Equities and Investments or Stocks and Shares

(26) An investor purchases 700 shares of a company’s stock at $70 per share. If the investor sells the shares for $75 each, what is the investor’s capital gain?

• (a) $5,000
• (b) $3,000
• (c) $3,500
• (d) $7,000

Answer

Correct Answer: (c) $3,500
The investor’s capital gain can be calculated by subtracting the initial investment from the final value of the investment:
\[ \text{Capital Gain} = (\text{Selling Price per Share} \times \text{Number of Shares}) – (\text{Purchase Price per Share} \times \text{Number of Shares}) = ($75 \times 700) – ($70 \times 700) = $3,500 \]

(27) Company E has 1,500 shares of common stock outstanding, and Company F has 2,500 shares of common stock outstanding. If both companies pay a dividend of $5 per share, which company pays a higher total annual dividend?

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

Answer

Correct Answer: (b) Company F
To determine the total annual dividend paid by each company, you can use the following formulas:
For Company E: \[ \text{Total Annual Dividend (Company E)} = \text{Number of Shares (Company E)} \times \text{Dividend per Share} = 1,500 \times 5 = $7,500 \]
For Company F: \[ \text{Total Annual Dividend (Company F)} = \text{Number of Shares (Company F)} \times \text{Dividend per Share} = 2,500 \times 5 = $12,500 \]
Therefore, Company F pays a higher total annual dividend.

(28) An investor purchases 500 shares of a company’s stock at $60 per share. If the investor sells the shares for $55 each, what is the investor’s capital loss?

• (a) $5,000
• (b) $2,500
• (c) $3,000
• (d) $500

Answer

Correct Answer: (b) $2,500
The investor’s capital loss can be calculated by subtracting the final value of the investment from the initial investment:
\[ \text{Capital Loss} = (\text{Purchase Price per Share} \times \text{Number of Shares}) – (\text{Selling Price per Share} \times \text{Number of Shares}) = ($60 \times 500) – ($55 \times 500) = $2,500 \]

(29) A company’s stock is currently trading at $100 per share, and it pays an annual dividend of $8. What is the dividend yield percentage for this stock?

• (a) 8%
• (b) 10%
• (c) 6%
• (d) 12%

Answer

Correct Answer: (a) 8%
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:
\[ \text{Dividend Yield Percentage} = \frac{\text{Annual Dividend per Share}}{\text{Market Price per Share}} \times 100 = \frac{8}{100} \times 100 = 8\% \]

(30) An investor buys 1,000 shares of a company’s preferred stock at $70 per share. If the annual dividend rate for preferred stock is 7.5%, what is the investor’s annual dividend income from this investment?

• (a) $5,250
• (b) $7,000
• (c) $5,250
• (d) $750

Answer

Correct Answer: (c) $5,250
The investor’s annual dividend income from preferred stock can be calculated by multiplying the number of shares by the annual dividend rate:
\[ \text{Annual Dividend Income} = \text{Number of Shares} \times \text{Annual Dividend Rate} = 1,000 \times 0.075 \times $70 = $5,250 \]