Stock Market Review
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 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 Current Return (a dollar value). Answer: The Annual Dividend Per Share) Times (the Number of Shares Owned) Times (the Number of Years the Stock is Owned)
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)
When a company sells its stock to the general public for the first time. Answer: An Initial Public Offering or IPO
A network of dealers who buy and sell securities that are NOT listed on a securities exchange. Answer: Over-The-Counter (OTC) Market
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
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
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: LowPE
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