Equities and Investments or Stocks and Shares

(46) An investor purchases 1,500 shares of a company’s stock at $65 per share. If the investor sells the shares for $70 each, what is the investor’s capital gain?

• (a) $7,500
• (b) $7,500
• (c) $6,000
• (d) $8,500

Answer

Correct Answer: (b) $7,500
The investor’s capital gain can be calculated by subtracting the initial investment from the final value of the investment:
\[ \text{Capital Gain} = (\text{Selling Price per Share} \times \text{Number of Shares}) – (\text{Purchase Price per Share} \times \text{Number of Shares}) = ($70 \times 1500) – ($65 \times 1500) = $7,500 \]

(47) Company M has 5,000 shares of common stock outstanding, and Company N has 4,500 shares of common stock outstanding. If both companies pay a dividend of $8 per share, which company pays a higher total annual dividend?

• (a) Company M
• (b) Company N
• (c) Both companies pay the same total dividend
• (d) Insufficient information to determine

Answer

Correct Answer: (a) Company M
To determine the total annual dividend paid by each company, you can use the following formulas:
For Company M: \[ \text{Total Annual Dividend (Company M)} = \text{Number of Shares (Company M)} \times \text{Dividend per Share} = 5,000 \times 8 = $40,000 \]
For Company N: \[ \text{Total Annual Dividend (Company N)} = \text{Number of Shares (Company N)} \times \text{Dividend per Share} = 4,500 \times 8 = $36,000 \]
Therefore, Company M pays a higher total annual dividend.

(48) An investor purchases 2,000 shares of a company’s stock at $75 per share. If the market value of the stock increases to $80 per share, what is the investor’s capital gain?

• (a) $10,000
• (b) $10,000
• (c) $8,000
• (d) $12,000

Answer

Correct Answer: (b) $10,000
The investor’s capital gain can be calculated by subtracting the initial investment from the final value of the investment:
\[ \text{Capital Gain} = (\text{Selling Price per Share} \times \text{Number of Shares}) – (\text{Purchase Price per Share} \times \text{Number of Shares}) = ($80 \times 2000) – ($75 \times 2000) = $10,000 \]

(49) A company’s stock is currently trading at $160 per share, and it pays an annual dividend of $14. What is the dividend yield percentage for this stock?

• (a) 8.75%
• (b) 9%
• (c) 10%
• (d) 8.25%

Answer

Correct Answer: (a) 8.75%
The dividend yield percentage can be calculated by dividing the annual dividend per share by the market price per share and then multiplying by 100:
\[ \text{Dividend Yield Percentage} = \frac{\text{Annual Dividend per Share}}{\text{Market Price per Share}} \times 100 = \frac{14}{160} \times 100 = 8.75\% \]

(50) An investor buys 2,200 shares of a company’s preferred stock at $90 per share. If the annual dividend rate for preferred stock is 7%, what is the investor’s annual dividend income from this investment?

• (a) $15,400
• (b) $15,500
• (c) $16,000
• (d) $13,860

Answer

Correct Answer: (d) $13,860
The investor’s annual dividend income from preferred stock can be calculated by multiplying the number of shares by the annual dividend rate:
\[ \text{Annual Dividend Income} = \text{Number of Shares} \times \text{Annual Dividend Rate} = 2,200 \times 0.07 \times $90 = $13,860 \]