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WorksheetsPersonal Investing - B
Total questions: 20
Worksheet time: 11mins
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.
Growth funds have _____.
strong earnings and sales
low P/E ratios
weak but steady cash flows
high dividends
The best investment choice for a common investor (someone with limited knowledge and experience and only a small amount to invest at a time) is _____.
a diversified stock portfolio.
mutual funds.
municipal bonds.
commodities like gold or silver.
The Dow Jones Industrial Average (also known simply as the Dow) is NOT
useful in measuring the overall US financial market for a given day.
reliable at predicting the future of the economy because it does not change its stock holdings over time.
made up of 30 large, publicly-owned companies trading on the New York Stock Exchange and the NASDAQ.
weighted so that stocks with higher share prices are given greater weight in the index.
You are comparing three technology companies. Alpha has a P/E of 4.3; Bravo has a P/E of 2.2; and Charlie has a P/E of 4.5. An index for the technology sector has a P/E of 2.7. Which of the following is true?
Bravo has a P/E below the index, so it's long-term growth will probably exceed the market.
Alpha and Charlie are probably good investments; they have a P/E that is higher than the index.
Since Charlie's P/E s higher than Alpha's, it is definitely the best investment choice.
Since Alpha and Charlie both have P/Es much higher than the index, their prices are over-inflated, making them bad choices when compared to Bravo.
If Walmart has a P/E ratio of 21.3, how much do you need to invest to EARN a return of an additional $1?
The current price of the stock
$1
Depends on Walmart's EPS
$21.3
Walmart has an EPS of 6.93. If the company releases and sells an additional 100 million share of stock, and the price remains the same, what will be the result?
The EPS will increase
The EPS will decrease
The EPS will remain constant
It will depend on how much the dividends are for Walmart stock
The price-to-book ratio or P/B ratio measures whether a stock is over or undervalued by comparing the net value of a company to its market capitalization. Which of the following is true?
A P/B ratio under 1.0 is usually considered a solid investment
A P/B ratio under 3.0 is always a good investment
A P/B ratio is not useful in evaluating investments, just market prices
A P/B ratio is the best stand-alone tool for evaluating an investment.
A high Debt-Equity ratio
means that company has a large amount of physical assets
makes it easy to compare companies across different industries
is rare for utility companies and common in tech companies
means that company poses a higher risk to investors
Which of these is the LEAST important to consider when evaluating a stock?
Earnings per Share (EPS)
Dividends or dividend rate
Price-Earnings (P/E) ratio
Either Debt-Equity (D/E) or Price-Book (P/B)
Return on Equity (ROE)
Each person has a different tolerance for risk. Which of these is not a factor in determining a risk profile?
Age
Income/net worth
Job or employer
Plans for using money
