Stock Jobs Basics 3 — Questions and Answers
Question 1: What does the price-to-earnings (P/E) ratio measure?
- Debt relative to equity
- Share price relative to earnings per share (Correct answer)
- Dividends relative to price
- Revenue relative to assets
Correct answer: Share price relative to earnings per share
The P/E ratio compares a stock's price to its earnings per share.
Question 2: Preferred stock differs from common stock mainly because it usually offers what?
- More voting power
- Priority on dividends and fixed payouts (Correct answer)
- Higher capital gains
- No claim in liquidation
Correct answer: Priority on dividends and fixed payouts
Preferred stock typically pays fixed dividends and ranks ahead of common stock for payouts.
Question 3: What is a 'bear market'?
- A market rising over 20%
- A prolonged period of falling prices (Correct answer)
- A market with no trading volume
- A market closed for holidays
Correct answer: A prolonged period of falling prices
A bear market is a sustained decline in prices, typically 20% or more.
Question 4: A stock split does what to the number of shares and price?
- Reduces shares and raises price
- Increases shares and lowers price per share (Correct answer)
- Eliminates dividends
- Changes the company's market cap
Correct answer: Increases shares and lowers price per share
A split increases share count and proportionally lowers the per-share price, leaving total value unchanged.
Question 5: What is the 'ask' price?
- The lowest price a seller will accept (Correct answer)
- The highest a buyer offers
- The average daily price
- The closing price
Correct answer: The lowest price a seller will accept
The ask is the lowest price a seller is currently willing to accept.
Question 6: Dividend yield is calculated as which of the following?
- Annual dividend divided by share price (Correct answer)
- Share price divided by earnings
- Total dividends divided by shares
- Price divided by book value
Correct answer: Annual dividend divided by share price
Dividend yield equals the annual dividend per share divided by the current share price.
Question 7: What is a 'blue-chip' stock?
- A newly listed startup
- A large, well-established, financially sound company (Correct answer)
- A penny stock under $1
- A stock that pays no dividends
Correct answer: A large, well-established, financially sound company
Blue-chip stocks are shares of large, stable, reputable companies.
Stock Jobs Basics 3
What does the price-to-earnings (P/E) ratio measure?