Question 1

Most speculators purchase stock and hold onto it for a number of years.

Accepted Answer

Speculators typically engage in short-term buying and selling of securities with the goal of making a quick profit, rather than buying and holding onto stocks for a long period of time.

Question 2

Dollar cost averaging helps investors avoid the pitfall of buying high and selling low.

Accepted Answer

Dollar cost averaging helps investors by spreading out their investment purchases over time, which can help them avoid investing all their money during a market peak and losing money when the market declines. This strategy can help them avoid the pitfall of buying high and selling low.

Question 3

A market order is a request to buy or sell a stock at the current market value.

Accepted Answer

A market order is an order that instructs a broker to buy or sell a stock immediately at the current market price. The order will be executed at the best available price at the time the order is placed. As such, the price at which a market order is executed may be different than the price at which it was placed.

Question 4

The minimum commission charged by most brokerage firms for buying or selling stock is between $5 and $25.

Accepted Answer

Most brokerage firms charge a minimum commission of between $5 and $25 for buying or selling stock.

Question 5

Sean Rouse owns shares of common stock in Stowaway Transportation Company.The company is getting ready to pay a dividend.Sean knows he must be registered on the corporation's books on the _______ date in order to receive the dividend.

Accepted Answer

The record date is the date on which a company reviews its books and identifies shareholders who are eligible to receive the dividend payment. Shareholders must be registered on the corporation's books on or before the record date in order to receive the dividend. The ex-dividend date is the date on which the shares begin trading without the upcoming dividend, the payment date is the date on which the dividend is actually paid out, the declaration date is the date on which the board of directors declares the dividend, and the stockholders' meeting may include discussions of dividends but is not directly related to the dividend payment process.

Question 6

The fundamental analysis theory is based on the assumption that a stock's intrinsic or real value is determined by the future earnings of the company.

Accepted Answer

Fundamental analysis looks at a company's financial statements, management team, industry performance, and other factors to determine the potential future earnings of the company and thus its intrinsic value.

Question 7

Amy Farmer just received a legal form in the mail from a firm in which she owns stock.This form lists the issues to be decided at the annual stockholders' meeting and asks her to give written permission for someone else to vote for her if she cannot attend.What form has she received in the mail?

Accepted Answer

Amy Farmer has received a proxy form in the mail. This form allows her to give written permission for someone else to vote for her in the annual stockholders' meeting if she is unable to attend.

Question 8

James Green just bought a security which he expects will provide him with a quarterly cash payment,although that payment is not guaranteed.In fact,he expects the amount of the payment to vary over time.What type of payment is he expecting to receive?

Accepted Answer

James Green is expecting to receive quarterly cash payments that are not guaranteed and vary over time. This corresponds to the definition of a dividend, which is a portion of a company's profits distributed to its shareholders on a regular basis. Therefore, D is the correct answer. Option premium refers to the price paid for an option contract, interest is a fixed payment for the use of borrowed money, capital gain is the profit earned from selling a valuable asset, and rebate is a partial refund of the cost of a product or service. None of these choices fit the description of James Green's expected payment.

Question 9

A limit order is a request to buy or sell stock at a specified price or better.

Accepted Answer

A limit order is an order to buy or sell a stock at a specific or better price, as opposed to a market order which executes at the current market price.

Question 10

A low market-to-book ratio could indicate that a stock is undervalued.

Accepted Answer

A low market-to-book ratio suggests that a company's stock is trading at a lower value compared to the underlying value of its assets. This could indicate that the stock is undervalued and may present a good buying opportunity.

Question 11

Beverly Frickel purchased 100 shares of Gleason Systems stock for $42.50 per share.Her commission for this purchase was $35.She sold the stock two years later for $55 per share and a commission of $50.What was Beverly's total dollar return on this stock?

Accepted Answer

[(100 F1F1F1S1F1F1F1055) - 50] - [(42.50 F1F1F1S1F1F1F10100) + 35] = 5,450 - 4,285 = $1,165.

Question 12

A call option gives the purchaser the right to sell 100 shares of a stock at a guaranteed price before a definite expiration date.

Accepted Answer

A call option actually gives the purchaser the right to buy 100 shares of a stock at a guaranteed price before a definite expiration date.

Question 13

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

Accepted Answer

This statement accurately describes the role and function of an investment bank.

Question 14

The Beta is a measure that compares the volatility associated with a specific stock issue with the volatility of the Standard & Poor's 500 Stock Index.

Accepted Answer

This is true. Beta measures the sensitivity of a stock's returns to market volatility, and the S&P 500 is often used as a proxy for the overall market. So a beta of 1 indicates that the stock is as volatile as the market, while a beta greater than 1 indicates higher volatility and a beta lower than 1 indicates lower volatility than the market.

Question 15

Christopher Pratt just bought shares of common stock.Which one of the following is he entitled to based on his ownership of these shares?

Accepted Answer

Ownership of common stock typically grants the shareholder the right to vote at annual meetings. Options A, B, D, and E do not apply as semi-annual interest payments and guaranteed annual dividends are typically associated with bonds or preferred stock, and the right to declare a stock split and future dividends are typically the purview of the company's board of directors or management team, not individual shareholders.

Question 16

When investors purchase stock on margin,they borrow stock from a stockbroker or brokerage firm.

Accepted Answer

When investors purchase stock on margin, they borrow money from a stockbroker or brokerage firm to buy more stock than they could with just their available funds, not the stock itself.

Question 17

Orlando Blodgett is buying stock in the Getaway Caribbean Cruise Company today.He had thought about buying the stock yesterday and if he had,he would have received this quarter's dividend.However,since he waited until today,he will not receive that dividend payment.Given this information,which one of the following dates applies to this stock today?

Accepted Answer

The ex-dividend date is the first day that a stock trades without its dividend. In this scenario, Orlando is buying the stock after the ex-dividend date, which means he will not receive the most recent dividend payment.

Question 18

Jeff Goldblum has just purchased a security which has no maturity date and no promised payments.He can recoup his investment by either selling the security to another individual or to the issuer,if the issuer ever makes an offer to buy it.What type of security did Jeff purchase?

Accepted Answer

Jeff Goldblum purchased common stock, which has no maturity date and no promised payments. The value of the stock can fluctuate based on various factors such as company performance, market conditions, and investor sentiment. He can recoup his investment by selling it to another investor or back to the issuer if the company offers to buy it back. This type of security does not have a set maturity date or promised payments, unlike corporate or government bonds. Stock options and dividends are specific types of securities and do not fit the description given in the question.

Question 19

A securities exchange is a marketplace where member brokers,who represent investors,meet to buy and sell securities.

Accepted Answer

This is a correct definition of a securities exchange.

Question 20

Valerie Kilmer owns stock in the Williams Widget Company.She was just advised that in the near future she will be receiving two shares for every one share she owns today.What has the company declared that will cause this change to her shares?

Accepted Answer

The company has declared a stock split, which means that the number of shares outstanding will increase and the price per share will decrease, but the total value of Kilmer's stock will remain the same.

Quiz 14: Investing in Stock