Investing in stocks Flashcards
(28 cards)
Which of the following is defined as the date when a stock trades “without dividend” and the seller is entitled to a declared dividend payment?
The ex-dividend date is the date when a stock trades “without dividend” and the seller – not the buyer – is entitled to a declared dividend payment.
Smith Corporation declared a quarterly dividend of $0.67 per share to stockholders. The record date is Friday, April 8th, the ex-dividend date is Wednesday, April 6th, and the payable date is Monday, May 9th for this dividend. If Samantha owns 250 shares of Smith stock on Friday, April 8th, what is her quarterly dividend amount?
Dividend Payment = Amount of Dividend × Shares Owned
= $0.67 × 250 shares
= $167.50
Hammerhead Corporation declared a quarterly dividend of $0.84 per share to stockholders. The record date is Friday, March 11th, the ex-dividend date is Wednesday, March 9th, and the payable date is Monday, April 11th for this dividend. Chris purchased 50 shares on January 1st, Adam purchased 100 shares on March 8th, and Emma purchased 65 shares on March 10th. Who is eligible to receive this quarterly dividend?
Since Emma purchased her stock after the ex-dividend date, she is not eligible to receive a dividend for her 65 shares. Chris and Adam both owned their shares before the ex-dividend date, and are considered eligible for the dividend.
Based on the example in the video, all of the following pieces of information can be found at the top portion of the Value Line report.
The top portion of the Value Line report from the video shows information about the company name, value line rating for timeliness, safety, technical and beta, additional information about the current price of a share of stock, the P/E ratio, and dividends. The net profit is located in the middle section of the example on the video with the other financial data.
Based on the example in the video, all of the following pieces of information can be found in the middle section of the Value Line report.
In the middle section of the Value Line report from the video, specific information about the corporation’s financial data is provided, including historical information about sales, earnings per share, net profit, working capital, and long-term debt. The safety ratings are located in the top section of the example on the video with other Value Line ratings for timeliness, technical, and beta.
What is one additional way, according to the video, that an individual can utilize the information to decide if the stock is the right choice for their investment program?
It is your job to interpret the information and decide whether this company’s stock is the right choice for your investment program. One of the best ways to accomplish this is by comparing this stock to other companies in the industry.
Hannah purchased 65 shares of Best Buy stock at $36 per share. After 3 years, Hannah sold the stock for $43 per share. During the time she held the stock, Hannah received the dividends totaling $4.00 per share. What is Hannah’s total return?
Annual Dividends = Dividends per Share × Shares = $4.00 × 65 = $260
Capital Gain = (End Share Price − Beg Share Price) × Shares = ($43 − $36) × 65 = $455
Total Return = Annual Dividends + Capital Gain = $260 + $455 = $715
Nicholas initially invested $2,400 in a technology company. The company recently paid annual dividends of $22 and his year-end investment value was $2,000. What was the rate of return on his investment?
The decrease in value is calculated by taking the ending investment value and subtracting the initial investment and adding the annual dividends [{($2,000 − $2,400) + $22} = −$378]. Next, the total decrease is divided by the amount of the initial investment [(−$378 ÷ $2,400) = −15.75%] in order to calculate the rate of return.
Greg initially invested $7,000 in a transportation company. The company recently paid annual dividends of $86 and his year-end investment value was $8,340. What was the rate of return on his investment?
The increase in value is calculated by taking the ending investment value and subtracting the initial investment and adding the annual dividends [{($8,340 − $7,000) + $86} = $1,426]. Next, the sum is divided by the amount of the original investment [($1,426 ÷ $7,000) = 20.37%] in order to calculate the rate of return.
Alan currently has the money to purchase only 125 shares of Hurricane Corporation. Hurricane’s shares are currently selling for $34 per share. If Alan uses the current margin requirements to purchase 250 shares of Hurricane stock, what is the amount of the total investment?
Since Alan used margin to purchase 250 shares of Hurricane stock, the total investment can be calculated by multiplying 250 shares by $34 per share, which equals $8,500. Alan has currently invested $4,250 of his own money and $4,250 of borrowed money to purchase shares of Hurricane Corporation on margin.
Olivia currently has the money to purchase only 75 shares of Tumble Corporation. Tumble’s shares are currently selling for $82 per share. If Olivia uses the current margin requirements to purchase 150 shares of Tumble stock, what is the amount of money that she personally has invested in the company?
Since Olivia used margin to purchase 150 shares of Tumble stock, the total investment can be calculated by multiplying 150 shares by $82 per share, which equals $12,300. However, Olivia has only currently invested $6,150 of her own money, while the remaining $6,150 is borrowed from a brokerage company.
What are the risks associated with using the margin strategy?
Before using margin, you should keep three factors in mind, including the risk that the stock decreases in value, margin calls, and loan repayment and interest.
Angela believes that Beamer Corporation’s stock will drop in value. She borrows 150 shares from a brokerage firm when the stock was selling at $42 per share. When the stock’s price dropped to $27 per share, she told the brokerage firm to buy 150 shares of Beamer stock. This stock was returned to the brokerage firm in replace of the stock she first borrowed. What is Angela’s profit on her short selling investment?
The profit for this selling short investment is calculated by first multiplying 150 shares by $42 per share, which gives you $6,300. Then, multiply 150 shares by $27 per share, which gives you $4,050. The profit is equal to $6,300 minus $4,050, which is equal to $2,250.
Kerri believes that Bluebill Corporation’s stock will drop in value. She borrows 200 shares from a brokerage firm when the stock was selling at $56 per share. When the stock’s price dropped to $31 per share, she told the brokerage firm to buy 200 shares of Bluebill’s stock. This stock was returned to the brokerage firm in replace of the stock she first borrowed. What is Kerri’s profit on her short selling investment?
The profit for this selling short investment is calculated by first multiplying 200 shares by $56 per share, which gives you $11,200. Then, multiply 200 shares by $31 per share, which gives you $6,200. The profit is equal to $11,200 minus $6,200, which is equal to $5,000.
According to the video, in order to make money by selling short, what must you be correct in predicting?
In order to make money by selling a short, you must be correct in predicting that a stock will decrease in value. If the value of a stock increases, you lose because you must replace the borrowed stock with stock purchased at a higher price.
William Martin owns 160 shares of Dell Technologies—the parent company of Dell Computers—common stock. Dell’s quarterly dividend is $0.33 per share. What is the amount of the dividend check that William will receive for this quarter?
Note: Round your final answer to 2 decimal places.
Quarterly dividend check amount = Quarterly dividend per share × Number of shares
= $0.33 × 160
= $52.80
During the four quarters for 2023, Malcolm and Maria Trevor received two quarterly dividend payments of $0.80, one quarterly payment of $0.84, and one quarterly payment of $0.88. If they owned 75 shares of stock, what was their total dividend income for 2023?
Note: Do not round intermediate calculations.
Total dividend income = Total quarterly dividends per share × Number of shares
= ($0.80 + $0.80 + $0.84 + $0.88) × 75
= $249
James Holtz noticed that a corporation he is considering investing in is about to pay a quarterly dividend. The record date is Tuesday, April 9, 2024. In order for James to receive this quarterly dividend, what is the last date he could purchase stock in this corporation and receive this quarter’s dividend payment?
The stock went ex-dividend on Friday, April 5, 2024 – one business day before the April 9 record date. Investors who purchase a stock on the ex-dividend date or after are not entitled to this quarterly dividend.
Sandra and Cooper Chen purchased 110 shares of TJX—the parent company of T.J. MAXX, Marshalls, and Home Goods. TJX stock was selling for $71 a share. One year later, they sold the stock for $82 a share. They paid a broker a commission of $11 when they purchased the stock and a commission of $0 when they sold the stock. During the 12-month period the couple owned the stock, TJX paid dividends that totaled $1.18 a share. Calculate the Chen’s total return for this investment.
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Total dividend income = Dividend per share × Number of shares
= $1.18 × 110
= $129.80
Total cost of purchase = (Price per share × Number of shares) + Commission
= ($71 × 110) + $11
= $7,821
Total sale proceeds = (Price per share × Number of shares) − Commission
= ($82 × 110) − $0
= $9,020
Total return = Dividends + Capital gain
= $129.80 + ($9,020 − $7,821)
= $1,328.80
Betty Watson purchased 30 shares of Home Depot stock at $228 a share. One year later, she sold the stock for $204 a share. She paid her broker a commission of $0 when she purchased the stock and a commission of $0 when she sold it. During the 12 months she owned the stock, she received total dividends of $228. Calculate Betty’s total return on this investment.
Note: A loss should be indicated with a minus sign.
Total cost of purchase = (Price per share × Number of shares) + Commission
= ($228 × 30) + $0
= $6,840
Total sale proceeds = (Price per share × Number of shares) − Commission
= ($204 × 30) − $0
= $6,120
Total return = Dividends + Capital gain
= $228 + ($6,840 − $6,120)
= −$492
In September, the board of directors of Palo Alto Networks—a company that provides cybersecurity solutions worldwide—approved a stock split of 3-for-1. After the split, how many shares of Palo Alto Network’s stock will an investor have if they owned 120 shares before the split?
Post-split shares = Pre-split shares × Split ratio
= 120 × (3 ÷ 1)
= 360
Henry and Linda Noor own stock in Northwest Lending Corporation. Based on information in its annual report, Northwest Lending reported after-tax earnings of $7,400,000 and has issued 3,000,000 shares of common stock. The stock is currently selling for $51 a share.
Calculate the earnings per share for Northwest Lending Corporation.
Note: Round your answer to 2 decimal places.
Calculate the price-earnings (PE) ratio for Northwest Lending Corporation.
Note: Use the rounded earnings per share from part a. Round your answer to 2 decimal places.
Earnings per share = After-tax earnings ÷ Number of shares outstanding
= $7,400,000 ÷ 3,000,000
= $2.47
Price-earnings (PE) ratio = Price per share ÷ Earnings per share
= $51 ÷ $2.47
= 20.65
Analysts who follow Wells Fargo, one of the nation’s largest providers of financial services, estimate that the corporation’s earnings per share will increase from $4.77 in the current year to $5.25 next year.
What is the amount of the increase?
Note: Round your answer to 2 decimal places.
What effect, if any, should this increase have on the value of the corporation’s stock?
Amount of increase = Next year’s earnings − Current year’s earnings
= $5.25 − $4.77
= $0.48
From an investor’s standpoint, a projected increase in earnings from $4.77 to $5.25 per share is a good sign. Since a stock’s market value is often tied to a corporation’s ability to earn money, the stock’s market value should increase during the next 12 months.
Currently, Domino’s Pizza pays an annual dividend of $4.40. If the stock is selling for $354 a share, what is the dividend yield?
Note: Enter your answer as a percent rounded to 2 decimal places.
Dividend yield = Annual dividend amount ÷ Current price per share
= $4.40 ÷ $354
= 0.0124, or 1.24%
