Personal Finance Chap 12

You purchased Krispy Kreme stock valued at $12,000. Your full-service investment company charges $5 for commission. What is the total cost of the stock purchase?

$12,005

When purchasing a stock or selling stock, the brokerage firm will usually charge a minimum commission between $ ____ and $____.

-5 -25

When calculating total return on stock, you must consider which of the following items?

-Amount of dividends earned -Price of share at time of purchase -Price of share at time of sale

The book value for a share of stock equals ____ minus ____, divided by shares outstanding.

-assets -liabilities

Earnings per share is equal to a corporation's ____ divided by the number of outstanding ____ of a firm's common stock.

-earnings -share

Price-earnings ratio is equal to the price of a share of stock divided by the corporation's ____ per ____ of stock.

-earnings -share

Corporations do not have to repay the money obtained from ____ financing.

-equity

Dollar cost averaging is used to avoid buying ____ and selling ____.

-high -low

The Value Line report contains current information about the company's net ____ and total ____.

-income -sales

A ____ ____is the date on which a stockholder must be registered in the corporations books in order to receive dividend payments.

-record -date

Corporate dividends for common stock may take the form of cash, additional , ____ or company ____.

-stock -products

You buy a stock at $30 per share and want to sell your stock automatically if it reaches $23. This is an example of a(n) ____-____ order.

-stop -loss

In the case of a 2-for-1 stock split, the stockholder now owns:

2 x the number of shares previously owned.

Hannah's stock, valued at $50 per share, underwent a 2-for-1 stock split. The price of each one of Hannah's shares is now worth $____.

25

Hannah owns 300 shares of "Dirt International." The company does a 3-for-1 stock split. Hannah now has:

900 shares.

Which type of firm typically does not pay a dividend?

A fast growing firm

Match the type of stock investment with its characteristics.

Blue chip- A stock issued by a large, stable company; usually pays dividends Cyclical- A stock that follows the business cycle of advances and declines in the economy. Defensive- A stock that remains stable during economic decline. Growth- A stock issued by a corporation that has the potential of earning profits above the average of firms in the economy.

What is determined by deducting all liabilities from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock?

Book value

A direct investment plan is a plan where stockholders purchase stocks from a stockbroker.

False

Buying long is the idea that when you buy a stock, it will decrease in value.

False

Dividend payments are required from corporations.

False

Net profits will be increased by interest on margined stocks.

False

Match increases and decreases in stock prices with the respective outcomes, when selling short.

Increase in stock price- Lose money Decrease in stock price- Make money

Which of the following is not included in the Value Line report?

Information on the educational and work backgrounds of the analysts who cover the stock

Match investors and traders with general stock holding times.

Investors- Hold stocks at least a year Traders- Typically hold stocks less than year

An electronic marketplace for stocks is called the:

Nasdaq.

Which category of stockholder receives dividends first?

Preferred

Which type of dividend payment is very unusual?

Property

Most dividends are paid on a(n) ____ basis.

Quarterly

A date on which a stockholder must be registered on the corporation's books in order to receive dividend payments is called what?

Record date

Who elects the board of directors and approves major changes in the corporate policies?

Stockholders

Which of the following type of orders sells your stock at a specific price in order to prevent further financial damage?

Stop-loss order

An account executive is also called a stockbroker.

True

Dollar cost averaging is a long-term technique used by investors who purchase an equal dollar amount of the same stock at equal intervals.

True

Rapidly growing firms typically pay little or no dividends.

True

The first step in selling short stock is to borrow the stock from your broker.

True

When selling a stock, profit or loss equals the net selling price less the adjusted cost (purchase price plus fees).

True

A licensed individual who buys or sells securities for clients is oftentimes called a(n):

account executive or stockbroker.

Average returns on stocks since the end of WWII is:

almost 10 percent.

A stock selling ex-dividend will be trading:

at a lower price

Today it is common practice to leave stock certificates with the:

brokerage firm

The strategy of buying a stock hoping it will increase in value over time is called:

buying long.

The most obvious difference between full-service and discount firms is the ____ they charge when you buy or sell stock and other securities.

commission

Dividends are paid out of profits and must be approved by the:

corporation's board of directors.

Dividend yield = annual dividend amount divided by ______.

current price per share

A plan that allows stockholders to purchase stocks directly from a corporation without having to use an account executive or a brokerage firm is called a:

direct investment plan.

The ____ yield is the annual dividend amount divided by the stock's current price per share.

dividend

A plan that allows current stockholders the option to reinvest or use their cash dividends to purchase stock of the corporation is called a:

dividend reinvestment plan.

The annual dollar amount of dividends generated by an investment divided by the stock's current market value is called:

dividend yield

An advantage of being a preferred stockholder is the ability to receive cash ____ before common stockholders.

dividends

Companies choose to pay ____ to keep stockholders happy and prosperous.

dividends

For stockholders, ______ are typically paid on a quarterly basis if they are paid.

dividends

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

dollar cost averaging

One method to avoid the investor's common pitfall of buying high and selling low is to use:

dollar cost averaging

One method to avoid the investor's common pitfall of buying high and selling low is to use: Multiple choice question.

dollar cost averaging

If you place a limit order to buy a stock at a price of $25 per share, the stock will not be purchased until the stock price:

drops to $25 or lower.

A corporation's earnings divided by number of outstanding shares of a firm's common stock is called:

earnings per share

Price-earnings (PE) ratio equal price per share divided by:

earnings per share

A company's website that can be viewed anytime is:

easily accessible.

The Nasdaq is a(n):

electronic marketplace

The time period during which a stock trades "without dividend" and the seller, not the buyer, is entitled to the dividend payment is called the:

ex-dividend period.

A stock is being put up for sale on June 11. On May 21, the Board of Directors declared that the dividend will be paid to stockholders of record on June 13. The stock is selling:

ex-dividend.

Beginning investors with little or no experience, individuals who are uncomfortable making investment decisions, and people who are uncomfortable trading stocks online should use a ____ brokerage.

full-service

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

funds

A financial firm that assists corporations in raising funds, usually by helping to sell new security issues is called a(n):

investment bank

Most companies pay dividends to:

keep investors happy

Investors typically hold stocks more than a year, and traders typically hold stocks ____ than a year.

less

The book value for a share of stock is determined by deducting all ____ from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock.

liability

A request to buy or sell a stock at a specific price is called a:

limit order.

A request to buy or sell a stock at a specified price is called a:

limit order.

The main reason to leave stock certificates with the brokerage firm is to:

make transfers easier upon sale.

A speculative technique whereby an investor borrows part of the money needed to buy a particular stock is called

margin investing.

A speculative technique whereby an investor borrows part of the money needed to buy a particular stock is called:

margin investing.

A(n) ____ order is a request to buy or sell a stock at the current price.

market

The request to buy or sell a stock at the current market value is called a:

market order

Information on companies' websites is likely to be:

more up-to-date than printed materials.

Interest charges on margin transactions will reduce:

net profits.

A daily source of printed material that provides useful information about stocks is a:

newspaper.

A corporation is under:

no legal obligation to buy back shares from the public.

A stock that typically trades for less than $5 per share (or in some cases, less than $1 per share) and has a small amount of capitalization is called a(n) ____ stock.

penny

A dividend yield is the annual dollar amount of income generated by an investment divided by the investment's current share ____.

price

A limit order is a request to buy or sell a stock at a specified dollar ____.

price

The price of a share of stock divided by the corporation's earnings per share of stock is called the:

price-earnings ratio.

A(n) ____ market is a market in which an investor purchases financial securities through an investment bank or other representative from the issuer of those securities.

primary

A market in which an investor purchases financial securities through an investment bank or other representative from the issuer of the securities is called a(n):

primary market

A ____ is a legal form that request that stockholders transfer their voting rights to someone within the organization who know the situations of the company better.

proxy

A legal form that lists the issues to be decided at a stockholders' meeting and requests that stockholders transfer their voting rights to some individuals or individual is called a:

proxy.

During the ex-dividend time period, the ____ (seller/buyer) of the stock is entitled to the declared dividend payment.

seller

For stock investors, profit =

selling price−purchase price.

Selling stock that has been borrowed from a brokerage firm and must be replaced at a later date is called:

selling short

Earnings per share equals after-tax income divided by the number of ____ outstanding.

shares

Mainly because of the accessibility of financial information online:

some newspapers have reduced or eliminated the amount of financial coverage

A stock ____ is an event in which the shares of stock owned by existing stockholders are divided into a larger or smaller number of shares.

split

A dividend reinvestment plan allows current stockholders the option to reinvest or use their cash dividends to purchase ____ of the corporation.

stock

A stop-loss order is an order to sell a particular stock at the next available opportunity after its ____ price reaches a specified amount.

stock

Buying on margin is a technique whereby an investor borrows part of the money needed to buy shares of a particular ____.

stock

A procedure in which the shares of stock owned by existing stockholders are divided into a larger (or smaller) number of shares is called a:

stock split

Common ____ elect the board of directors.

stockholders

When investing in stocks, it is important to remember that:

stocks do not always increase in value.

An order to sell a particular stock at the next available opportunity after its market price reaches a specified amount is called a:

stop-loss order