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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. Nathan noticed that a company that has great potential just declared a ________ because its stock price was getting too high for the small investor to buy the stock- The company will substitute more shares for the existing shares of stock without increasing the market value of the firm.
2. 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.
3. A stock currently sells for $100 per share, and has earnings of $2.00 per share- What is the stock's P/E ratio?
4. When the economy slumps, the earnings of cyclical stocks drop; when the economy recovers, so do their earnings.
5. Which stock index will have the largest representation of small-, mid- and large -cap stocks?
6. Coca-Cola is an example of a red-chip stock.
7. When a corporation engages in a stock repurchase, each remaining shareholder owns a smaller proportion of the firm.
8. 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.
9. According to your text, over time, investing in stocks generally outperforms most other investments.
10. The Dow Jones Industrial Average is based on the movement of 500 stocks, primarily from the NYSE.
11. If you were to purchase common stocks issued by large, nationally known companies with sound financial histories with solid dividend and growth records you would own what are called
12. Stocks reduce risk by portfolio rebalancing.
13. When investors talk about movements in the market, they generally refer to the Russell 1000.
14. Proctor and Gamble is an example of a blue-chip stock.
15. The ________ date is the date the stock begins trading without dividend, meaning that if you buy it after this date you will not get the dividend for that year.
16. Because the DJIA weights stocks based on their relative prices, when a high priced stock moves a small amount on the DJIA, it has a(n) ________ impact on the index.
17. You purchased 100 shares of Quantex at $150 per share for a total investment of $15,000- After your purchase the stock had a 3 for 1 split- How many shares do you now own and how much is your original investment now worth?
18. Growth stocks are issued by companies that have exhibited sales and earnings growth well above their industry average.
19. Stock splits increase the number of the shares you own, but decrease the value of your total holdings with the company.
20. A proxy vote means
21. All of the following are stock market indexes except
22. Defensive stocks frequently perform better during economic downturns.
23. A(n) ________ is a legal agreement signed by a stockholder allowing someone else to vote on his or her behalf at the corporation's annual meeting.
24. Earnings per share is a ratio that describes the amount of net income less preferred stock dividends available to the common shareholders.
25. 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?

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