FIN 201: Ch. 12 Reading Assignment

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

corporation's board of directors.

The amount of the dividend with a(n) ______ stock is known before purchasing the stock.

preferred

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

quarterly

The market capitalization for Exider, Inc., is $1 million. They have just completed a 2-for-1 stock split. What will the market capitalization be after the stock split?

$1 million

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

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

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

Most firms that pay dividends distribute between ______ percent and ______ percent of their earnings to stockholders.

30;70

Utility companies and other established companies may distribute as dividends

70-90 percent of their earnings.

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

900 shares.

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

Assets; Liabilities

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

Which of the following is not an advantage of investing in preferred stocks?

Dividends may be omitted by board of directors

Which of the following helps to provide projections of future stock price using the PE ratio?

Earning estimates

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

Earnings; shares

After stock is sold to the public, the federal government requires that corporations report financial information to the Securities and ______ Commission.

Exchange

True or false: Dividend payments are required from corporations.

False

The Yahoo! Finance website provides information under links which include Chart, Conversations, Statistics, Financials, and ______ Data.

Historical

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

Which of the following occurs when a corporation sells stock to the general public for the first time?

Initial public offering (IPO)

An electronic marketplace for stocks is called the:

Nasdaq.

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

Which of the following is not true regarding stock prices? - A combination of future dividends and potential increase in price impact stock price. - A potential for increase in the price of a stock impacts its price. - The amount of dividends you expect to receive impacts stock price. - Predicting future value of a stock has nothing to do with the time value of money.

Predicting future value of a stock has nothing to do with the time value of money.

Which category of stockholder receives dividends first?

Preferred

Match dividend payments with the time frame of knowing the dividend amount.

Preferred stock: Dividend amount is known before purchase Common stock: Dividend amount is unknown until declared

In the case of bankruptcy, who has first claim to the corporation's assets after creditors?

Preferred stockholders

What factor gives investors an idea of how much they are paying for a company's earning power?

Price-earnings ratio

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

Stockholders

Which of the following is true? - OTC stocks do not trade on NASDAQ. - A corporation must meet rigid listing requirement to have its stock traded on the OTC. - The OTC is an organized exchange. - Stocks of companies who cannot meet NYSE requirements may trade on the OTC.

Stocks of companies who cannot meet NYSE requirements may trade on the OTC.

Which of the following is not true concerning stock prices? - The price for a share of stock is determined by what the stock seller thinks it is worth. - Stock market bubbles could burst due to high unemployment rates. - A stock market bubble is when stocks are trading at higher values than their actual worth. - A specific stock could burst its bubble when a company lowers future earnings estimates.

The price for a share of stock is determined by what the stock seller thinks it is worth.

True or false: Rapidly growing firms typically pay little or no dividends.

True

Average returns on stocks since the end of WWII is:

almost 10 percent.

If the business is dissolved, preferred stockholders have the first claim to the corporation's ______ after creditors.

assets

A stock selling ex-dividend will be trading:

at a lower price

Corporations may split stock to:

bring the price down to the theoretical price range for the stock.

Dividend yield = annual dividend amount divided by ______.

current price per share

A 2-for-1 stock split will:

cut the price per share in half

If one is paid, most corporations pay a ______ of 30-70 percent of their earnings to stockholders.

dividend

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

dividend

The higher the ______ yield, the more potential for a stronger investment.

dividend

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

Total return equals current ______ plus capital ______.

dividends; gain

In the long term, a stock split:

does not guarantee an increase in the stock's market value

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.

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

equity

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.

A secondary market is a market for ______ financial securities that are currently traded among investors.

existing

An initial public offering is when a corporation sells stock to the public for the ______ time.

first

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

funds

Stocks with ______ (high/low) price-earnings ratios often indicate investor optimism.

high

Match price-earnings ratios with how much investors pay for earnings.

high price-earning ratio: More investors will pay for earnings low price-earning ratio: Less investors will pay for earnings

The higher the company's expected future earnings, the ______ the stock value.

higher

Investors may choose preferred stock because it offers a predictable source of ______.

income

Company XYZ is showing an ability to make future earnings beyond what was originally expected. Their stock is more than likely going to:

increase in value

______ public offerings are often considered very risky.

initial

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

investment bank

A stock split does not guarantee an increase in the stock's ______ value.

market

Information on companies' websites is likely to be:

more up-to-date than printed materials.

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 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

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

profit; revenue

What document discloses corporate earnings, assets, liabilities, products, or services and the qualifications of top management?

prospectus

The ______ must disclose corporate earnings, assets, liabilities, products, or services and the qualifications of top ______.

prospectus; management

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

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

record date

With a stock split, a company's total market capitalization:

remains unchanged.

Initial public offerings (IPO) are considered:

risky

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.

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

Corporations may ______ stock to bring the price back into a "normal" price range.

split

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

stock;property

Common ______ elect the board of directors.

stockholders

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

stocks do not always increase in value.

A higher dividend yield typically signals a(n):

stronger investment.

Along with charts, graphs, and an abundance of information, you can get up-to-date market values by entering the ______ for corporations in the Quote Lookup box on Yahoo! Finance.

symbol

If a company sells stock to the public, it must report financial information to:

the Securities and Exchange Commission

The key element to investing is:

time

The more ______ an investment has to work, the more money it will likely accumulate.

time

It is not atypical for ______ companies to distribute 70 to 90 percent of their earnings as dividends.

utility

Stockholders can vote at the annual meeting. They are usually entitled to one ______ per ______ of stock.

vote;share