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1.
Why does a stock's price always match up so well so soon with the company's performance?
It doesn't, actually. The keys here are "always" and "so soon." Sometimes the price takes a while to accurately reflect the company's performance. This is due to the market's perception of the value of the company's future profits.
2.
According to Benjamin Graham, the father of value investing, in the long run the market is like a _______.
Weighing machine. In the long run, the market sees the substance of a company rather than its popularity. A weighing machine assesses the substance of a company.
3.
Which of the following best defines a stock?
A stock is an ownership interest in a company. Although companies receive money from stock offerings, it is more important to remember that a stock represents a stake in a company. Stocks should not be considered vehicles for speculative trading.
4.
Which of the following is a benefit of a bondholder over a stockholder?
If a company goes bankrupt, bondholders gets paid before stockholders. Stockholders are the "residual" claimants of a company's profits, which means they get paid after everybody else. If a company goes bankrupt, they get what's left over after all the creditors are paid. Bonds typically do not yield higher returns than stocks when a company does well. The government doesn't pay a company's interest on a corporate bond if the company can't pay for it--the company is responsible for the interest payment.
5.
If a company is unable to pay its creditors back and goes bankrupt, stock shareholders will be first in line to get a claim on its assets.
False. Stockholders will be last to get their claim. Creditors will be in line before them (but after the IRS, of course).
