Basics for Investing in Stocks questions PDF

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BTE 302 The Basics for Investing in Stocks 1. Define the term Value Stocks.  A stock with an unusually low price in relation to the company’s earnings but exhibits other signs of good health. 2. What is a prime example of a cyclical stock?  Automobile manufacturers 3. An income stock is identifiable by ___the larger portion amount in the form of quarterly dividends which create less risk of share ownership because their stock prices aren’t expected to grow rapidly so investors still receive dividend___. 4. Growth stocks have good prospects for ___growing faster than the economy or the stock market in general and in general are average to above average risk___. 5. If a stock sells for $ 100 a share and the company earned $ 20 per share, what is the PriceEarnings Ratio? __5 because 100 / 20 = 5__Show your work 6. A steady return on equity of more than ____15%____ may be a sign of a company that knows how to manage itself. 7. Consider companies that have debts amounting to no more than about ____35%____ of shareholders’ equity. 8. Define the term beta.  A measurement of a stock’s performance calculated from past price patterns indicating how much a stock price can be expected to move in relation to a change in the market as a whole. 9. Purchasing stock using the Dollar Averaging method requires you to invest the____fixed amount regularly___ 10. Define the acronym DRIP.  Stands for direct investment plan or dividend reinvestment plan. Instead of sending a check for the dividends your initial shares earn, the company automatically reinvests your money in additional shares. 11. Explain how failing to diversify can be an investing mistake.  Investing within one area can cause you to suffer a large loss because if you invest in the auto industry and airlines, they could suffer losses at the same time if there’s common transportation issues such as an increase in fuel costs. A portfolio of diverse stocks could

lose value if it isn’t balanced by certificates of deposit or other investments that will protect you if stock prices decline sharply. 12. Give an example of a Defensive Stock.____General Electric____ 13. What is a good target price to establish?  A good target is to double or triple your money, or to limit your patience with a stock to a loss of 20%. Many investors create a “mental protective stop” so that when the stock hits a certain price, that’s their cue to sell. 14. What are penny stocks?  These are low-priced, not widely owned and not traded on any stock exchange....