liabilities - Assets)/Number of shares outstanding. C. (Assets + Liabilities)/Earnings per share. D. (Liabilities + Assets/Price-earnings ratio. E. (Assets - Liabilities)/Number of shares outstanding.

B

Devin wants to purchase DEF stock for a specified price of $40.00 or less, and he understands this request will be executed after all previously received orders have been fulfilled. He should use a A. Current sale order. B. Limit order. C. Market order. D. Stop order. E. Stop-loss order.

B

Equity financing is money received from the sale of A. Bonds. B. Common stock. C. Dividends. D. A savings account. E. A proxy.

B

MNOP Inc. declared a $1.00 dividend with a record date of Thursday, September 15, and a payment date of Thursday, October 20. Cheri does not want receive this current dividend. What is the earliest date that she should purchase the stock in order to avoid receiving the dividend? A. September 12 B. September 13 C. September 15 D. October 18 E. October 20

B

Marissa purchases $500 of stock directly from a corporation without having to use an account executive or a brokerage firm. She is using a A. Buy-and-hold technique. B. Direct investment plan. C. Direct reinvestment plan. D. Dollar cost averaging technique. E. Margin technique.

B

NYSE stands for A. New York Securities Exchange. B. New York Stock Exchange. C. New York School of Engineering. D. Never Yet So Even. E. New Year Selling Exchange.

B

Since 1926, the average annual return for stocks has been almost A. 8%. B. 10%. C. 12%. D. 14%. E. 16%.

B

Terry wants to begin investing and needs some guidance because he is uncomfortable making investment decisions. He should use a(n) A. Discount broker. B. Full-service broker. C. Market maker. D. Online broker. E. None of these is correct.

B

This calculation uses the current price per share and the annual amount of money paid to investors from the company. A. Book value B. Dividend yield C. Earnings per share D. Market value E. Price-earnings ratio

B

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

B

Which of the following is a profitability ratio that uses the number of outstanding shares in the calculation? A. Capital gain B. Earnings per share C. Price per share D. Net income E. Dividend yield

B

Which of the following is correct? A. The broker pays you interest on money borrowed to purchase stock on margin. B. Selling short is selling stock borrowed from a brokerage firm. C. A put option is the right, but not the obligation, to purchase a stock at a specified price by a given date. D. A brokerage firm receives double its commission when stock is bought and sold when the investor is selling short. E. If the stock price increases and you purchased stock on margin, you may receive a margin call.

B

Which of the following usually offers some free information and charges for the more detailed online information you may need to evaluate a stock investment? A. Financial websites such as www.finance.yahoo.com B. Personal finance websites such as www.smartmoney.com C. Professional advisory services such as Standard & Poor's Financial Services D. Search engines such as Yahoo! E. Securities and Exchange Commission website

C

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

C

A distribution of money, stock, or other property that is paid to the stockholders of a company is called a A. Bond. B. Common stock. C. Dividend. D. Savings account. E. Proxy.

C

A stock issued by a company that has a capitalization between $50 and $300 million or less is called a _______ stock. A. blue chip B. income C. micro cap D. midcap E. penny

C

Alberta owns 100 shares of stock of ABC Company, and Bobby owns 200 shares of the same stock. If ABC Company pays a $5 dividend to all stockholders with a record date of Friday, June 15, then A. Alberta will receive the same amount as Bobby if they owned the stock two business days before the record date. B. Both will receive the dividend as long as they sell their stock three days before the record date. C. Alberta will receive half as much as Bobby if they owned the stock two business days before the record date. D. Both will receive the dividend if they bought the stock on the record date. E. Alberta and Bobby will receive the same amount if they bought the shares at least one month before the record date.

C

Claudia is a licensed individual who buys or sells investment for her clients. Which of the following is not correct? A. She is an account executive. B. She should not use her discretion without her client's approval. C. She should focus on churning for her clients. D. She should provide information and advice to be used in evaluating potential investments. E. She is known as a stockbroker.

C

Faye sometimes borrows money from her broker to buy her stock. She is buying A. A call option. B. A direct investment. C. On margin. D. A put option. E. A short sale.

C

If you bought a stock on June 15, 2013, and sold it on July 15, 2014, you would likely be classified as a(n) A. Speculator. B. Trader. C. Investor. D. None of these are correct. E. All of these are correct.

C

If you buy or sell with this technique, you may be required to pledge additional collateral or cash for a loan. A. A call option B. Direct investing C. Buying on margin D. A put option E. Selling short

C

Investors who earn larger returns because they borrow part of the money needed to by a particular stock are using which of the following techniques? A. A call option B. Direct investing C. Buying on margin D. A put option E. Selling short

C

Jackson was interested in purchasing low-value securities that were not listed on the NYSE. He probably used _____ to complete his transaction. A. an initial public offering B. an investment bank C. the over-the-counter market D. a primary market E. the securities exchange commission website

C

Kelly bought some stock using an investment bank from the issuer of those securities. She bought her shares A. From a specialist. B. From an Investment bank. C. On the Primary market. D. On the Secondary market. E. From a Securities exchange.

C

Mallory wants to purchase stock at the current market price. She should use a A. Current sale order. B. Limit order. C. Market order. D. Stop order. E. Stop-loss order.

C

Patrick graduated from college five years ago. He has set up an emergency fund and has been paying off his student loans. In addition, he participates in the retirement plan offered by his employer. He wants to invest $75 per month in very small companies (capitalization between $50 and $300 million or less). He should purchase _______ stocks. A. blue chip B. income C. micro cap D. midcap E. penny

C

Rebecca owns stock that pays a dividend. She does not want the cash now; instead she would prefer to have more shares of stock. She should use a A. Buy-and-hold technique. B. Direct investment plan. C. Dividend reinvestment plan. D. Dollar cost averaging technique. E. Margin technique.

C

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

C

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

C

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

C

A stock issued by a corporation that has a capitalization between $2 billion and $10 billion is called a(n) _______ stock. A. blue chip B. income C. micro cap D. midcap E. penny

D

Annual reports A. Are available only online from a corporation's internet website. B. Are available only to current stockholders. C. Include the same information as a prospectus. D. May be sent to all stockholders on an annual basis. E. Include estimated financial data only.

D

Gavin has owned MNOP stock for several years and has seen the stock increase in value from $20 to $35. He wants to "lock in" his gains, so he needs to place an order that will sell his stock at the next available opportunity after its market price drops to $33. What kind of order should he use? A. Current sale order. B. Limit order. C. Market order. D. Stop-loss order. E. None of these.

D

If you bought a stock on July 1, 2014, and sold it on July 15, 2014, you may be a(n) A. Speculator. B. Trader. C. Investor. D. Two of these are correct. E. All of these are correct.

D

Patrick sold his GE shares using his online broker. One can say that he sold them A. At an Initial public offering. B. Through an Investment bank. C. In the Primary market. D. In the Secondary market. E. At a Securities exchange.

D

Tammy understands how to research stocks and feels quite comfortable trading her own stocks using the Internet. She should use a(n) A. Discount broker. B. Full-service broker. C. Market maker. D. Online broker. E. All of these are correct.

D

The opportunity, but not the obligation, to sell a security within a specified period of time at a guaranteed price is A. A call option. B. Direct investing. C. Buying on margin. D. A put option. E. A short sale.

D

Timothy has $100 automatically invested in a stock each month. This way, he doesn't buy high and sell low. He is using a A. Buy-and-hold technique. B. Direct investment plan. C. Direct reinvestment plan. D. Dollar cost averaging technique. E. Margin technique.

D

Which of the following is based on historical numbers? A. Projected Earnings. B. Earnings per share. C. Price-earnings ratio. D. Both B and C. E. None of these.

D

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

D

Which of the following is not correct? A. You pay interest on money borrowed to purchase stock on margin. B. Selling short is selling stock borrowed from a brokerage firm. C. A option is the right to buy or sell a stock at a predetermined price during a specified period of time. D. A brokerage firm receives double its commission when stock is bought and sold when the investor is selling short. E. If the stock price decreases and you purchased that stock on margin, you may receive a margin call.

D

A legal form that requests that stockholders transfer their voting rights to individual(s) is called a A. Bond. B. Common stock. C. Dividend. D. Savings account. E. Proxy.

E

A marketplace where member brokers who represent investors meet to buy and sell securities is called a(n) A. Initial public offering. B. Investment bank. C. Primary market. D. Intermediary market. E. Securities exchange.

E

A stock that typically sells for less than $5 per share (or in some cases, less than $1 per share) is called a(n) _______ stock. A. blue chip B. income C. micro cap D. midcap E. penny

E

Avery is thinking about using the computer to do his investing. To justify using a computer instead of using telephone orders to buy and sell stock, he should consider all of the following except A. His ability to manage his investments closely B. Whether he is an active investor or not C. The size of his investment portfolio D. None of these are appropriate. E. A, B, and C are appropriate considerations.

E

Ben is selling stock that he borrowed from his broker and planned to replace at a later date. Which of the following strategies is he using? A. A call option B. Direct investing C. Buying on margin D. A put option E. Selling short

E

Detailed financial reports from advisory services such as Value Line include all of the following sections except A. Top of the report includes price information and price projections for a share of stock. B. Middle of the report includes revenues, earnings per share, dividends, etc. C. Bottom of the report includes information about the type of business and prospects for the future. D. None of the above are included. E. All of the information in A, B, and C are included in financial reports.

E

Ethan wants to purchase some stock for the first time. Which of the following is correct? A. His account executive should be encouraged to churn Ethan's account to maximize his return. B. He should use an online broker to get professional help about purchasing stock. C. His purchase price will exactly equal the number of shares he purchases times the average price per share and is known in advance. D. If he uses a commission order, he can lock in the price at which he wants to buy the stock. E. His commission should be lower at an online broker than at a full-service broker.

E

If you buy common stock, you may receive income from A. Dividends. B. Dollar appreciation of stock value. C. Possible increases in value from stock splits. D. Two of these are correct. E. All of these are correct.

E

Jake wanted to buy and sell various stocks on the NYSE. He was using one of the largest _______________ in the world. A. initial public offerings B. investment banks C. primary markets D. Over-the-counter markets E. securities exchanges

E

Megan decided to start investing in stocks. Which of the following should she do first? A. Base her investing decisions on hot tips she hears at work. B. Buy stocks based solely on her stockbroker's recommendation. C. Choose stocks based on recommendations from her family members. D. Pick stocks at random. E. Research the corporations she is interested in as well as their industries.

E

Peter is a NASDAQ dealer who matches buy and sell orders for Ford. He is known as a(n) A. Account executive. B. Account investor. C. Discount broker. D. Full-service broker. E. Market maker.

E

The NYSE is an example of a(n) A. Initial public offering. B. Investment bank. C. Primary market. D. Intermediary market. E. Securities exchange.

E

The earnings per share equals A. Total number of shares of preferred stock divided by earnings. B. Total number of shares of common stock divided by earnings. C. Total earnings divided by number of shares of preferred stock. D. Total earnings divided by number of shares of common and preferred stock. E. None of these.

E

This calculation includes the yearly dividends in dollars plus the increase in the original purchase price of the investment. A. Book value B. Capital gain C. Market value D. Price-earnings ratio E. Total return

E

This ratio uses the market price per share of the stock and the earning per share. A. Book value per share B. Earnings per share C. Capital gain D. Net income E. Price-earnings ratio

E

Total return equals A. Dividend yield. B. Yearly dividends in dollars plus capital gains. C. Capital gains. D. Yearly dividends in dollars less capital gains. E. Capital gains less yearly dividends in dollars.

E

When XYZ wanted to sell new security issues to the general public for the first time, it sought the assistance of a (n). A. initial public offering B. investment bank C. primary market D. secondary market E. securities exchange

E

Which of the following changes would NOT cause analysts to change earnings estimates for a health care corporation? A. Company's sales B. Company's profits C. The economy in general D. Industry E. Weather

E

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

E

Which of the following is not correct regarding preferred stock? A. Preferred stocks are considered to be safer investments than common stocks. B. Owners of preferred stock have first claim to a corporation's assets after creditors in a bankruptcy. C. Owners of preferred stock receive cash dividends before common stockholders receive their dividends. D. The dollar amount of the dividend on preferred stock is known before the stock is purchased. E. The yield on preferred stocks is often lower than the yield on corporate bonds.

E

Which of the following is some of the information found on a financial website such as Yahoo! Finance? A. Company name, last price (prev close), target price, price change (day's range). B. 52-week price range, number of shares traded (volume). C. Market capitalization (Market Cap). D. Dividend paid and yield. E. All of this information is included.

E