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Exam 12: Investing in Stocks

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Question 31

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Explain the purpose and value of the dividend yield ratio.

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The dividend yield ratio is a tool that ...

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Question 32

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

F) C) and D)
G) A) and D)

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Question 33

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Common stockholders have a superior claim on a company's assets over creditors and bondholders.

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

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

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

Proctor and Gamble is an example of a blue-chip stock.

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?

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?

A company's dividend distribution can be in the form of cash or additional stock.

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.

For an investor who is retired,which category of stocks would be more appropriate for a portion of their portfolio?

The dividend yield tells investors how much in the way of a return they would receive if the stock price and the dividend level remain constant.

Every company must pay dividends as a portion of the company's profits to its stockholders.

A technical analysis is the framework for analyzing a security in which you look at a firm's internal strengths and weaknesses and external opportunities and threats in order to gain an understanding of what the future holds for that firm and its stock.

The P/E ratio approach is a type of fundamental analysis.

Growth stocks are issued by companies that have exhibited sales and earnings growth well above their industry average.

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

Defensive stocks frequently perform better during economic downturns.

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