chapter
1
Name
12
Investing
in Stocks
section:
vocabulary
Fill in the missing word(s) in the space provided at the right.
Example: A(n) ___________________ is the use of money to earn the best possible return with the least amount of
risk.
1. A public ___________________ issues stock that may be traded openly on the stock markets or over-the
-counter.
2. When a company is profitable, the stockholders often receive a distribution of money called
___________________.
3. Common stockholders vote for members of the ___________________.
4. A(n) ___________________ is an increase in the number of outstanding shares of a stock.
5. ___________________ means using dividends previously earned on stock to buy more shares.
6. Stocks that pay high dividends over time are called ___________________ stocks.
7. Stocks in companies that reinvest profits, rather than pay dividends, are called ___________________ stocks.
8. A(n) ___________________ is a benchmark that stock investors use to judge investment performance.
9. Stocks of large, well-established companies are called ___________________ stocks.
10. A(n) ___________________ stock is one that remains stable during an economic decline.
11. ___________________ stocks do well in a good economy but poorly in a bad one.
12. The ___________________ is an assigned dollar value that is printed on a stock certificate.
13. When you buy stock, you pay ___________________ value.
14. A corporation’s after-tax earnings divided by the number of common stock shares outstanding is
___________________
15. A(n) ___________________ market is characterized by rising stock prices and optimism.
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16. A(n) ___________________ market is characterized by the selling of stocks and pessimism.
17. A marketplace where brokers buy and sell securities is called a(n) ___________________.
18. Stocks are bought and sold by ___________________.
19. Stock exchanges are ___________________ markets where buyers and sellers come together to buy and sell
securities.
20. Borrowing money to buy stock is called ___________________.
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
auction
bear
blue chip
board of directors
bull
buying on margin (leverage)
corporation
Cyclical
defensive
Dividend reinvestment
dividends
L.
M.
N.
O.
P.
Q.
R.
S.
T.
U.
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earnings per share
floor brokers
growth
income
investment
market
par value
securities exchange
stock index
stock split
Section 2
2
Review Questions
section:
review questions
After each of the following statements, circle T for a true statement or F for a false statement.
1. Very few people (individuals) own stock in the United States.
2. With preferred stock, dividends are fixed, regardless of how
the company is doing.
3. You can assign your stock voting rights to someone else by
completing a proxy.
4. The par value assigned to a stock has nothing to do with the
stock’s market value.
5. Stock is purchased on a stock exchange at its par value.
6. The securities market is where you buy and sell stocks and bonds.
7. Brokers in the over-the-counter market only deal face-to-face with customers.
8. Short selling involves selling borrowed stock.
9. Buying on margin is an illegal activity.
10. Dollar-cost averaging is a short-term investment strategy.
T
F
T
F
T
F
T
T
T
T
T
T
T
F
F
F
F
F
F
F
On the line at the right of each sentence, print the letter that represents the word or group of words
correctly completing the sentence or answering the question.
1. The letter “s” next to a stock in the stock listings would mean
(a) no stock sold, (b) common stock, (c) stock split, (d) no dividends.
2. Which of the following is true? (a) You can buy and sell stocks online.
(b) Most major stockbrokers have web sites that allow online
transactions. (c) You can use Internet sites to follow stock prices.
(d) All of these are true.
3. What represents the cost of dividends as a percentage of the current price?
(a) P/E ratio, (b) par value, (c) yield, (d) net change
4. What is the long-term technique where investors buy stock directly from
a corporation? (a) dividend reinvestment, (b) stock split, (c) direct
investment, (d) buy and hold
5. What strategy lowers the selling price of a stock and encourages
more stock purchasing? (a) stock split, (b) dividend reinvestment,
(c) dollar-cost averaging, (d) P/E analysis
6. Which of these strategies is a short-term technique? (a) buying on
margin, (b) buy and hold, (c) dollar-cost averaging,
(d) direct investment
7. Which of these strategies is a long-term technique? (a) buying on
margin, (b) selling short, (c) buy and hold, (d) all of the above
8. Which of the following is the largest organized exchange in the United
States? (a) the American Stock Exchange, (b) the NASDAQ, (c) the
New York Stock Exchange, (d) they are all the same size
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1.
2.
3.
4.
5.
6.
7.
8.