Equities and Investments or Stocks and Shares

(36) An investor purchases 1,200 shares of a company’s stock at $60 per share. If the investor sells the shares for $65 each, what is the investor’s capital gain?

• (a) $4,000
• (b) $6,000
• (c) $5,000
• (d) $7,000

Answer

Correct Answer: (b) $6,000
The investor’s capital gain can be calculated by subtracting the initial investment from the final value of the investment:
\[ \text{Capital Gain} = (\text{Selling Price per Share} \times \text{Number of Shares}) – (\text{Purchase Price per Share} \times \text{Number of Shares}) = ($65 \times 1200) – ($60 \times 1200) = $6,000 \]

(37) Company I has 3,000 shares of common stock outstanding, and Company J has 2,200 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 I
• (b) Company J
• (c) Both companies pay the same total dividend
• (d) Insufficient information to determine

Answer

Correct Answer: (a) Company I
To determine the total annual dividend paid by each company, you can use the following formulas:
For Company I: \[ \text{Total Annual Dividend (Company I)} = \text{Number of Shares (Company I)} \times \text{Dividend per Share} = 3,000 \times 5 = $15,000 \]
For Company J: \[ \text{Total Annual Dividend (Company J)} = \text{Number of Shares (Company J)} \times \text{Dividend per Share} = 2,200 \times 5 = $11,000 \]
Therefore, Company I pays a higher total annual dividend.

(38) An investor purchases 800 shares of a company’s stock at $70 per share. If the market value of the stock increases to $75 per share, what is the investor’s capital gain?

• (a) $4,000
• (b) $4,000
• (c) $3,000
• (d) $5,000

Answer

Correct Answer: (b) $4,000
The investor’s capital gain can be calculated by subtracting the initial investment from the final value of the investment:
\[ \text{Capital Gain} = (\text{Selling Price per Share} \times \text{Number of Shares}) – (\text{Purchase Price per Share} \times \text{Number of Shares}) = ($75 \times 800) – ($70 \times 800) = $4,000 \]

(39) A company’s stock is currently trading at $150 per share, and it pays an annual dividend of $12. What is the dividend yield percentage for this stock?

• (a) 8%
• (b) 10%
• (c) 6%
• (d) 7.5%

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:
\[ \text{Dividend Yield Percentage} = \frac{\text{Annual Dividend per Share}}{\text{Market Price per Share}} \times 100 = \frac{12}{150} \times 100 = 8\% \]

(40) An investor buys 1,500 shares of a company’s preferred stock at $80 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) $9,000
• (b) $10,500
• (c) $11,250
• (d) $12,000

Answer

Correct Answer: (c) $11,250
The investor’s annual dividend income from preferred stock can be calculated by multiplying the number of shares by the annual dividend rate:
\[ \text{Annual Dividend Income} = \text{Number of Shares} \times \text{Annual Dividend Rate} = 1,500 \times 0.075 \times $80 = $11,250 \]