LEI Lesson 3 - What is a Stock?

Shareholders can only make money by collecting dividends.

• True

• False

Answer explanation

Investors can make money two ways: 1. From receiving of dividends. 2. By selling the stock for more than they paid for it (capital gain).

When people buy stock on a stock market,

• the corporation loses money.

• the people selling the stock receive the money from the sale of the stock.

• the corporation receives the money from the sale of the stock.

• the people buying the stock receive the money from the sale of the stock.

People who invest in the stock market will automatically make money.

• True

• False

Answer explanation

There is no guarantee an investor will make money in ANY investment. There is always risk involved in investing.

A dividend is a portion of the company's profits paid to its shareholders.

• True

• False

Dividends represent partial ownership of a company.

• True

• False

Answer explanation

Dividends are a shareholder's share of the profits of a company. Stock shares are partial ownership of a company.

Investment bankers buy shares of stock on the same market as the general public does.

• True

• False

Answer explanation

Investment bankers purchase stock in the primary market.

The general public buys new issues of stock on the primary market.

• True

• False

Answer explanation

The general public buys new issues of stock in the secondary market.

What is a stock dividend?

• A capital gain.

• The price the stock is sold for.

• Part of a company's profits that is paid to a shareholder.

• The price paid when stock is sold to an investment bank.

People buy stocks because:

• they expect to earn a return.

• there is no chance of a loss.

• the government encourages them to buy stock.

• they are guaranteed interest payments each year.

One way people can earn money from stocks is by:

• buying shares from an investment banker.

• selling the stock for the same price they paid for the stock

• selling the stock for more than the price they paid for it.

• selling the stock for less than the price they paid for it.