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chapter

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2/5/09

6:42 PM

Page 119

Name

12

Investing
in Stocks

section:
vocabulary

Fill in the missing word(s) in the space provided at the right.

Example: A(n) _________ is the use of money to earn the best possible return
with the least amount of risk.
1. A public _________ issues stock that may be traded openly on the stock
markets or over-the-counter.
2. When a company is profitable, the stockholders often receive a
distribution of money called _________.
3. Common stockholders vote for members of the _________.
4. A(n) _________ is an increase in the number of outstanding shares
of a stock.
5. _________ means using dividends previously earned on stock to buy
more shares.
6. Stocks that pay high dividends over time are called _________ stocks.
7. Stocks in companies that reinvest profits, rather than pay dividends,
are called _________ stocks.
8. A(n) _________ is a benchmark that stock investors use to judge
investment performance.
9. Stocks of large, well-established companies are called _________ stocks.
10. A(n) _________ stock is one that remains stable during an
economic decline.
11. _________ stocks do well in a good economy but poorly in a bad one.
12. The _________ is an assigned dollar value that is printed on a stock
certificate.
13. When you buy stock, you pay _________ value.
14. A corporations after-tax earnings divided by the number of common
stock shares outstanding is _________.
15. A(n) _________ market is characterized by rising stock prices
and optimism.
16. A(n) _________ market is characterized by the selling of stocks
and pessimism.
17. A marketplace where brokers buy and sell securities is called
a(n) _________.
18. Stocks are bought and sold by _________.
19. Stock exchanges are _________ markets where buyers and sellers come
together to buy and sell securities.
20. Borrowing money to buy stock is called _________.

investment
0. _______________________
corporation
1. _______________________
dividends
2. _______________________
board of directors
3. _______________________
stock split
4. _______________________
Dividend reinvestment
5. _______________________
income
6. _______________________
growth
7. _______________________
stock index
8. _______________________
blue chip
9. _______________________

10.
11.

defensive
_______________________
Cyclical
_______________________

par value
12. _______________________
market
13. _______________________
earnings per share
14. _______________________
bull
15. _______________________
bear
16. _______________________
securities exchange
17. _______________________
floor brokers
18. _______________________

19.
20.

auction
_______________________
buying on margin
_______________________
(leverage)

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4939X_13_ch12_p119-126.qxd

Section 2

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6:42 PM

Page 120

Review Questions

section:
review questions

After each of the following statements, circle T for a true statement or F for a false statement.
For
Scoring

Answers

1. Very few people (individuals) own stock in the United States.


2. With preferred stock, dividends are fixed, regardless of how
the company is doing.
3. You can assign your stock voting rights to someone else by
completing a proxy.
4. The par value assigned to a stock has nothing to do with the
stocks market value.
5. Stock is purchased on a stock exchange at its par value.
6. The securities market is where you buy and sell stocks and bonds.
7. Brokers in the over-the-counter market only deal face-to-face with customers.
8. Short selling involves selling borrowed stock.
9. Buying on margin is an illegal activity.
10. Dollar-cost averaging is a short-term investment strategy.

F
1. _________

T
2. _________

T
3. _________

T
T
T
T
T
T
T

F
F
F
F
F
F
F

4.
5.
6.
7.
8.
9.
10.

T
_________
F
_________
T
_________
F
_________
T
_________
F
_________
F
_________

On the line at the right of each sentence, print the letter that represents the word or group of words
correctly completing the sentence or answering the question.

1. The letter s next to a stock in the stock listings would mean


(a) no stock sold, (b) common stock, (c) stock split, (d) no dividends.
2. Which of the following is true? (a) You can buy and sell stocks online.
(b) Most major stockbrokers have web sites that allow online
transactions. (c) You can use Internet sites to follow stock prices.
(d) All of these are true.
3. What represents the cost of dividends as a percentage of the current price?
(a) P/E ratio, (b) par value, (c) yield, (d) net change
4. What is the long-term technique where investors buy stock directly from
a corporation? (a) dividend reinvestment, (b) stock split, (c) direct
investment, (d) buy and hold
5. What strategy lowers the selling price of a stock and encourages
more stock purchasing? (a) stock split, (b) dividend reinvestment,
(c) dollar-cost averaging, (d) P/E analysis
6. Which of these strategies is a short-term technique? (a) buying on
margin, (b) buy and hold, (c) dollar-cost averaging,
(d) direct investment
7. Which of these strategies is a long-term technique? (a) buying on
margin, (b) selling short, (c) buy and hold, (d) all of the above
8. Which of the following is the largest organized exchange in the United
States? (a) the American Stock Exchange, (b) the NASDAQ, (c) the
New York Stock Exchange, (d) they are all the same size

120

c
____________
1. _________

d
____________
2. _________
c
____________
3. _________

c
____________
4. _________

a
____________
5. _________

a
____________
6. _________
c
____________
7. _________

c
____________
8. _________