Stock Market Unit (Chapter 9) Review



Stock Market Unit Test Review

All of the stocks, bonds, mutual funds, options and commodities traded on securities exchanges and over-the-counter markets. Answer: Securities

A company whose shares are owned by a relatively small group of people and are NOT traded openly in the stock market. Answer: A Private Corporation

A company whose shares are traded openly in the stock market and where anyone can purchase them. Answer: A Public Corporation

True or false: A company only generates money from the sale of its stock when it issues new shares. Answer: True

A stock that is usually considered a safer investment because the company is often a large industry leader, with a history of stable earnings, and usually consistent payment of dividends. Answer: A Blue-chip Stock

A stock that generally pays higher-than-average dividends. Answer: An Income Stock

A stock issued by a company having higher-than-average earnings growth and therefore higher potential capital appreciation. Answer: A Growth Stock

A stock whose market value tends to follow or reflect the ups and downs of the economy. Answer: A Cyclical Stock

A stock whose market value tends to remain more stable than the overall market during downturns in the economy. Answer: A Defensive Stock

The calculation to determine Market Capitalization. Answer: Current Stock Price times the Number of Shares Outstanding

A stock whose market capitalization is greater than $5 Billion. Answer: A Large Cap Stock

A stock whose market capitalization is between $1.5 Billion to $5 Billion. Answer: A Mid Cap Stock

A stock whose market capitalization is less than $1.5 Billion. Answer: A Small Cap Stock

A stock whose market price typically sells for less than $1.00 (or arguably $5.00) per share. Answer: A Penny Stock

A market where investors are optimistic about the economy and the potential for stock growth. Answer: A Bull Market

A market where investors are pessimistic about the economy and are experiencing or anticipating a weakening in stock values. Answer: A Bear Market

The calculation to determine Capital Gain. Answer: (Current Price of a Share Minus Your Purchase Price of a Share) Times (the Number of Shares Owned)

The calculation to determine Earnings Per Share. Answer: (The Company’s Net Earnings) Divided by (the Number of Shares Outstanding)

The calculation to determine the Price Earnings Multiple. Answer: (The Current Market Price) Divided by (Earnings Per Share)

A marketplace where brokers who represent investors meet to buy and sell securities. Answer: A Securities Exchange

All securities held by an investor. Answer: A Portfolio

A fee charged by a brokerage firm or investment bank to buy or sell securities for an investor. Answer: A Commission

An order to buy or sell a stock at the current market price. Answer: A Market Order

Selling stock you do NOT presently own in the hope that you can cover your position by buying the stock later at a lower price than the selling price. Answer: Selling Short

An order to sell a stock you currently own at a price lower than the current market price because you want to limit your losses and sell the stock if it ever drops to that order price. Answer: Stop Order

This type of order will be cancelled if it is NOT executed on the day it is placed. Answer: A Day Order

This type of order is open until it is executed or cancelled by the investor. Answer: A Good ‘Til Cancelled (GTC) Order

A strategy of investing in a broad range and number of companies in order to limit the potential investment risk. Answer: Diversification

The world’s largest stock exchange. Answer: The New York Stock Exchange

The market index consisting of 30 major blue-chip companies. Answer: The Dow Jones Industrial Average (or DJIA)

The market index consisting of a broad base of the 500 largest companies. Answer: The Standard and Poor’s 500 (or S&P 500)

All other things being equal, do you prefer a high or low Price Earnings Ratio? Answer: Low PE

All other things being equal, do you prefer a high or low Earnings Per Share? Answer: High EPS

True or false: A company has to pay its stockholders something in the event of a bankruptcy. Answer: False

An investment theory that assumes that a stock’s value is determined by the company’s earnings performance and financial performance. Answer: Fundamental Theory

An investment theory that assumes that a stock’s value is determined by the forces and trends in the stock market itself. Answer: Technical Theory

A long-term strategy of purchasing and keeping the stock for several years. Answer: Buy-and Hold

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