PF Chapter 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

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.

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

Blank 1: 5 Blank 2: 25

The book value for a share of stock equals __________ minus , __________divided by shares outstanding.

Blank 1: assets Blank 2: liabilities

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

Blank 1: market, share, or stock

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.

Blank 1: penny

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

Blank 1: price or value

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.

Blank 1: primary

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

An electronic marketplace for stocks is called the:

Nasdaq.

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

A stock selling ex-dividend will be trading:

at a lower the price

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

brokerage firm

Dividend yield = annual dividend amount divided by ______.

current price per share

When selling short (borrowing stock and then replacing it later) it is the investor's desire that the stock:

decrease in value

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.

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

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

dividends

When selling short, since you borrow stock from a broker that belongs to another investor, you must pay any:

dividends the stock earns

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

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.

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

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

limit order.

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

margin investing.

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 corporation is under

no legal obligation to buy back shares from the public

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

selling short

Mainly because of the accessibility of financial information online:

some newspapers have reduced or eliminated the amount of financial coverage

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

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

If you think the market price of a stock will increase during a short period of time, you should purchase a:

call option

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

corporation's board of directors.

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

Samantha wants to sell short stock in Exxon Mobil. Rank the steps in the process.

1. She arranges to borrow a stock certificate for a number of shares. 2. Using borrowed stock, she sells the stock 3. She buys the same quantity of shares at a lower price 4. She replaces the stock borrowed to her broker

Selling short is selling stock that has been borrowed from a(n) _____________firm and must be replaced at a later date.

Blank 1: brokerage, investment, or broker

Options are the right to _________ or ___________ a stock at a predetermined price during a specified period of time

Blank 1: buy or purchase Blank 2: sell

You should purchase a(n) ____________ option if you believe the price of a stock will increase in a short amount of time.

Blank 1: call

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

Blank 1: commissions or commission

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

Blank 1: dividends

In order to make a profit when selling short on a stock, you must consider having to pay any ___________ the stock earns and you need the stock to __________ in price.

Blank 1: dividends or dividend Blank 2: decrease, fall, drop, or lower

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

Blank 1: earnings, profits, or income Blank 2: shares

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

Blank 1: equity

The Value Line report contains current information about the company's net ___________and __________ total.

Blank 1: income or profit Blank 2: revenue, revenues, or sales

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.

Blank 1: liabilities or liability

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

Blank 1: 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.

Blank 1: proxy

A __________ ____________ is the date on which a stockholder must be registered in the corporations books in order to receive dividend payments.

Blank 1: record Blank 2: date

During the ex-dividend time period, the _________ of the stock is entitled to the declared dividend payment.

Blank 1: seller

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

Blank 1: shares

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.

Blank 1: split

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.

Blank 1: split

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

Blank 1: stock or shares

Corporate dividends for common stock may take the form of cash, additional _____________ , or company___________.

Blank 1: stock or shares Blank 2: products or property

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

account executive or stockbroker.

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

buying long.

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

newspaper.

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

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.