Question 1

Which one of the popular common stock valuation methods focuses on supply and demand and uses a computer and charts to identify and project price trends for a stock or for the market as a whole?

Accepted Answer

A)   fundamental analysis approach
B)   technical analysis approach
C)   price/earnings ratio approach
D)   market analysis approach
E)   industry analysis approach B

Question 2

The dividend yield is calculated by dividing the earnings per share by the market price of the stock.

Accepted Answer

A) True 
 B)False  False

Question 3

Compared to other investment options, we can safely say that investing in stocks

Accepted Answer

A)   has equal risk.
B)   has greater risk.
C)   has less risk.
D)   is not worth the risk. B

Question 4

Your dad said that he was curious to know why there is so much fluctuation in the value of common stocks. In 1997 the prospects for Sun Industries became more uncertain and investors began to view it as a more risky investment than they had previously. To compensate for this added risk, investors increased their required rate of return on Sun Industries stock, resulting in a decline in its market value. This explains the factor of ________.

Accepted Answer

A)   earnings growth and stock valuation
B)   interest rates and stock valuation
C)   risk and stock valuation
D)   supply and demand
E)   dividend strength and stock valuation

Question 5

The net income of the firm is $4 million dollars. The firm will pay $500,000 in dividends to the preferred shareholders. There are currently 1 million shares of common stock outstanding. What are the earnings per share for this firm?

Accepted Answer

A)   $4.00
B)   $3.50
C)   $4.50
D)   $3.00

Question 6

You are looking at the stock quotes in your newspaper and you see that your stock closed up 5% yesterday. Where would you look to see how it has been doing over the last year?

Accepted Answer

A)   prior day's close
B)   P/E ratio
C)   52-week high and low
D)   market cap

Question 7

When you got home after work, you saw on the news that the S&P was down by 20 points. Which of the following is true?

Accepted Answer

A)   All of your stocks' market prices must have declined by 20 points.
B)   Some of your stocks' market prices may have increased.
C)   Some of your stocks' market prices may have decreased.
D)   Both B and C are correct.

Question 8

In the short run, market variability or volatility creates potential risk.

Accepted Answer

A) True 
 B)False

Question 9

Discuss the concept of using BETA for investing in stocks.

Accepted Answer

The answer of Discuss the concept of using BETA for...

Question 10

Using the stock valuation formula calculate the value of a share of stock if it is expected to pay $5 in dividends, in addition the dividends are expected to grow at a rate of 4 percent forever, and the investor's required rate of return is 12 percent.

Accepted Answer

A)   $18.75
B)   $39.75
C)   $62.50
D)   $68.50

Question 11

If you wanted information about how the entire stock market is performing, which index would provide you with information on virtually all types and sizes of companies?

Accepted Answer

A)   Dow Jones Industrials
B)   S&P 500
C)   NASDAQ 100
D)   Wilshire 5000

Question 12

A buy-and-hold investment strategy

Accepted Answer

A)   avoids timing the market.
B)   minimizes transaction costs.
C)   postpones capital gains taxes.
D)   means your gains will be taxed as long-term capital gains.
E)   All of the above

Question 13

You are considering purchasing one of two stocks. Stock A is expected to pay a $2.50 dividend, and has historically grown at 6%. Stock B is expected to pay a $3.00 dividend and has historically grown at 4%. Both are the same risk, and you desire to earn a 16% return. Which of the following is true?

Accepted Answer

A)   You should buy Stock A, since its estimated price is higher than Stock B.
B)   You should buy Stock B, since its estimated price is higher than Stock A.
C)   You should buy Stock A, since its estimated price is lower than Stock B.
D)   You should buy Stock B, since its estimated price is lower than Stock A.
E)   You should buy either Stock A or B, since the estimated prices are the same.

Question 14

The S&P 500

Accepted Answer

A)   is the oldest and most widely quoted of the stock indexes
B)   is a narrower index than the DOW
C)   includes some stocks from the OTC market
D)   All of the above

Question 15

The ________ is a common stock indicator, consisting of 30 large industrial firms, and is used to indicate how well stocks have done.

Accepted Answer

A)   DAIA
B)   CMIA
C)   DJIA
D)   SPFA
E)   none of the above

Question 16

Technical analysis focuses on supply and demand, using charts and computer programs to project stock trends.

Accepted Answer

A) True 
 B)False

Question 17

The Dow Jones Industrial Average has been an index since what year?

Accepted Answer

A)   1796
B)   1896
C)   1996
D)   2006

Question 18

By using the risk evaluation tool called beta, you can measure the movement of your individual stock compared to the S & P 500.

Accepted Answer

A) True 
 B)False

Question 19

The Dow Jones Industrial Average is based on the movement of 500 stocks, primarily from the NYSE.

Accepted Answer

A) True 
 B)False

Question 20

Common stockholders are entitled to elect the company's board of directors. Usually one share of stock is equal to ________ vote(s).

Accepted Answer

A)   one
B)   two
C)   100
D)   1,000

Exam 13: Investing in Stocks

Which one of the popular common stock valuation methods focuses on supply and demand and uses a computer and charts to identify and project price trends for a stock or for the market as a whole?

The dividend yield is calculated by dividing the earnings per share by the market price of the stock.

Compared to other investment options, we can safely say that investing in stocks

The net income of the firm is $4 million dollars. The firm will pay $500,000 in dividends to the preferred shareholders. There are currently 1 million shares of common stock outstanding. What are the earnings per share for this firm?

You are looking at the stock quotes in your newspaper and you see that your stock closed up 5% yesterday. Where would you look to see how it has been doing over the last year?

When you got home after work, you saw on the news that the S&P was down by 20 points. Which of the following is true?

In the short run, market variability or volatility creates potential risk.

Discuss the concept of using BETA for investing in stocks.

Using the stock valuation formula calculate the value of a share of stock if it is expected to pay $5 in dividends, in addition the dividends are expected to grow at a rate of 4 percent forever, and the investor's required rate of return is 12 percent.

If you wanted information about how the entire stock market is performing, which index would provide you with information on virtually all types and sizes of companies?

A buy-and-hold investment strategy

You are considering purchasing one of two stocks. Stock A is expected to pay a $2.50 dividend, and has historically grown at 6%. Stock B is expected to pay a $3.00 dividend and has historically grown at 4%. Both are the same risk, and you desire to earn a 16% return. Which of the following is true?

The S&P 500

The ________ is a common stock indicator, consisting of 30 large industrial firms, and is used to indicate how well stocks have done.

Technical analysis focuses on supply and demand, using charts and computer programs to project stock trends.

The Dow Jones Industrial Average has been an index since what year?

By using the risk evaluation tool called beta, you can measure the movement of your individual stock compared to the S & P 500.

The Dow Jones Industrial Average is based on the movement of 500 stocks, primarily from the NYSE.

Common stockholders are entitled to elect the company's board of directors. Usually one share of stock is equal to ________ vote(s) .