Question 1

The ________ the firm's earnings growth rate, the ________ the firm's P/E ratio and the ________ the investor's required rate of return, the ________ the P/E ratio.

Accepted Answer

A)  higher; higher; higher; higher 
B)  higher; higher; higher; lower 
C)  higher; higher; lower; lower 
D)  higher; lower; lower; lower 
E)  lower; lower; lower; lower 
A)  higher; higher; higher; higher 
B)  higher; higher; higher; lower 
C)  higher; higher; lower; lower 
D)  higher; lower; lower; lower 
E)  lower; lower; lower; lower

Question 2

The ratio of the annual dividend to the market price of the stock is called the ________.

Accepted Answer

A)  retention ratio 
B)  plowback ratio 
C)  current ratio 
D)  dividend yield 
E)  none of the above 
A)  retention ratio 
B)  plowback ratio 
C)  current ratio 
D)  dividend yield 
E)  none of the above

Question 3

Deborah recently purchased a stock that is considerably more risky than a typical stock. It has exhibited a high degree of earnings variability. This is an example of a(n) ________ stock.

Accepted Answer

A)  speculative 
B)  blue-chip 
C)  income 
D)  mid-cap 
A)  speculative 
B)  blue-chip 
C)  income 
D)  mid-cap

Question 4

Using the stock valuation formula calculate the value of a share of stock if it is expected to pay $15 in dividends, in addition the dividends are expected to grow at a rate of 8 percent forever, and the investor's required rate of return is 10 percent.

Accepted Answer

A)  $6.50 
B)  $7.50 
C)  $12.00 
D)  $14.50 
A)  $6.50 
B)  $7.50 
C)  $12.00 
D)  $14.50

Question 5

Limited liability associated with stock ownership means that shareholders can only lose the amount of money they have invested in the company.

Accepted Answer

A) True 
 B)False

Question 6

According to your text, over time, investing in stocks generally outperforms most other investments.

Accepted Answer

A) True 
 B)False

Question 7

Common stockholders not only have the right to elect the board but also must approve day-to-day decisions of the chief executive officer.

Accepted Answer

A) True 
 B)False

Question 8

When a corporation repurchases its own stock, it does so in the secondary markets.

Accepted Answer

A) True 
 B)False

Question 9

The market price of the stock is a reflection of the potential earnings per share of the firm.

Accepted Answer

A) True 
 B)False

Question 10

You have just discovered one reason not to invest in stocks. What do you think it is?

Accepted Answer

A)  Stocks reduce risk through diversification. 
B)  Your tolerance of risk is low. 
C)  Over time, common stocks outperform all other investments. 
D)  Stocks are liquid. 
E)  Growth is determined by more than just interest rates. 
A)  Stocks reduce risk through diversification. 
B)  Your tolerance of risk is low. 
C)  Over time, common stocks outperform all other investments. 
D)  Stocks are liquid. 
E)  Growth is determined by more than just interest rates.

Question 11

Large-caps, mid-caps, and small-caps refer to the size of the firm issuing the stock, more specifically, to its ________.

Accepted Answer

A)  book value 
B)  market value 
C)  dividend 
D)  capacity for growth 
A)  book value 
B)  market value 
C)  dividend 
D)  capacity for growth

Question 12

You cannot benefit from capital appreciation until you actually sell your stock.

Accepted Answer

A) True 
 B)False

Question 13

Distinguish between the technical analysis and fundamental approaches of valuation of common stock.

Accepted Answer

Technical analysis takes a number of for

Question 14

A stock currently sells for $100 per share, and has earnings of $2.00 per share. What is the stock's P/E ratio?

Accepted Answer

A)  50.00 
B)  25.00 
C)  5.00 
D)  1.00 
A)  50.00 
B)  25.00 
C)  5.00 
D)  1.00

Question 15

As a shareholder in Titanic Shipping, Inc., James Blue is one of the many actual owners. In case of the bankruptcy of the corporation, his liability would be limited to ________.

Accepted Answer

A)  his ownership percentage of the actual loss 
B)  the amount of his investment 
C)  nothing at all 
D)  what is left after selling the stock and subtracting the debt 
A)  his ownership percentage of the actual loss 
B)  the amount of his investment 
C)  nothing at all 
D)  what is left after selling the stock and subtracting the debt

Question 16

The only time to buy stocks is in a bull market and the only times to sell stocks is during a bear market.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that a company feels that the price of its stock is more than the average small investor can afford. To lower the price the company could engage in a

Accepted Answer

A)  stock split. 
B)  stock repurchase. 
C)  proxy vote. 
D)  All of the above are correct. 
A)  stock split. 
B)  stock repurchase. 
C)  proxy vote. 
D)  All of the above are correct.

Question 18

What would you expect to be associated with a company whose stock has a high beta?

Accepted Answer

A)  a high potential return 
B)  a high dividend yield 
C)  a large market capitalization 
D)  all of the above are correct 
E)  all but C are correct 
A)  a high potential return 
B)  a high dividend yield 
C)  a large market capitalization 
D)  all of the above are correct 
E)  all but C are correct

Question 19

Your father-in-law's stockbroker examines future earnings and dividends, the expected level of interest rates, and the firm's risk to provide a basis for buy-sell recommendations. This stockbroker uses the ________ approach to stock valuation.

Accepted Answer

A)  financial statement analysis 
B)  earnings analysis 
C)  expectations method 
D)  fundamental analysis 
E)  none of the above 
A)  financial statement analysis 
B)  earnings analysis 
C)  expectations method 
D)  fundamental analysis 
E)  none of the above

Question 20

A proxy is a legal agreement a stockholder signs to allow someone else to vote for him or her at the corporation's annual meeting.

Accepted Answer

A) True 
 B)False

The the firm's earnings growth rate, the the firm's P/E ratio and the the investor's required rate of return, the the P/E ratio.

The ratio of the annual dividend to the market price of the stock is called the ________.

Deborah recently purchased a stock that is considerably more risky than a typical stock. It has exhibited a high degree of earnings variability. This is an example of a(n) ________ stock.

Using the stock valuation formula calculate the value of a share of stock if it is expected to pay $15 in dividends, in addition the dividends are expected to grow at a rate of 8 percent forever, and the investor's required rate of return is 10 percent.

Limited liability associated with stock ownership means that shareholders can only lose the amount of money they have invested in the company.

According to your text, over time, investing in stocks generally outperforms most other investments.

Common stockholders not only have the right to elect the board but also must approve day-to-day decisions of the chief executive officer.

When a corporation repurchases its own stock, it does so in the secondary markets.

The market price of the stock is a reflection of the potential earnings per share of the firm.

You have just discovered one reason not to invest in stocks. What do you think it is?

Large-caps, mid-caps, and small-caps refer to the size of the firm issuing the stock, more specifically, to its ________.

You cannot benefit from capital appreciation until you actually sell your stock.

Distinguish between the technical analysis and fundamental approaches of valuation of common stock.

A stock currently sells for $100 per share, and has earnings of $2.00 per share. What is the stock's P/E ratio?

As a shareholder in Titanic Shipping, Inc., James Blue is one of the many actual owners. In case of the bankruptcy of the corporation, his liability would be limited to ________.

The only time to buy stocks is in a bull market and the only times to sell stocks is during a bear market.

Suppose that a company feels that the price of its stock is more than the average small investor can afford. To lower the price the company could engage in a

What would you expect to be associated with a company whose stock has a high beta?

Your father-in-law's stockbroker examines future earnings and dividends, the expected level of interest rates, and the firm's risk to provide a basis for buy-sell recommendations. This stockbroker uses the ________ approach to stock valuation.

A proxy is a legal agreement a stockholder signs to allow someone else to vote for him or her at the corporation's annual meeting.

The Financial Planning Process

Measuring Your Financial Health and Making a Plan

Understanding and Appreciating the Time Value of Money

Tax Planning and Strategies

Cash or Liquid Asset Management

Using Credit Cards: The Role of Open Credit

Using Consumer Loans: The Role of Planned Borrowing

The Home and Automobile Decision

Life and Health Insurance

Property and Liability Insurance

Investment Basics

Securities Markets

Investing in Bonds and Other Alternatives

Mutual Funds: An Easy Way to Diversify

Retirement Planning

Estate Planning: Saving Your Heirs Money and Headaches

Financial Life Events Fitting the Pieces Together

Filters

Exam 13: Investing in Stocks

The ________ the firm's earnings growth rate, the ________ the firm's P/E ratio and the ________ the investor's required rate of return, the ________ the P/E ratio.

The ratio of the annual dividend to the market price of the stock is called the ________.

Deborah recently purchased a stock that is considerably more risky than a typical stock. It has exhibited a high degree of earnings variability. This is an example of a(n) ________ stock.

Using the stock valuation formula calculate the value of a share of stock if it is expected to pay $15 in dividends, in addition the dividends are expected to grow at a rate of 8 percent forever, and the investor's required rate of return is 10 percent.

Limited liability associated with stock ownership means that shareholders can only lose the amount of money they have invested in the company.

According to your text, over time, investing in stocks generally outperforms most other investments.

Common stockholders not only have the right to elect the board but also must approve day-to-day decisions of the chief executive officer.

When a corporation repurchases its own stock, it does so in the secondary markets.

The market price of the stock is a reflection of the potential earnings per share of the firm.

You have just discovered one reason not to invest in stocks. What do you think it is?

Large-caps, mid-caps, and small-caps refer to the size of the firm issuing the stock, more specifically, to its ________.

You cannot benefit from capital appreciation until you actually sell your stock.

Distinguish between the technical analysis and fundamental approaches of valuation of common stock.

A stock currently sells for $100 per share, and has earnings of $2.00 per share. What is the stock's P/E ratio?

As a shareholder in Titanic Shipping, Inc., James Blue is one of the many actual owners. In case of the bankruptcy of the corporation, his liability would be limited to ________.

The only time to buy stocks is in a bull market and the only times to sell stocks is during a bear market.

Suppose that a company feels that the price of its stock is more than the average small investor can afford. To lower the price the company could engage in a

What would you expect to be associated with a company whose stock has a high beta?

Your father-in-law's stockbroker examines future earnings and dividends, the expected level of interest rates, and the firm's risk to provide a basis for buy-sell recommendations. This stockbroker uses the ________ approach to stock valuation.

A proxy is a legal agreement a stockholder signs to allow someone else to vote for him or her at the corporation's annual meeting.

The Financial Planning Process

Measuring Your Financial Health and Making a Plan

Understanding and Appreciating the Time Value of Money

Tax Planning and Strategies

Cash or Liquid Asset Management

Using Credit Cards: The Role of Open Credit

Using Consumer Loans: The Role of Planned Borrowing

The Home and Automobile Decision

Life and Health Insurance

Property and Liability Insurance

Investment Basics

Securities Markets

Investing in Bonds and Other Alternatives

Mutual Funds: An Easy Way to Diversify

Retirement Planning

Estate Planning: Saving Your Heirs Money and Headaches

Financial Life Events Fitting the Pieces Together

Filters

The the firm's earnings growth rate, the the firm's P/E ratio and the the investor's required rate of return, the the P/E ratio.