Equities and Investments or Stocks and Shares

(41) An investor purchases 1,000 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) $5,000
• (c) $4,000
• (d) $6,000

Answer

Correct Answer: (b) $5,000
The investor’s capital gain can be calculated by subtracting the initial investment from the final value of the investment:
\[ \text{Capital Gain} = (\text{Selling Price per Share} \times \text{Number of Shares}) – (\text{Purchase Price per Share} \times \text{Number of Shares}) = ($75 \times 1000) – ($70 \times 1000) = $5,000 \]

(42) Company K has 4,000 shares of common stock outstanding, and Company L has 3,500 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 K
• (b) Company L
• (c) Both companies pay the same total dividend
• (d) Insufficient information to determine

Answer

Correct Answer: (a) Company K
To determine the total annual dividend paid by each company, you can use the following formulas:
For Company K: \[ \text{Total Annual Dividend (Company K)} = \text{Number of Shares (Company K)} \times \text{Dividend per Share} = 4,000 \times 6 = $24,000 \]
For Company L: \[ \text{Total Annual Dividend (Company L)} = \text{Number of Shares (Company L)} \times \text{Dividend per Share} = 3,500 \times 6 = $21,000 \]
Therefore, Company K pays a higher total annual dividend.

(43) An investor purchases 1,200 shares of a company’s stock at $55 per share. If the market value of the stock increases to $60 per share, what is the investor’s capital gain?

• (a) $6,000
• (b) $6,000
• (c) $5,000
• (d) $7,200

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:
\[ \text{Capital Gain} = (\text{Selling Price per Share} \times \text{Number of Shares}) – (\text{Purchase Price per Share} \times \text{Number of Shares}) = ($60 \times 1200) – ($55 \times 1200) = $6,000 \]

(44) A company’s stock is currently trading at $140 per share, and it pays an annual dividend of $10. What is the dividend yield percentage for this stock?

• (a) 7.14%
• (b) 7.14%
• (c) 8.57%
• (d) 10%

Answer

Correct Answer: (b) 7.14%
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:
\[ \text{Dividend Yield Percentage} = \frac{\text{Annual Dividend per Share}}{\text{Market Price per Share}} \times 100 = \frac{10}{140} \times 100 = 7.14\% \]

(45) An investor buys 1,800 shares of a company’s preferred stock at $85 per share. If the annual dividend rate for preferred stock is 6%, what is the investor’s annual dividend income from this investment?

• (a) $12,240
• (b) $10,260
• (c) $13,500
• (d) $14,400

Answer

Correct Answer: (b) $10,260
The investor’s annual dividend income from preferred stock can be calculated by multiplying the number of shares by the annual dividend rate:
\[ \text{Annual Dividend Income} = \text{Number of Shares} \times \text{Annual Dividend Rate} = 1,800 \times 0.06 \times $85 = $10,260 \]