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Stocks 105: The Purpose of a Company

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1.
According to Benjamin Graham, the father of value investing, in the long run the market is like a _______.
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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.
2.
Which of the following best defines a stock?
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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.
In return for getting a relatively low rate of return on their bond investments, bondholders enjoy _______ shareholders.
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Less risk than. Besides less risk, they also get an earlier claim on a company's assets should it go bankrupt.
4.
When are shareholders entitled to get their cut of a company's profits?
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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.
5.
A company's return on stock is calculated by _______.
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Adding capital gains and dividends. This is also known as total return.