Chapter 12

B. Direct investment plan.

Marissa purchases $500 of stock from a corporation without having to use an account executive or a brokerage firm. She is using a.

E. Research the corporations she is interested in as well as their industries.

Megan decided to start investing in stocks. Which of the following should she do first?

C. the over-the-counter market

Mohammad was interested in purchasing low-value securities that were not listed on the NYSE. He probably used _____ to complete his transaction.

B. New York Stock Exchange.

NYSE stands for

C. micro cap

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 of $300 million or less). He should purchase _______ stocks.

D. Secondary market.

Patrick sold his GE shares using his online broker. One can say that he sold them on the

E. Market maker.

Peter is a NASDAQ dealer who matches buy and sell orders for Ford. He is known as a(n)

C. Dividend reinvestment plan.

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

B. 10%.

Since 1926, the average annual return for stocks has been about

A. Initial public offering.

Stephen wanted to become one of the owners of GHI Corp. when it finally was available to the general public. He participated in the

D. Online broker.

Tammy feels quite comfortable trading her own stocks using a computer. She should use a(n)

A. Discount broker.

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)

B. Full-service broker.

Terry wants to begin investing and needs some guidance because he is uncomfortable making investment decisions. He should use a(n)

E. Securities exchange.

The NYSE is an example of a(n)

E. None of these.

The earnings per share equals

A. Book value.

The formula "(Assets - Liabilities)/Shares outstanding" equals

A. A call option.

The opportunity, but not the obligation, to buy a security within a specified period of time at a guaranteed price is

D. A put option.

The opportunity, but not the obligation, to sell a security within a specified period of time is

E. Total return

This calculation includes the annual dividends in dollars and the increase in the original purchase price of the investment.

B. Dividend yield

This calculation uses the annual amount of money paid to investors from the company.

E. Price-earnings ratio

This ratio uses the market price per share of the stock and the earning per share.

D. Dollar cost averaging technique.

Timothy has $100 automatically invested in a stock each month. This way, he doesn't buy high and sell low. He is using a

B. Annual dividends in dollars plus capital gains.

Total return equals

B. The higher the price-earnings ratio, the more investors are paying for earnings.

When analyzing a price-earnings ratio,

E. Weather

Which of the following changes would NOT cause analysts to change earnings estimates for a health care corporation?

B. Earnings per share

Which of the following is a profitability ratio that uses the number of outstanding shares in the calculation?

D. All of these.

Which of the following is based on historical numbers?

B. Selling short is selling stock borrowed from a brokerage firm.

Which of the following is correct?

E. The price/earnings ratio is the price of a share of stock divided by the corporation's earnings per share of stock.

Which of the following is correct?.

D. The amount of information available about stocks is limited.

Which of the following is incorrect?

E. The yield on preferred stocks is often much higher than the yield on bonds.

Which of the following is not correct regarding preferred stock?

D. A brokerage firm receives double its commission when stock is bought and sold when the investor is selling short.

Which of the following is not correct?

E. All of this information is included.

Which of the following is some of the information found on a financial website such as www.finance.yahoo.com?

C. Stock advisory services include printed detailed financial reports.

Which of the following is true?.

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.

Which of the following statements about stock splits is correct?

C. The Internet provides websites that may be more up to date and thorough than printed materials.

Which of the following statements is correct?

C. Professional advisory services such as Standard & Poor's Financial Information Services

Which of the following usually offers some free information and charges for more detailed research information you may need to evaluate a stock investment?

C. The stock is trading at a high price, and the company wants to bring the price in line with a theoretical ideal range.

Why does a company split its stock?

C. Dividend.

A distribution of money, stock, or other property that is paid to owners of a company is called a

E. Proxy.

A legal form that requests that owners transfer their voting rights to individual(s) is called a

A. Account executive.

A licensed individual who buys or sells investments for his or her clients is called a(n)

E. Securities exchange.

A marketplace where member brokers who represent investors meet to buy and sell securities is called a(n)

A. blue chip

A safe investment that generally attracts conservative investors is called a(n) _______ stock.

C. micro cap

A stock issued by a company that has a capitalization of $300 million or less is called a _______ stock.

D. midcap

A stock issued by a corporation that has a capitalization of between $2 billion and $10 billion is called a(n) _______ stock.

E. penny

A stock that typically sells for less than $1 per share is called a(n) _______ stock.

B. investment bank

Abe was contacted by XYZ's ____________ when XYZ wanted to sell new securities to the general public for the first time.

C. Alberta will receive half as much as Bobby if they owned the stock two business days before the record date.

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

B. Dividend payments must be approved by the stockholders.

All of the following statements are correct except

B. Common stock.

Amanda wants to be part of the ownership for a corporation. She should invest in.

B. income

An investment that pays higher than average dividends is called a(n) _______ stock.

D. Must be sent to all stockholders on an annual basis.

Annual reports

E. Two of these are appropriate to ask.

Avery is thinking about using the computer to do his investing. He should ask all of the following questions except

E. Selling short

Ben borrowed some securities from his broker and planned to replace them at a later date. Which of the following strategies did he use?

E. (Assets - Liabilities)/Number of shares outstanding.

Book value equals

A. Buy-and-hold technique.

Brenda purchases stock and never plans to sell them. She could be considered to be using a

C. She should focus on churning for her clients.

Claudia is a licensed individual who buys or sells investment for her clients. Which of the following is not correct?

A. blue chip

Cliff retired 10 years ago and wants to still own a few stocks. Dividends are important to him, but so is growth. He is most interested in stocks that are safe investments. He should purchase _______ stocks.

B. Limit order.

Devin wants to purchase DEF stock for $40.00 or less. He should use a

A. Annual dividend amount/Current price per share.

Dividend yield equals

B. Common stock.

Equity financing is money received from the sale of

E. His commission should be lower at an online broker than at a full-service broker.

Ethan wants to purchase some stock for the first time. Which of the following is correct?

A. Churning.

Excessive buying and selling of securities to generate commissions is called

C. On margin.

Faye sometimes borrows money from her broker to buy her stock. She is buying

E. All of these are included in financial reports.

Financial reports from advisory services include all of the following sections except

D. Stop-loss order.

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?

D. Two of these are correct.

If you bought a stock on July 1, 2010, and sold it on July 15, 2010, you may be a(n)

C. Investor.

If you bought a stock on June 15, 2010, and sold it on July 15, 2011, you would likely be classified as a(n)

C. Buying on margin

If you buy or sell with this technique, you may be required to pledge additional collateral or cash for a loan.

E. All of these are correct.

If you own stock, you may receive income from

E. Price-earnings ratio.

If you want to compare two companies, you should use

C. Buying on margin

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?

E. securities exchanges

Jake wanted to buy and sell various stocks on the NYSE. He was using one of the largest _______________ in the world.

C. Primary market.

Kelly bought some stock using an investment bank from the issuer of those securities. She bought her shares on the

B. September 13

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

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 stock and receive the dividend. What is the latest date that she needs to have purchased the stock in order to receive the dividend?

C. Market order.

Mallory wants to purchase stock at the current market price. She should use a