Choose wisely. There is only one correct answer to each question.
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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.
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.
3.
Given that bondholders are always paid before shareholders when it comes to a company's profits, what is the benefit to being a shareholder?
There are potentially unlimited earnings possibilities. If a company is consistently profitable, the sky is the limit for shareholders.
4.
According to the father of value investing, Benjamin Graham, in the short run the market is like a _______.
Voting machine. In the short run, the market sees the popularity of a company rather than its substance. A voting machine assesses its popularity.
5.
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.
