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Personal Finance: Investing in Stocks
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Avg score: 35% • Most missed: “Proctor and Gamble is an example of a blue-chip stock.”

What is a a stock?

A stock represents an ownership stake in a company as a common shareholder.

Common stocks allow shareholders to vote on company issues, with most companies granting one vote per share.

Some companies also offer stockholders dividend payouts, giving investors a stream of income on top of the market value of the stock.
 

Personal Finance: Investing in Stocks
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25 Questions

1. Berkshire Hathaway's 'A' stock has never split- As a result, in mid-2014 one share of the stock was selling at a price of more than $190,000 per share.
2. A ________ increases the number of stock shares outstanding by replacing each existing share of stock with a stated number of new shares.
3. When a corporation engages in a stock repurchase, each remaining shareholder owns a smaller proportion of the firm.
4. Your friend has recommended that you purchase stock in company XYZ- It is expected to pay a $4 dividend, and has historically grown at 5%- If the required rate of return is 12%, what is the estimated value of a share of XYZ stock?
5. Proctor and Gamble is an example of a blue-chip stock.
6. 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
7. The Dow Jones Industrial Average has been an index since what year?
8. Your investment goal is to receive a stream of income from your investment- Which of the following would be important information to determine whether a particular stock purchase would suit your plan?
9. The stocks tracked by the Dow represent over 50% of the market value of the NYSE.
10. In the short run, market variability or volatility creates potential risk.
11. The ________ is the date on which the board of directors announces the amount of the dividend.
12. 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?
13. You are really keen on stocks- However, you do not like stocks with regard to ________- This means that if a company you have invested in goes bankrupt, the creditors are paid first and you will be out of luck.
14. Holding several types of stock can greatly reduce the risk in your portfolio.
15. Coca-Cola is an example of a red-chip stock.
16. 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.
17. Most of the stocks listed in the Dow Jones Industrials have high P/E ratios and are classified as speculative stocks.
18. The Dow Jones Industrial Average is based on the movement of 500 stocks, primarily from the NYSE.
19. 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.
20. Because the Dow Jones Index Average is based on the movement of 500 large, well-established stocks, many investors believe it reflects price movements for large firms rather than for the general market.
21. Common stockholders have a superior claim on a company's assets over creditors and bondholders.
22. If your portfolio is very diversified then the beta is of no use to you.
23. A stock split is a tactic by a corporation to manipulate the market price of its stock.
24. A stock market characterized by increasing prices is termed a(n) ________ market.
25. The only time to buy stocks is in a bull market and the only times to sell stocks is during a bear market.

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