3.02 FP1

Quantitative measures such as ratios are helpful because they:

• can be used in context

• are figured the same way regardless of the source

• can be used to compare companies in different industries

• show the relationship between numbers on a company's financial statements

When investing to reach a goal within three years, one invests toward a/an:

• long-term time horizon

• short-term time horizon

• risk-tolerant time horizon

• intermediate-term time horizon

Fundamental analysis estimates the value of a stock primarily so investors can tell whether it is:

• a short-term or long-term investment

• competitive or noncompetitive

• undervalued or overvalued

• run by effective managers

Which is least likely to be a valid reason for making a significant change in a personal asset allocation?

• marriage

• birth of a child

• new car purchase

• large shift in inflation

Which factor should have the least influence on a person's investment choices?

• age

• marital status

• current income

• financial decisions of one's parents

Before investing, a buyer should:

• conduct thorough research.

• be at least 25 years old.

• graduate from college.

• own a car.

Glenn has committed to investing $100 each month in his favorite stock. Last month, when the stock price was $20, he bought five shares. This month the stock price is $25, so he bought just four shares. This strategy is called:

• dollar cost averaging.

• growth investing.

• diversification.

• buy-and-hold.

Which statement is false about using a buy-and-hold strategy?

• Assets need only passive management.

• There are tax benefits for this method.

• Stocks must be carefully monitored.

• Price fluctuations can be ignored.

Sammy received one share of stock in Nike, Inc., as a gift. He wondered how much of the company profit went to his single share, so he divided the net income by the number of outstanding shares of common stock. What common ratio did Sammy calculate?

• gross profit margin

• earnings per share

• return on equity

• price-earnings

The Cutting Edge Company is very popular with investors, who keep buying shares even though the stock price is increasing. In this case, which company value is increasing?

• accounting

• intrinsic

• market

• underlying