Equities and Investments or Stocks and Shares

(31) An investor purchases 800 shares of a company’s stock at $85 per share. If the investor sells the shares for $90 each, what is the investor’s capital gain?

• (a) $4,000
• (b) $5,000
• (c) $4,000
• (d) $6,000

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:
\[ \text{Capital Gain} = (\text{Selling Price per Share} \times \text{Number of Shares}) – (\text{Purchase Price per Share} \times \text{Number of Shares}) = ($90 \times 800) – ($85 \times 800) = $4,000 \]

(32) Company G has 2,500 shares of common stock outstanding, and Company H has 1,800 shares of common stock outstanding. If both companies pay a dividend of $4 per share, which company pays a higher total annual dividend?

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

Answer

Correct Answer: (a) Company G
To determine the total annual dividend paid by each company, you can use the following formulas:
For Company G: \[ \text{Total Annual Dividend (Company G)} = \text{Number of Shares (Company G)} \times \text{Dividend per Share} = 2,500 \times 4 = $10,000 \]
For Company H: \[ \text{Total Annual Dividend (Company H)} = \text{Number of Shares (Company H)} \times \text{Dividend per Share} = 1,800 \times 4 = $7,200 \]
Therefore, Company G pays a higher total annual dividend.

(33) An investor purchases 600 shares of a company’s stock at $50 per share. If the market value of the stock increases to $55 per share, what is the investor’s capital gain?

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

Answer

Correct Answer: (c) $3,000
The investor’s capital gain can be calculated by subtracting the initial investment from the final value of the investment:
\[ \text{Capital Gain} = (\text{Selling Price per Share} \times \text{Number of Shares}) – (\text{Purchase Price per Share} \times \text{Number of Shares}) = ($55 \times 600) – ($50 \times 600) = $3,000 \]

(34) A company’s stock is currently trading at $120 per share, and it pays an annual dividend of $9. What is the dividend yield percentage for this stock?

• (a) 6%
• (b) 7.5%
• (c) 8%
• (d) 7.5%

Answer

Correct Answer: (d) 7.5%
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:
\[ \text{Dividend Yield Percentage} = \frac{\text{Annual Dividend per Share}}{\text{Market Price per Share}} \times 100 = \frac{9}{120} \times 100 = 7.5\% \]

(35) An investor buys 900 shares of a company’s preferred stock at $75 per share. If the annual dividend rate for preferred stock is 8%, what is the investor’s annual dividend income from this investment?

• (a) $5,400
• (b) $5,400
• (c) $6,750
• (d) $4,800

Answer

Correct Answer: (b) $5,400
The investor’s annual dividend income from preferred stock can be calculated by multiplying the number of shares by the annual dividend rate:
\[ \text{Annual Dividend Income} = \text{Number of Shares} \times \text{Annual Dividend Rate} = 900 \times 0.08 \times $75 = $5,400 \]