Chapter 12 Personal Finance

d 47. Which of the following is incorrect?A. There is no substitute for researching a potential investment.B.Beginning investors sometimes worry that they won’t know what the information they find aboutstocks really means.C. Some investors do not know where to get the information they need to evaluate potential investments.D. The amount of information available about stocks is limited.E. All of these statements are correct.
b 48. Since 1926, the average annual return for stocks has been aboutA. 8%.B. 10%.C. 12%.D. 14%.E. 16%.
b 49. Amanda wants to be part of the ownership for a corporation. She should invest inA. Bonds.B. Common stock.C. Dividends.D. A savings account.E. A proxy.
b 50. Equity financing is money received from the sale ofA. Bonds.B. Common stock.C. Dividends.D. A savings account.E. A proxy.
c 51. A distribution of money, stock, or other property that is paid to owners of a company is called aA. Bond.B. Common stock.C. Dividend.D. Savings account.E. Proxy.
e 52. A legal form that requests that owners transfer their voting rights to individual(s) is called aA. Bond.B. Common stock.C. Dividend.D. Savings account.E. Proxy.
b 53. All of the following statements are correct exceptA. Dividends are paid out of profits.B. Dividend payments must be approved by the stockholders.C. A dividend can be a distribution of money, but it can also be stock or other property.D. Dividends are not mandatory.E. Utility companies typically distribute a higher percentage of earnings than rapidly growing firms.
c 54. Alberta owns 100 shares of stock of ABC Company, and Bobby owns 200 shares of the same stock. IfABC Company pays a $5 dividend to all stockholders with a record date of Friday, June 15, thenA.Alberta will receive the same amount as Bobby if they owned the stock two business days before therecord date.B. Both will receive the dividend as long as they sell their stock three days before the record date.C.Alberta will receive half as much as Bobby if they owned the stock two business days before therecord date.D. Both will receive the dividend if they bought the stock on the record date.E.Alberta and Bobby will receive the same amount if they bought the shares at least one month beforethe record date.
e 55. If you own stock, you may receive income fromA. Dividends.B. Dollar appreciation of stock value.C. Possible increases in stock price due to stock splits.D. Two of these are correct.E. All of these are correct.
a 56. MNOP Inc. declared a $1.00 dividend with a record date of Thursday, September 15, and a payment dateof Thursday, October 20. Cheri wants to purchase stock and receive the dividend. What is the latest datethat she needs to have purchased the stock in order to receive the dividend?A. September 12B. September 13C. September 15D. September 19E. October 18
b 57. MNOP Inc. declared a $1.00 dividend with a record date of Thursday, September 15, and a payment dateof Thursday, October 20. Cheri does not want receive this current dividend. What is the earliest date thatshe should purchase the stock in order to avoid receiving the dividend?A. September 12B. September 13C. September 15D. October 18E. October 20
c 58. Why does a company split its stock?A. The stock is trading at a low price, and the company wants to increase its stock value.B. It wants fewer shares outstanding.C.The stock is trading at a high price, and the company wants to bring the price in line with a theoreticalideal range.D. It wants the total market capitalization to be lower than the current level.E. The company wants to guarantee that the stock price will increase.
c 59. Which of the following statements about stock splits is correct?A. If a company has a 2-for-1 split, the price will be doubled.B. If a company has a 3-for-1 split, the price will increase by a factor of 3.C.If a company has a 4-for-1 split, the new number of shares will be four times as many as before thesplit.D.If a company has a 5-for-1 split, the new number of shares will be equal to the old number of sharesdivided by 5.E. None of these is correct.
e 60. Which of the following is not correct regarding preferred stock?A. Preferred stocks are considered to be safer investments than common stocks.B. Owners of preferred stock have first claim to a corporation’s assets after creditors in a bankruptcy.C. Owners of preferred stock receive cash dividends before common stockholders receive their dividends.D. The dollar amount of the dividend on preferred stock is known before the stock is purchased.E. The yield on preferred stocks is often much higher than the yield on bonds.
e 61. Megan decided to start investing in stocks. Which of the following should she do first?A. Base her investing decisions on hot tips she hears at work.B. Buy stocks based solely on her stockbroker’s recommendation.C. Choose stocks based on recommendations from her family members.D. Pick stocks at random.E. Research the corporations she is interested in as well as their industries.
c 62. Which of the following statements is correct?A. The Internet is not to be trusted as a reliable source to evaluate potential investments.B. Individual company websites usually charge for access to their own financial reports.C. The Internet provides websites that may be more up to date and thorough than printed materials.D. Websites like Yahoo! Finance are not dependable.E. None of these is correct.
a 63. A safe investment that generally attracts conservative investors is called a(n) _______ stock.A. blue chipB. incomeC. micro capD. midcapE. penny
b 64. An investment that pays higher than average dividends is called a(n) _______ stock.A. blue chipB. incomeC. micro capD. midcapE. penny
e 65. A stock that typically sells for less than $1 per share is called a(n) _______ stock.A. blue chipB. incomeC. micro capD. midcapE. penny
d 66. A stock issued by a corporation that has a capitalization of between $2 billion and $10 billion is calleda(n) _______ stock.A. blue chipB. incomeC. micro capD. midcapE. penny
c 67. A stock issued by a company that has a capitalization of $300 million or less is called a _______stock.A. blue chipB. incomeC. micro capD. midcapE. penny
a 68. Cliff retired 10 years ago and wants to still own a few stocks. Dividends are important to him, but so isgrowth. He is most interested in stocks that are safe investments. He should purchase _______ stocks.A. blue chipB. cyclicalC. micro capD. midcapE. penny
c 69. Patrick graduated from college five years ago. He has set up an emergency fund and has been paying offhis student loans. In addition, he participates in the retirement plan offered by his employer. He wants toinvest $75 per month in very small companies (capitalization of $300 million or less). He should purchase_______ stocks.A. blue chipB. incomeC. micro capD. midcapE. penny
e 70. Which of the following is some of the information found on a financial website such aswww.finance.yahoo.com?A. Company name, last price, target price, price change.B. 52-week price range, number of shares traded (volume).C. Market capitalization.D. Dividend paid and yield.E. All of this information is included.
c 71. Which of the following usually offers some free information and charges for more detailed researchinformation you may need to evaluate a stock investment?A. Financial websites such as www.finance.yahoo.comB. Personal finance websites such as www.smartmoney.comC. Professional advisory services such as Standard & Poor’s Financial Information ServicesD. Search engines such as Yahoo!E. Securities and Exchange Commission website
c 72. Which of the following is true?A. Mergent’s Handbook of Common Stocks is a misnomer because it analyzes only industries.B. Standard & Poor’s reports are available only on the Internet.C. Stock advisory services include printed detailed financial reports.D. Value Line is the only reliable stock advisory service used by investors.E. All of these are correct.
e 73. Financial reports from advisory services include all of the following sections exceptA. Stock prices, earnings, and dividends.B. Business summary.C. Prospects section.D. Financial data.E. All of these are included in financial reports.
d 74. Annual reportsA. Are available from a company for a fee.B. Are available only to current stockholders.C. Include the same information as a prospectus.D. Must be sent to all stockholders on an annual basis.E. Include estimated financial data only.
e 75. Which of the following is correct?A. Earnings are a minor factor in determining the value of a stock.B. Corporate earnings are reported in the proxy statement.C. Earnings per share uses the price of the stock in the calculation.D. EPS is a key factor that serious investors use to evaluate stock investments.E.The price/earnings ratio is the price of a share of stock divided by the corporation’s earnings per shareof stock.
e 76. The earnings per share equalsA. Total number of shares of preferred stock divided by earnings.B. Total number of shares of common stock divided by earnings.C. Total earnings divided by number of shares of preferred stock.D. Total earnings divided by number of shares of common and preferred stock.E. None of these.
b 77. When analyzing a price-earnings ratio,A.A higher price-earnings ratio indicates pessimism because the price is too high compared to theearnings.B. The higher the price-earnings ratio, the more investors are paying for earnings.C. A low ratio indicates that investors expect higher earnings in the future.D.Price-earnings ratios are helpful when comparing two companies in the same industry, but not to themarket in general.E.The price-earnings ratio alone provides enough information to allow an investor to decide whether toinvest in a particular stock.
d 78. Which of the following is based on historical numbers?A. Earnings.B. Earnings per share.C. Price-earnings ratio.D. All of these.E. None of these.
e 79. If you want to compare two companies, you should useA. Book value per share.B. Dividend yield.C. Price per share.D. Net income.E. Price-earnings ratio.
b 80. Which of the following is a profitability ratio that uses the number of outstanding shares in thecalculation?A. Capital gainB. Earnings per shareC. Price per shareD. Net incomeE. Dividend yield
e 81. This ratio uses the market price per share of the stock and the earning per share.A. Book value per shareB. Earnings per shareC. Market price per shareD. Net incomeE. Price-earnings ratio
e 82. Which of the following changes would NOT cause analysts to change earnings estimates for a health carecorporation?A. Interest ratesB. Unemployment ratesC. The economy in generalD. IndustryE. Weather
b 83. This calculation uses the annual amount of money paid to investors from the company.A. Book valueB. Dividend yieldC. Earnings per shareD. Market valueE. Price-earnings ratio
a 84. The formula “(Assets – Liabilities)/Shares outstanding” equalsA. Book value.B. Dividend yield.C. Earnings per share.D. Market value.E. Price-earnings ratio.
e 85. This calculation includes the annual dividends in dollars and the increase in the original purchase price ofthe investment.A. Book valueB. Capital gainC. Market valueD. Price-earnings ratioE. Total return
b 86. Total return equalsA. Dividend yield.B. Annual dividends in dollars plus capital gains.C. Capital gains.D. Annual dividends in dollars less capital gains.E. Capital gains less annual dividends in dollars.
a 87. Dividend yield equalsA. Annual dividend amount/Current price per share.B. Quarterly dividend amount/Price per share.C. Annual dividend amount/Book value per share.D. Quarterly dividend amount/Book value per share.E. Annual dividend amount/Earnings per share.
e 88. Book value equalsA. (Assets + Liabilities)/Number of shares outstanding.B. (Liabilities – Assets)/Number of shares outstanding.C. (Assets + Liabilities)/Earnings per share.D. (Liabilities + Assets/Price-earnings ratio.E. (Assets – Liabilities)/Number of shares outstanding.
b 89. Abe was contacted by XYZ’s ____________ when XYZ wanted to sell new securities to the generalpublic for the first time.A. initial public offeringB. investment bankC. primary marketD. secondary marketE. securities exchange
a 90. Stephen wanted to become one of the owners of GHI Corp. when it finally was available to the generalpublic. He participated in theA. Initial public offering.B. Investment bank.C. Primary market.D. Secondary market.E. Securities exchange.
c 91. Kelly bought some stock using an investment bank from the issuer of those securities. She bought hershares on theA. Initial public offering.B. Investment bank.C. Primary market.D. Secondary market.E. Securities exchange.
d 92. Patrick sold his GE shares using his online broker. One can say that he sold them on theA. Initial public offering.B. Investment bank.C. Primary market.D. Secondary market.E. Securities exchange.
e 93. Jake wanted to buy and sell various stocks on the NYSE. He was using one of the largest_______________ in the world.A. initial public offeringsB. investment banksC. primary marketsD. secondary marketsE. securities exchanges
e 94. A marketplace where member brokers who represent investors meet to buy and sell securities is calleda(n)A. Initial public offering.B. Investment bank.C. Primary market.D. Secondary market.E. Securities exchange.
e 95. The NYSE is an example of a(n)A. Initial public offering.B. Investment bank.C. Primary market.D. Secondary market.E. Securities exchange.
b 96. NYSE stands forA. New York Securities Exchange.B. New York Stock Exchange.C. New York School of Engineering.D. Never Yet So Even.E. New Year Selling Exchange.
c 97. Mohammad was interested in purchasing low-value securities that were not listed on the NYSE. Heprobably used _____ to complete his transaction.A. an initial public offeringB. an investment bankC. the over-the-counter marketD. a primary marketE. the securities exchange commission website
a 98. A licensed individual who buys or sells investments for his or her clients is called a(n)A. Account executive.B. Account investor.C. Online executive.D. Market maker.E. Two of these are correct.
e 99. Peter is a NASDAQ dealer who matches buy and sell orders for Ford. He is known as a(n)A. Account executive.B. Account investor.C. Discount broker.D. Full-service broker.E. Market maker.
a 100.Excessive buying and selling of securities to generate commissions is calledA. Churning.B. Flipping.C. Marketing.D. Prospecting.E. Scamming.
c 101.Claudia is a licensed individual who buys or sells investment for her clients. Which of the following isnot correct?A. She is an account executive.B. She should not use her discretion without her client’s approval.C. She should focus on churning for her clients.D. She should provide information and advice to be used in evaluating potential investments.E. All of these are correct.
b 102.Terry wants to begin investing and needs some guidance because he is uncomfortable making investmentdecisions. He should use a(n)A. Discount broker.B. Full-service broker.C. Market maker.D. Online broker.E. None of these is correct.
d 103.Tammy feels quite comfortable trading her own stocks using a computer. She should use a(n)A. Discount broker.B. Full-service broker.C. Market maker.D. Online broker.E. All of these are correct.
a 104.Tanya understands the “how to” of researching stocks and likes to make her own decisions. However, sheis not comfortable using the Internet to trade stocks. She should use a(n)A. Discount broker.B. Full-service broker.C. Market maker.D. Online broker.E. All of these are correct.
e 105.Avery is thinking about using the computer to do his investing. He should ask all of the followingquestions exceptA. Can I manage my own investments closely?B. How long will I be on the computer?C. How large is my investment portfolio?D. None of these questions is appropriate.E. Two of these are appropriate to ask.
c 106.Mallory wants to purchase stock at the current market price. She should use aA. Current sale order.B. Limit order.C. Market order.D. Stop order.E. Stop-loss order.
b 107.Devin wants to purchase DEF stock for $40.00 or less. He should use aA. Current sale order.B. Limit order.C. Market order.D. Stop order.E. Stop-loss order.
d 108.Gavin has owned MNOP stock for several years and has seen the stock increase in value from $20 to $35.He wants to “lock in” his gains, so he needs to place an order that will sell his stock at the next availableopportunity after its market price drops to $33. What kind of order should he use?A. Current sale order.B. Limit order.C. Market order.D. Stop-loss order.E. None of these.
e 109.Ethan wants to purchase some stock for the first time. Which of the following is correct?A. His account executive should be encouraged to churn Ethan’s account to maximize his return.B. He should use an online broker to get specific advice about purchasing stock.C.His purchase price will exactly equal the number of shares he purchases times the price per share and isknown in advance.D. If he uses a market order, he can lock in the price at which he wants to buy the stock.E. His commission should be lower at an online broker than at a full-service broker.
c 110.If you bought a stock on June 15, 2010, and sold it on July 15, 2011, you would likely be classified asa(n)A. Speculator.B. Trader.C. Investor.D. Two of these are correct.E. All of these are correct.
d 111.If you bought a stock on July 1, 2010, and sold it on July 15, 2010, you may be a(n)A. Speculator.B. Trader.C. Investor.D. Two of these are correct.E. All of these are correct.
a 112.Brenda purchases stock and never plans to sell them. She could be considered to be using aA. Buy-and-hold technique.B. Direct investment plan.C. Direct reinvestment plan.D. Dollar cost averaging technique.E. Margin technique.
b 113.Marissa purchases $500 of stock from a corporation without having to use an account executive or abrokerage firm. She is using aA. Buy-and-hold technique.B. Direct investment plan.C. Direct reinvestment plan.D. Dollar cost averaging technique.E. Margin technique.
c 114.Rebecca owns stock that pays a dividend. She does not want the cash now; instead she would prefer tohave more shares of stock. She should use aA. Buy-and-hold technique.B. Direct investment plan.C. Dividend reinvestment plan.D. Dollar cost averaging technique.E. Margin technique.
d 115.Timothy has $100 automatically invested in a stock each month. This way, he doesn’t buy high and selllow. He is using aA. Buy-and-hold technique.B. Direct investment plan.C. Direct reinvestment plan.D. Dollar cost averaging technique.E. Margin technique.
c 116.Faye sometimes borrows money from her broker to buy her stock. She is buyingA. A call option.B. A direct investment.C. On margin.D. A put option.E. A short sale.
c 117.Investors who earn larger returns because they borrow part of the money needed to by a particular stockare using which of the following techniques?A. A call optionB. Direct investingC. Buying on marginD. A put optionE. Selling short
c 118.If you buy or sell with this technique, you may be required to pledge additional collateral or cash for aloan.A. A call optionB. Direct investingC. Buying on marginD. A put optionE. Selling short
e 119.Ben borrowed some securities from his broker and planned to replace them at a later date. Which of thefollowing strategies did he use?A. A call optionB. Direct investingC. Buying on marginD. A put optionE. Selling short
b 120.Which of the following is correct?A. The broker pays you interest on money borrowed to purchase stock on margin.B. Selling short is selling stock borrowed from a brokerage firm.C. A put option is the right, but not the obligation, to purchase a stock at a specified price by a given date.D.A brokerage firm receives double its commission when stock is bought and sold when the investor isselling short.E. If the stock price increases and you purchased stock on margin, you may receive a margin call
d 121.Which of the following is not correct?A. You pay interest on money borrowed to purchase stock on margin.B. Selling short is selling stock borrowed from a brokerage firm.C.A call option is the right, but not the obligation, to purchase a stock at a specified price by a givendate.D.A brokerage firm receives double its commission when stock is bought and sold when the investor isselling short.E. If the stock price decreases and you purchased that stock on margin, you may receive a margin call.
a 122.The opportunity, but not the obligation, to buy a security within a specified period of time at a guaranteedprice isA. A call option.B. Direct investing.C. Buying on margin.D. A put option.E. A short sale.
d 123.The opportunity, but not the obligation, to sell a security within a specified period of time isA. A call option.B. Direct investing.C. Buying on margin.D. A put option.E. A short sale.
e 124.Mary Sue owns 1,000 shares of QRS Moving Company. QRS pays a quarterly dividend of $.25 per share.What is the total annual dividend that Mary Sue will receive?A. $.50.B. $2.00.C. $250.00.D. $500.00.E. $1,000.00.
e 125.Mary Jane owns 1,000 shares of TUV Trucking Company. TUV pays a quarterly dividend of $.50 pershare. What is the total annual dividend that Mary Jane will receive?A. $.25.B. $1.00.C. $500.D. $1,000.E. $2,000.
a 126.Gregory bought 500 shares of stock at a price of $60 per share. He later sold his stock at a price of $56.What was his total return on his investment?A. $2,000 lossB. $60 lossC. $4 gainD. $2,000 gainE. $26,500 gain
c 127.On July 3, 2009, Devin purchased 100 shares of CDEF stock at a cost of $30 per share. His commissionwas $29. He sold his shares on July 6, 2011, at a price of $45 per share less another $29 commission.During the time he held the stock, he earned dividends of $2.50 per share. What was his total return onhis investment?A. $250B. $1,492C. $1,692D. $1,721E. $1,750
c… 128.Using the information given here, what are the earnings per share for DEF Company?• Income = $180,000• Number of shares outstanding = 60,000• Price per share = $30• Book value per share = $10A. $1.00B. $2.00C. $3.00D. $5.00E. $6.00
c… 129.Using the information given here, what are the earnings per share for GHI Company?• Income = $375,000• Number of shares outstanding = 150,000• Price per share = $60• Book value per share = $20A. $0.33B. $1.33C. $2.50D. $3.00E. $7.50
d… 130.Using the information given here, what is the price-earnings ratio for DEF Company?• After-tax income = $180,000• Number of shares outstanding = 60,000• Price per share = $30• Book value per share = $10• Earnings per share = $3.00A. $3.00B. $4.00C. $7.50D. $10.00E. $20.00
d… 131.• Income = $180,000• Number of shares outstanding = 60,000• Price per share = $30• Book value per share = $10Using the information given here, what is the price-earnings ratio for DEF Company? (Hint: This is atwo-step calculation.)A. $3.00B. $4.00C. $7.50D. $10.00E. $20.00
a… 132.Given the information shown here for NMOP Inc., calculate the dividend yield.• Annual dividend = $4.00• Current market value per share = $60.00A. 6.7%.B. $0.67.C. 15%.D. $1.50.E. Need more information to calculate.
a… 133.Given the information shown here for NMOP Inc., calculate the dividend yield.• Annual dividend = $4.00• Number of shares outstanding = 40,000• Current market value per share = $40.00• Book value per share = $8.00A. 10%B. 15%C. 20%D. 25%E. 40%
d… 134.Given the information shown here for QRS Inc., calculate the book value.• Assets = $18,000,000• Liabilities = $10,000,000• Number of shares outstanding = 2,000,000A. $1.33B. $2.50C. $3.50D. $4.00E. $7.50
e… 135.Given the information shown here for TUV, Inc., calculate the total return.• Dividends per share = $1.50• Purchase price (July 15, 2010) = $50.00• Sell price (July 15, 2011) = $56.00A. ($6.00)B. ($4.50)C. $1.50D. $6.00E. $7.50
d… 136.Gregory purchased 600 shares of QRS stock at a price of $25 per share. In addition, he paid a commissionof $30 for the transaction. How much did he need to pay his broker?A. $7,500.B. $15,470.C. $15,000.D. $15,030.E. $15,050.
b… 138.Mike bought 200 shares of PDQ stock on margin at $15/share. The stock increased to $21/share. Whatwas Mike’s profit?A. $600B. $1,200C. $3,000D. $4,200E. $5,200

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