Chapter 14 Personal Finance
the board of directors of Herbalife Nutrition approved a 5-for-2 stock split. After the split, how many shares of Herbalife stock will an investor have if he owned 370 shares before the split?
$925 (370*(5/2))
True or false: Research and evaluation increase the risk associated with stock investments.
False
True or false: 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
Stocks that offer larger returns also include _________
additional risk
Match betas with the category of stocks.
conservatives <---> lower betas growth stocks <---> higher betas
It is better to invest:
for a long term to enjoy high returns.
Which category of stockholder receives dividends first?
preferred
A marketplace where member brokers who represent investors meet to buy and sell securities is called a(n):
securities exchange
A calculation that includes the annual dollar amount of income as well as any increase or decrease in the original purchase price of the investment is called ________
total return
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 ($12,000 + $5)
True or false: Buying long is the idea that when you buy a stock, it will decrease in value.
False ; Buying long means you buy a stock, plan to hold it for awhile, and hope it increases in value from price appreciation and also possibly from dividend income.
Beta is a measure that compares the volatility associated with a specific stock issue with the volatility of the:
Standard & Poor's 500 Index.
What are the risks associated with using the margin strategy?
Stock decreases in value, Margin calls, and Loan repayment and interest
True or false: An account executive is also called a stockbroker.
True
A licensed individual who buys or sells securities for clients is oftentimes called a(n) _______
account executive
Earnings per share is equal to _______ income divided by the number of outstanding ________ of a firm's common stock.
after-tax ; shares
A measure that compares the volatility associated with a specific stock issue with the volatility of the Standard & Poor's 500 Stock Index is called:
beta
Match stocks with their characteristic.
blue chip <---> safest stock penny stock <---> typically less than one dollar growth stock <---> high earnings potential cyclical stock <---> follows patterns of the economy
The market-to-book ratio is computed as the current market value per share of stock divided by the _______ ________ per share of stock
book value
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
Candace Jones has a stock with a beta of 2, while Bill Smith's stock has a beta of 0.6. Smith most likely has a(n):
conservative stock
An individual who buys and sells stock and other securities in a very short period of time is called a __________
day trader
An advantage of being a preferred stockholder is the ability to receive cash _______ payments before common stockholders.
dividend
The percentage of a firm's earnings paid to stockholders in cash is called ______
dividend payout
The annual dollar amount of income generated by an investment divided by the investment's current market value is called _________
dividend yield
Companies choose to pay ________ to keep stockholders happy and prosperous.
dividends
The buy-and-hold technique includes the reinvestment of ________
dividends
The buy-and-hold technique increases value in what two ways?
dividends and stock value
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.
A corporation's earnings divided by the number of outstanding shares of a firm's common stock is called _______
earnings per share
Earning estimates exist to provide estimates of which of the following?
earnings per share price-earnings ratios
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
Most companies like to pay dividends:
to keep investors happy.
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?
$167.5 (0.67*250)
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?
$2250 ((150*42)-(150*27))
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?
$5000 ((200*56)-(200*31))
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?
$6150 (75*82)
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?
$715 ((65*43)-(65*36)+(4*65))
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?
$8500 ((125*34)*2)
Nicholas initially invested $2,400 in a technology company two years ago. The total return when he sold the stock was $600. What was his annualized holding period return?
12.5% ((600/2400)*(1/2)
In the case of a 2-for-1 stock split, the stockholder now owns:
2× the number of shares previously owned.
After researching Best Buy common stock, Sally Wang is convinced the stock is overpriced. She contacts her account executive and arranges to sell short 550 shares of Best Buy. At the time of the sale, a share of common stock had a value of $148. Three months later, Best Buy is selling for $140 a share, and Sally instructs her broker to cover her short transaction. Total commissions to buy and sell the stock were $58. What is her profit for this short transaction?
4342 ((550*148)-(550*140)-58)
When purchasing a stock, the brokerage firm will usually charge a minimum commission between $ __________ and $__________
5 ; 25
When buying stock on margin, the current margin requirement is
50%
Nancy Cardoza invested $4,600 in ExxonMobil stock because her research indicated the stock should earn an average return of 9 percent for the investors over the next five years. If ExxonMobil investors do earn 9 percent each year, what will her $4,600 investment be worth at the end of five years?
7177.67 (4600(1.09)^5))
Tammy Jackson purchased 101 shares of All-American Manufacturing Company stock at $35.20 a share. One year later, she sold the stock for $41 a share. She paid her broker a $28 commission when she purchased the stock and a $43 commission when she sold it. During the 12 months she owned the stock, she received $218 in dividends. Calculate Tammy's total return on this investment.
733 ((101*41)-(101*35.2)-28-43+218))
Five years ago, Greg initially invested $7,000 in a transportation company. The total return when he sold the stock was $3,000. What was his annualized holding period return?
8.57% ((3000/7000)*(1/5))
Betty and John Martinez own 490 shares of McDonald's common stock. McDonald's annual dividend is $1.70 per share. What is the total of dividends the Martinez couple will receive for this year?
833 (490*1.7)
According to the video, in order to make money by selling short, what must you be correct in predicting?
A stock will decrease in value.
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 and Adam
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.
Two years ago, you purchased 100 shares of General Mills Corporation. Your purchase price was $56 a share, plus a total commission of $33 to purchase the stock. During the last two years, you have received the following dividend amounts: $1.40 per share for the first year and $1.50 per share the second year. Also, assume that at the end of two years, you sold your General Mills stock for $66 a share minus a total commission of $33 to sell the stock. A) Calculate the dividend yield for your General Mills stock at the time you purchased it. B)Calculate the dividend yield for your General Mills stock at the time you sold it. C) Calculate the total return for your General Mills investment when you sold the stock at the end of two years. D) Calculate the annualized holding period yield for your General Mills investment at the end of the two-year period.
a) (dividend per share/current market price)*100% // 2.5 b) (dividend per share/current market price)*100% // 2.27 c)
As a stockholder of Bozo Oil Company, you receive its annual report. In the financial statements, the firm has reported assets of $15 million, liabilities of $12 million, after-tax earnings of $2.10 million, and 1.35 million outstanding shares of common stock. a)Calculate the earnings per share of Bozo Oil's common stock. Note: Round your answer to 2 decimal places. b)Assuming a share of Bozo Oil's common stock has a market value of $40, what is the firm's price-earnings ratio? Note: Round your intermediate calculation to 2 decimal places and final answer to the nearest whole number. c)Calculate the book value of a share of Bozo Oil's common stock.
a) 1.56 (2.1 mil/1.35 mil) b) 26 (40/1.56) c) 2.22 ((15m - 12m)/1.35)
For four years, Mary Thomas invested $4,040 each year in America Bank stock. The stock was selling for $54 in 2018, for $50 in 2019, for $51 in 2020, and for $43 in 2021. a)What is Mary's total investment in America Bank? b)After four years, how many shares does Mary own? Note: Round your intermediate calculations to 1 decimal place. Round up your final answer to the nearest whole unit. c)What is the average cost per share of Mary's investment? Note: Round up your intermediate value of "Total shares" to the nearest whole unit. Round your final answer to 2 decimal places.
a) 16160 (4040*4) b) 329 ((4040/54)+(4040/50)+(4040/51)+(4040/43)) c) 49.12 (16160/329)
Bill Campbell invested $5,200 and borrowed $5,200 to purchase shares in Kellogg. At the time of his investment, Kellogg stock was selling for $49 a share. Note: There were no commissions to buy or sell this stock. a) How many shares could he buy if he used his $5,200 and borrowed $5,200 on margin to buy Kellogg stock? Note: Round up your final answer to the nearest whole unit. b) Assuming Bill did use margin, sold his Kellogg stock $53 a share, how much profit did he make on his Kellogg investment? Note: Round up your intermediate value of "Total shares" to the nearest whole unit. Round your final answer to 2 decimal places.
a) 212 ((5200+5200)/49) b) 848.98 ((212.244898(53-49))
Selling short is selling a stock that has been borrowed from a(n) _______ firm and must be replaced at a later date.
brokerage
Options are the right to __________ or __________ a stock at a predetermined price during a specified period of time.
buy ; sell
The strategy of buying a stock hoping it will increase in value over time is called _______
buying long
Joanne has never invested before. John recommends a(n) _______ ________ brokerage firm to help her get started in investing. (Enter one word per blank.)
full service
Match typical clients with the type of brokerage firm recommended.
full service <---> beginning investors will little experience discount <---> people who understand "how to" and want to make their own decisions" online <---> understand "how to" and are comfortable trading on the Web
An investment practice that is based on the assumption that a stock's intrinsic or real value is determined by the company's future earnings is known as _______ analysis
fundamental
An investment practice based on the assumption that a stock's intrinsic or real value is determined by the company's future earnings is called:
fundamental analysis
Beginning investors must find:
good information and know how to use it.
The sooner you invest, the longer your investment will have to
grow
A stock issued by a corporation that has the potential of earning profits above the average profits of all economies is known as what type of stock?
growth
Earnings per share and price-earnings ratios are based on:
historical numbers
A(n) __________ stock is an investment that pays higher-than-average dividends.
income
A securities exchange is a marketplace where member brokers who represent _______, buy and sell securities
investors
Which of the following must new investors master to become more proficient investors?
knowing how to use relevant information knowing where to find relevant information
Book value is determined by deducting all ___________ from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock.
liabilities
Securities sold at a particular exchange must be first ________, or _________ for trading
listed ; accepted
A __________ 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
The current market value of one share of stock divided by the book value for one share of stock is called the:
market-to-book ratio
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:
net profit (includes company name, timeliness ratings, dividends and p/e ratio)
The right to buy or sell a stock at a predetermined price during a specified period of time is called _________
option
The total return is a calculation that includes the annual dollar amount of income as well as any increase or decrease from the _____ price of the investment
original purchase
The total return is a calculation that includes the annual dollar amount of income as well as any increase or decrease from the ______ price of the investment
original purchase
A dividend yield is the annual dollar amount of income generated by an investment divided by the investment's current ________
price per share
A market in which an investor purchases financial securities via an investment bank or other representative from the issuer of the securities is called a(n)
primary
A(n) __________ market is a market in which an investor purchases financial securities via an investment bank or other representative from the issuer of those securities.
primary
The corporations must disclose corporate earnings, assets, liabilities, products, or services and the qualifications of top management in a __________
prospectus
What document discloses corporate earnings, assets, liabilities, products, or services and the qualifications of top management?
prospectus
A _______ is a legal form that requests 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 _____________
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:
safety ratings (includes historical info about sales, earning per share, working capital, and long term debt)
Selling a stock that has been borrowed from a brokerage firm and must be replaced at a later date is called:
selling short
A day trader is an individual who buys and then later sells stock and other securities in a very _______ period of time
short
A stock __________ is an event in which the shares of stock owned by existing stockholders are divided into a larger number of shares.
split
Buying on margin is a technique whereby an investor borrows part of the money needed to buy a particular _________
stock
A dividend payout is the percentage of a firm's earnings paid to ________ in cash
stockholders
The key element to investing is __________
time
The more _______ an investment has to work, the more money it will likely accumulate.
time
