Personal Investing - B

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures

• its current return on equity

• its current share price relative to its per-share earnings (EPS)

• its current beta or level of systematic risk

• its current stock price relative to a changing market

A high P/E ratio could mean that ____

(pick two answers)

• a company's stock is over-valued

• investors are expecting high growth rates in the future

• investors do not foresee good investing opportunities with this company

• the company is losing money.

An individual company’s P/E ratio is much more meaningful when

• compared to the P/E ratios of other companies within the same sector.

• compared to the overall market.

• compared to the P/E ratio of the same company the week prior.

• used as the sole measure of evaluating a company.

A P/E ratio of $15 (also called a price multiple of 15x) means that

• if you invest $15, you can expect the price to rise an additional $15.

• if you invest $15, you can expect to earn an additional $15.

• if you invest $1, you can expect to earn an additional $15.

• if you invest $15, you can expect to earn an additional $1.

The distribution of some of a company's earnings to a class of its shareholders is called _____.

• a capital gain

• profit margin.

• a dividend.

• interest.

A limit order basically says _____ or ____ (choose two).

• sell a limited number of stocks immediately.

• purchase these stocks if the price drops to a specified price.

• sell these stocks if the price rises to a specified price.

• buy a limited number of stocks immediately.

Which of the following is NOT true about mutual funds?

• Available only to large scale investors.

• Made up of a pool of money collected from many investors.

• Operated by professional money managers for the fund's investors.

• Structured and maintained to match the investment objectives stated in its prospectus.

Which of the following is true about mutual funds?

• Mutual funds give large or corporate investors access to diversified, professionally managed portfolios at a moderate price.

• Mutual funds charge annual fees.

• Mutual funds are rarely used in corporate retirement plans like 401(k)s.

• There are a few types of mutual funds, and investors are expected to know the differences.

Market capitalization, or "market cap," refers to the total dollar market value of a company's outstanding shares of stock. Which of these is not correct?

• Large-cap companies have high market capitalizations, with values over $10 billion.

• Mid-cap stocks have a market cap ranging from $2 billion to $10 billion.

• Small-cap stocks refer to those stocks with a market cap ranging from $300 million to $2 billion.

• Extra-large cap stock have a market cap that exceeds $1 trillion.

A value fund refers to a style of investing that looks for high-quality, low-growth companies that are out of favor with the market. Value funds _____.

• low P/E ratios.

• low dividend rates.

• low EPS.

• low market capitalization.