Chapter 9 Equity Securities

Question 1

Earnings per share

Answer 1

(Net Income-Preferred stock dividends)/Weighted average number of common shares outstanding

Question 2

Payout ratio

Answer 2

Provides information about the long-term sustainability of a company’s dividend payments and policy

dividends per share/earnings per share

Question 3

Retention Ratio

Answer 3

(Net income - dividends)/Net Income

or

1-Payout ratio

Question 4

Defensive

Answer 4

Relatively unaffected by general fluctuations in economy

food, health care, household products

Question 5

Cyclical

Answer 5

prosper during expanding economy and perform poorly during contraction

automobiles, paper, airlines

Question 6

Blue chip

Answer 6

High regarded investment quality companies, steady dividend streams and consistent capital appreciation

Question 7

Income stock

Answer 7

make large dividend payments relative to other companies

utilities

Question 8

Value

Answer 8

low price to earnings ratios
currently out of favor

Question 9

margin position

Answer 9

(account value-debt)/account value

Question 10

margin call price

Answer 10

debt/(1-maintenance margin)

Question 11

Margin maintenance call

Answer 11

Required equity - initial margin requirement x maintenance
current equity - stock price - loan
margin call - required equity - current equity

Question 12

DJIA

Answer 12

Price weighted

Question 13

S&P

Answer 13

cap weighted