Personal Financial Planning Ch 12 Investing in Stocks

Mary Sue owns 1,000 shares of QRS Moving Company. QRS pays a yearly dividend of $1.00 per share. What is the total annual dividend that Mary Sue will receive? $.50. $2.00. $250.00. $500.00. $1,000.00. $1,000.00. ----------------- 1.00 annually x 1,000 shares = 1,000.00

$1,000.00. ----------------- 1.00 annually x 1,000 shares = 1,000.00

Smith Corporation declared a quarterly dividend of $0.67 per share to stockholders. The record date is Friday, April 8th, the ex-dividend date is Wednesday, April 6th, and the payable date is Monday, May 9th for this dividend. If Samantha owns 250 shares of Smith stock on Friday, April 8th, what is her quarterly dividend amount? $100.50 $134.00 $167.50 $201.00 $234.50

$167.50

Angela believes that Beamer Corporation's stock will drop in value. She borrows 150 shares from a brokerage firm when the stock was selling at $42 per share. When the stock's price dropped to $27 per share, she told the brokerage firm to buy 150 shares of Beamer stock. This stock was returned to the brokerage firm in replace of the stock she first borrowed. What is Angela's profit on her short selling investment? $2,000 $2,250 $3,400 $4,050 $6,300

$2,250 ------------------ 150 x 42 = 6300 105 x 27 = 4050 6300 - 4050 = 2250

After researching Valero Energy common stock, Sandra Pearson is convinced the stock is overpriced. She contacts her account executive and arranges to sell short 300 shares of Valero Energy. At the time of the sale, a share of common stock had a value of $27. Three months later, Valero Energy is selling for $14 a share, and Sandra instructs her broker to cover her short transaction. Total commissions to buy and sell the stock were $55. What is her profit for this short transaction? Profit $

$3,845 ------------------------ 27 - 14 = 13 (13 x 300) - 55 = 3845

Kerri believes that Bluebill Corporation's stock will drop in value. She borrows 200 shares from a brokerage firm when the stock was selling at $56 per share. When the stock's price dropped to $31 per share, she told the brokerage firm to buy 200 shares of Bluebill's stock. This stock was returned to the brokerage firm in replace of the stock she first borrowed. What is Kerri's profit on her short selling investment? $3,200 $4,000 $5,000 $6,200 $11,200

$5,000 ------------------- same formula as above

Olivia currently has the money to purchase only 75 shares of Tumble Corporation. Tumble's shares are currently selling for $82 per share. If Olivia uses the current margin requirements to purchase 150 shares of Tumble stock, what is the amount of money that she personally has invested in the company? $6,150 $8,200 $12,300 $16,400 $18,450

$6,150 --------------------------- 75 x 82 = 6150

Hannah purchased 65 shares of Best Buy stock at $36 per share. After 3 years, Hannah sold the stock for $43 per share. During the time she held the stock, Hannah received the dividends totaling $4.00 per share. What is Hannah's total return? $260 $455 $715 $920 $1,300

$715 ---------------------------- ($4.00 x 65) + ($43 - $36) x 65 = $715 equals Total Return ---------------------------- Annual Dividends = Dividends per Share x Shares = $4.00 x 65 = $260 ---------------------------- Capital Gain = (End Share Price - Beg Share Price) x Shares = ($43 - $36) x 65 = $455

Jamie and Peter Dawson own 150 shares of Duke Energy common stock. Duke Energy's quarterly dividend is $0.50 per share. What is the amount of the dividend check the Dawson couple will receive for this quarter? Quarterly dividend check amount $

$75 150 x .50 = 75

Alan currently has the money to purchase only 125 shares of Hurricane Corporation. Hurricane's shares are currently selling for $34 per share. If Alan uses the current margin requirements to purchase 250 shares of Hurricane stock, what is the amount of the total investment? $4,250 $6,800 $8,500 $10,200 $12,750

$8,500 --------------------------- 250 x 34 = 8500

Nicholas initially invested $2,400 in a technology company. The company recently paid annual dividends of $22 and his year-end investment value was $2,000. What was the rate of return on his investment? 21.10% 15.75% 10.00% -15.75% -18.90%

-15.75% ----------------- ($2000 - $2400) + 22 = -$378 -$378 / $2400 = -0.1575 which is -15.75% an decrease in value

In September, the board of directors of Chaparral Steel approved a 2-for-1 stock split. After the split, how many shares of Chaparral Steel stock will an investor have if he or she owned 500 shares before the split? Post-split shares

1,000 -------------- double 500 500 x 2 = 1000

In September, the board of directors of Chaparral Steel approved a 4-for-2 stock split. After the split, how many shares of Chaparral Steel stock will an investor have if he or she owned 1,100 shares before the split? Post-split shares

2,200 ---------------- 4 x 1,100 = 4,400 / 2 = 2,200 4 ------for---------2

Greg initially invested $7,000 in a transportation company. The company recently paid annual dividends of $86 and his year-end investment value was $8,340. What was the rate of return on his investment? 22.00% 20.37% 17.10% -15.04% -17.91%

20.37% ------------------- ($8,340 - $7,000) + $86 = $1,426 $1,426 / $7,000 = 20.37% an increase in value

Currently, Boeing pays an annual dividend of $3.74. If the stock is selling for $85, what is the dividend yield? (Round your answer to 1 decimal place.) Dividend yield %

4.4% -------------- 3.74 / 85 = 0.044 round to 1 decimal 4.4

total return

A calculation that includes the yearly dividend amount as well as any increase or decrease in the original purchase price of the investment.

earnings per share

A corporation's earnings dividend by the number of outstanding shares of a firm's common stock.

dividend

A distribution of money, stock, or other property that a corporation pays to stockholders.

investment bank

A financial firm that assists corporations in raising funds, usually by helping to sell new security issues.

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 individual or individuals.

account executive

A licensed individual who works for a brokerage firm and buys or sell securities for clients; also called a stockbroker.

dollar cost averaging

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

secondary market

A market for existing financial securities that are currently traded among investors.

primary market

A market in which an investor purchases financial securities, via an investment bank or other representative, from the issuer of those securities.

securities exchange

A marketplace where member brokers who represent investors meet to buy and sell securities.

beta

A measure reported in many financial publications that compares the volatility associated with a specific stock issue with the volatility of the Standard & Poor's 500 stock index.

over-the-counter (OTC) market

A network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange.

dividend reinvestment plan

A plan hat allows current stockholders the option to reinvest or use their cash dividends to purchase stock of the corporation.

direct investment plan

A plan that allows stockholders to purchase stock directly from a corporation without having to use an account executive or a brokerage firm.

stock split

A procedure in which the shares of stock owned by existing stockholders are divided into a larger number of shares.

limit order

A request to buy or sell a stock at a specified price.

market order

A request to buy or sell a stock at the current market price.

stock market bubble

A situation in which stocks are trading at prices above their actual worth.

margin

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

According to the video, in order to make money by selling short, what must you be correct in predicting? A stock will increase in value. A stock will decrease in value. A stock will remain the same in value. A dividend will be declared for the existing shareholders. A company will incur a net loss in the current year's financial statements.

A stock will decrease in value.

preferred stock

A type of stock that gives the owner the advantage of receiving cash dividends before common stockholders are paid any dividends.

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

Account executive.

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

All of this information is included.

Nasdaq

An electronic marketplace for stock issued by approximately 3,300 different companies.

stop-loss order

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

specialist

Buys or sell a particular stock in an effort to maintain an orderly market.

Hammerhead Corporation declared a quarterly dividend of $0.84 per share to stockholders. The record date is Friday, March 11th, the ex-dividend date is Wednesday, March 9th, and the payable date is Monday, April 11th for this dividend. Chris purchased 50 shares on January 1st, Adam purchased 100 shares on March 8th, and Emma purchased 65 shares on March 10th. Who is eligible to receive this quarterly dividend? Chris Adam Emma Chris and Adam Chris, Adam, and Emma

Chris and Adam

Excessive buying and selling of securities to generate commissions is called Churning. Flipping. Marketing. Prospecting. Scamming.

Churning.

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

Common stock.

What is one additional way, according to the video, that an individual can utilize the information to decide if the stock is the right choice for their investment program? Comparing the company's stock to other companies within the industry. Minimizing the amount of stock owned for one company. Maximizing the amount of stock owned for one company. Minimizing the amount of stock owned for one company, and Maximizing the amount of stock owned for one company. Comparing the company's stock to other companies within the industry, Minimizing the amount of stock owned for one company, and Maximizing the amount of stock owned for one company.

Comparing the company's stock to other companies within the industry.

book value

Determined by deducting all liabilities from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock.

Which of the following is defined as the date when a stock trades "without dividend" and the seller is entitled to a declared dividend payment? Ex-Dividend Date Record Date Declaration Date Notification Date Payable Date

Ex-Dividend Date

churning

Excessive buying and selling of securities to generate commissions.

Jim Johansen noticed that a corporation he is considering investing in is about to pay a quarterly dividend. The record date is Wednesday, April 18. In order for Jim to receive this quarterly dividend, what is the last date that he could purchase stock in this corporation and receive this quarter's dividend payment? Friday, April 19 Saturday, April 20 Thursday, April 18 Wednesday, April 17 Monday, April 16

Monday, April 16

equity financing

Money received from the owners or from the sale of shares of ownership in a business.

Based on the example in the video, all of the following pieces of information can be found at the top portion of the Value Line report, except: Company Name Timeliness Ratings Dividends Net Profit P/E Ratio

Net Profit

NYSE stands for New York Securities Exchange. New York Stock Exchange. New York School of Engineering. Never Yet So Even. New Year Selling Exchange.

New York Stock Exchange.

initial public offering (IPO)

Occurs when a corporation sells stock to the general public for the first time.

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

Proxy.

Based on the example in the video, all of the following pieces of information can be found in the middle section of the Value Line report, except: Historical Information about Sales Earnings per Share Working Capital Safety Ratings Long-Term Debt

Safety Ratings

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

Securities exchange.

selling short

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

What are the risks associated with using the margin strategy? Stock decreases in value Margin calls Loan repayment and interest Stock decreases in value and Loan repayment and interest Stock decreases in value, Margin calls, and Loan repayment and interest

Stock decreases in value, Margin calls, and Loan repayment and interest

dividend yield

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

record date

The date on which a stockholder must be registered on the corporation's books in order to receive dividend payments.

common stock

The most basic form of corporate ownership.

price-earnings (PE) ratio

The price of a share of stock dividend by the corporation's earnings per share of stock.

option

The right to buy or sell a stock at t predetermined price during a specified period of time.

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

Very little information is available about stocks.

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

Weather

For four years, Marty Campbell invested $4,400 each year in Harley-Davidson. The stock was selling for $22 in 2011, $20 in 2012, $25 in 2013, and $40 in 2014. a. What is Marty's total investment in Harley-Davidson? Total investment $ b. After four years, how many shares does Marty own? (Do not round intermediate calculations. Round your answer to the nearest whole number.) Number of shares c. What is the average cost per share of Marty's investment? (Use the rounded number of shares computed in part b. Do not round intermediate calculations. Round your answer to 2 decimal places.) Average cost per share $

a. $17,600 4 x 4400 b. $706 multiply each year by initial investment to get shares per year. Then add all years shares together. c.$24.93 17,600 / 706 = 24.92917847 round up to 24.93

Analysts that follow JPMorgan Chase, one of the nation's largest providers of financial services, estimate that the corporation's earnings per share will increase from $3.09 in the current year to $3.56 next year. a. What is the amount of the increase? (Round your answer to 2 decimal places.) Increase .__ b. What effect, if any, should this increase have on the value of the corporation's stock? The stock's market value should increase. The stock's market value should decrease. The stock's market value should remain the same.

a. Increase .47 3.56 - 3.09 = .47 b. The stock's market value should increase.