Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
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.
2.
All else equal, if a company's total number of shares outstanding is increasing, your ownership stake in that company is _______.
Decreasing. As a company adds shares outstanding, your ownership interest in the firm decreases. Shareholders can benefit more from owning one share of a billion-dollar company that has only 100 shares (a 1% ownership interest) than by owning 100 shares of a billion-dollar company that has a million shares outstanding (a 0.01% ownership interest).
3.
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).
4.
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.
5.
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.
