Understanding Stocks Quiz

What does owning a stock in a company signify?

• You are a creditor to the company.

• You have a claim on the company's earnings and assets.

• You are an employee of the company.

• You are a customer of the company.

Why do companies issue stock shares?

• To increase their product prices.

• To raise capital for various business needs.

• To reduce their workforce.

• To avoid paying taxes.

What is an IPO?

• A type of stock exchange.

• The first time a company issues stock to the public.

• A method of calculating stock prices.

• A government regulation for stocks.

What is capital appreciation in the context of stocks?

• A tax deduction on your stock purchase.

• A fixed interest payment on your stock.

• An increase in the value of your stock.

• A decrease in the value of your stock.

What are dividends?

• A fee for buying stocks.

• A penalty for selling stocks early.

• A type of stock certificate.

• Regular payouts of a percentage of profits to shareholders.

What rights do shareholders typically have?

• The right to manage daily operations.

• The right to set product prices.

• The right to vote at annual meetings.

• The right to hire and fire employees.

What does limited liability mean for stockholders?

• They must pay the company's taxes.

• They are responsible for the company's debts.

• They can lose more than their investment.

• They cannot lose more than their investment.

Why might investors choose to diversify their stock portfolio?

• To focus on a single industry.

• To avoid using financial advisors.

• To benefit from growth in certain sectors and offset losses in others.

• To increase their tax liabilities.

What is a common reason people invest in stocks?

• To guarantee a fixed income.

• To achieve long-term financial goals like retirement.

• To avoid all financial risks.

• To become a company employee.

How can investors manage the risks associated with stock investments?

• By investing only in one company.

• By diversifying their investments across various industries.

• By avoiding all stock investments.

• By investing only in government bonds.