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1.
What is the purpose of a company?
To take money from investors and generate profits on their investments. Companies do not guarantee that they will make investors rich quickly. Although bad management teams spend money on lavish corporate expenses, that shouldn't be the purpose of a company.
2.
When are shareholders entitled to get their cut of a company's profits?
After everyone else. This is one of the risks of being a shareholder -- you are always paid last. On the other hand, you get potentially unlimited earnings possibilities once you do get paid.
3.
A company's return on stock is calculated by _______.
Adding capital gains and dividends. This is also known as total return.
4.
In return for getting a relatively low rate of return on their bond investments, bondholders enjoy _______ shareholders.
Less risk than. Besides less risk, they also get an earlier claim on a company's assets should it go bankrupt.
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.
