Equities and Investments or Stocks and Shares

(21) An investor purchases 600 shares of a company’s stock at $75 per share. If the investor sells the shares for $80 each, what is the investor’s capital gain?

• (a) $5,000
• (b) $3,000
• (c) $3,000
• (d) $10,000

Answer

Correct Answer: (c) $3,000
The investor’s capital gain can be calculated by subtracting the initial investment from the selling price of the shares:
\[ \text{Capital Gain} = (\text{Selling Price per Share} \times \text{Number of Shares}) – (\text{Purchase Price per Share} \times \text{Number of Shares}) = ($80 \times 600) – ($75 \times 600) = $3,000 \]

(22) Company C has 2,000 shares of common stock outstanding, and Company D has 1,500 shares of common stock outstanding. If both companies pay a dividend of $6 per share, which company pays a higher total annual dividend?

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

Answer

Correct Answer: (b) Company D
To determine the total annual dividend paid by each company, you can use the following formulas:
For Company C: \[ \text{Total Annual Dividend (Company C)} = \text{Number of Shares (Company C)} \times \text{Dividend per Share} = 2,000 \times 6 = $12,000 \]
For Company D: \[ \text{Total Annual Dividend (Company D)} = \text{Number of Shares (Company D)} \times \text{Dividend per Share} = 1,500 \times 6 = $9,000 \]
Therefore, Company C pays a higher total annual dividend.

(23) An investor purchases 400 shares of a company’s stock at $55 per share. If the market value of the stock decreases to $50 per share, what is the investor’s capital loss?

• (a) $4,000
• (b) $2,000
• (c) $5,000
• (d) $500

Answer

Correct Answer: (b) $2,000
The investor’s capital loss can be calculated by subtracting the final value of the investment from the initial investment:
\[ \text{Capital Loss} = (\text{Purchase Price per Share} \times \text{Number of Shares}) – (\text{Selling Price per Share} \times \text{Number of Shares}) = ($55 \times 400) – ($50 \times 400) = $2,000 \]

(24) A company’s stock is currently trading at $90 per share, and it pays an annual dividend of $6. What is the dividend yield percentage for this stock?

• (a) 6.67%
• (b) 7.5%
• (c) 8%
• (d) 10%

Answer

Correct Answer: (a) 6.67%
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:
\[ \text{Dividend Yield Percentage} = \frac{\text{Annual Dividend per Share}}{\text{Market Price per Share}} \times 100 = \frac{6}{90} \times 100 \approx 6.67\% \]

(25) An investor buys 800 shares of a company’s preferred stock at $65 per share. If the annual dividend rate for preferred stock is 6.5%, what is the investor’s annual dividend income from this investment?

• (a) $3,250
• (b) $5,200
• (c) $5,200
• (d) $2,600

Answer

Correct Answer: (c) $5,200
The investor’s annual dividend income from preferred stock can be calculated by multiplying the number of shares by the annual dividend rate:
\[ \text{Annual Dividend Income} = \text{Number of Shares} \times \text{Annual Dividend Rate} = 800 \times 0.065 \times $65 = $5,200 \]