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Stocks 203: Understanding the News

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1.
Which of the following stock indexes is price-weighted?
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Dow Jones Industrial Average. The Dow is price-weighted. The Nasdaq Composite Index and the SP 500 Index are market-cap-weighted.
2.
Hearing a negative event about a company that drives its stock price down but does not affect its fundamentals can be a welcome thing to many investors.
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True. If the fundamentals are strong, then this could be a buying opportunity.
3.
What is one reason to be wary of a lawsuit against a company whose stock you are considering buying?
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Lawsuits tend to attract other lawsuits. This ultimately suggests not only monetary losses but perhaps also a waning interest in the product.
4.
If a company's actual earnings results are different from what analysts expect, this is known as _______.
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An earnings surprise. An "earnings surprise" happens when a company's actual earnings results are different from what Wall Street's analysts expect. A stock split is when a company issues more shares to its shareholders, and the stock price falls to account for the ownership dilution.
5.
What response should a stock investor have regarding changes in regulation on a company?
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An investor should pay attention to such changes. Sometimes, regulations greatly increase the costs of doing business or diminish a company's prospects.