Chapter 8 Test Flashcards
What is the most prevalent type of stock that most corporations offer?
Common
Why do corporations sell stock?
To raise money for research, purchasing necessary materials, expansion, and so forth
What are the two principal reasons that individuals purchase
shares of stock?
To make profit and to receive dividend payments
In what two ways is a stock market like other markets?
It is a location where those who wish to buy and sell a product come together, and the price of its product reflects what consumers are willing to pay
What is the most well-known stock exchange in the world, and
what accounts for its importance?
The New York Stock Exchange (NYSE); importance is based on its history, its location, and the corporations that it lists
What is the largest stock exchange in the United States that has no trading floor?
The NASDAQ
What is the most well-known stock index in the United States,
and who developed it?
The DJIA, Charles Dow
List three reasons that stock markets are important to the economy.
They provide a place where corporations can raise needed revenue, they provide opportunities for individuals to invest, they provide valuable information concerning the state of the nation’s economy
What is the danger of speculation?
There is a high risk of losing your entire investment
When and why was the SEC founded?
The SEC was founded following the Great Depression to protect investors by regulating brokers and exchanges and ensuring that corporations provide accurate and current info to the public
How does a person control a corporation?
By obtaining majority ownership of that corporation’s shares of stock
Identify each of the following as being associated with common
(C) or preferred (P) shares of stock:
a. shareholders receive dividends first
b. owners have voting rights
c. considered true ownership
d. less risky
e. if the corporation fails, these shareholders receive any left-over revenue ahead of other shareholders
A. Preferred B. Common C. Common D. Preferred E. Preferred
Explain how the phrase “buy low; sell high” applies to buying
stock for profit.
Investors buy stock at a price below what they believe will soon be its market value and then sell it when the price rises above their purchase price, thus making a profit on each share
In what two countries did stock exchanges originate?
Great Britain and Holland
Where and when did the first U.S. stock exchange develop?
Philadelphia, 1790
