Basics Of Stocks

Question 1

What is a stock?

Answer 1

A stock is an ownership share of a company

Question 2

If a company has 1 million shares and I buy a share, what does that mean?

Answer 2

I own 1/1million of that company and I’m entitled to 1 millionth of the company’s profits

I’m also entitled to 1 millionth of the company’s assets

Question 3

What does ‘price’ mean?

Answer 3

‘Price’ refers to the cost of buying one share of stock

Question 4

What does ‘’market cap’ mean?

Answer 4

Market cap = market capitalisation

Market cap = price x number of shares outstanding

e.g. price = £20 x 1,000,000 shares outstanding = £20,000,000 market capitalisation

Market capitalisation represents the total value of all of the stock available in that company

Question 5

What is a ‘dividend’?

Answer 5

A share of profits shared out to shareholders

Question 6

What does ‘standard deviation’ and ‘volatility’ mean?

Answer 6

How much a price fluctuate over a period of time

Signifies risk involved with purchasing a stock

Question 7

What is ‘price to earnings ratio’?

Answer 7

Price to earnings ratio (PE) is the stocks price in the market divided by its earnings per share in profit

Question 8

What is ‘price to book ratio’?

Answer 8

Price to book ratio is the price of the stock divided by the book value