Equities and Investments or Stocks and Shares

(16) An investor buys 400 shares of a company’s stock at $50 per share. If the market value of the stock increases to $60 per share, what is the investor’s capital gain?

• (a) $1,000
• (b) $4,000
• (c) $4,000
• (d) $10,000

Answer

Correct Answer: (c) $4,000
The investor’s capital gain can be calculated by subtracting the initial investment from the final value of the investment:
\[ \text{Capital Gain} = \text{Final Value} – \text{Initial Investment} = (400 \times $60) – (400 \times $50) = $4,000 \]

(17) Company A has 1,000 shares of common stock outstanding, and Company B has 2,000 shares of common stock outstanding. If both companies pay a dividend of $3 per share, which company pays a higher total annual dividend?

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

Answer

Correct Answer: (a) Company B
To determine the total annual dividend paid by each company, you can use the following formulas:
For Company A: \[ \text{Total Annual Dividend (Company A)} = \text{Number of Shares (Company A)} \times \text{Dividend per Share} = 1,000 \times 3 = $3,000 \]
For Company B: \[ \text{Total Annual Dividend (Company B)} = \text{Number of Shares (Company B)} \times \text{Dividend per Share} = 2,000 \times 3 = $6,000 \]
Therefore, Company B pays a higher total annual dividend.

(18) An investor purchases 300 shares of a company’s stock at $45 per share. If the investor sells the shares for $50 each, what is the investor’s capital gain?

• (a) $500
• (b) $1,500
• (c) $1,500
• (d) $15,000

Answer

Correct Answer: (c) $1,500
The investor’s capital gain can be calculated by subtracting the initial investment from the selling price of the shares:
\[ \text{Capital Gain} = (\text{Selling Price per Share} \times \text{Number of Shares}) – (\text{Purchase Price per Share} \times \text{Number of Shares}) = ($50 \times 300) – ($45 \times 300) = $1,500 \]

(19) A company’s stock is currently trading at $80 per share, and it pays an annual dividend of $4. What is the dividend yield percentage for this stock?

• (a) 5%
• (b) 5%
• (c) 6%
• (d) 10%

Answer

Correct Answer: (b) 5%
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:
\[ \text{Dividend Yield Percentage} = \frac{\text{Annual Dividend per Share}}{\text{Market Price per Share}} \times 100 = \frac{4}{80} \times 100 = 5\% \]

(20) An investor buys 500 shares of a company’s preferred stock at $60 per share. If the annual dividend rate for preferred stock is 7%, what is the investor’s annual dividend income from this investment?

• (a) $420
• (b) $2,100
• (c) $350
• (d) $700

Answer

Correct Answer: (b) $2,100
The investor’s annual dividend income from preferred stock can be calculated by multiplying the number of shares by the annual dividend rate:
\[ \text{Annual Dividend Income} = \text{Number of Shares} \times \text{Annual Dividend Rate} = 500 \times 0.07 \times $60 = $2,100 \]