Some fundamental multiple-choice questions derived from this chapter:
Question 1:
Which of the following best describes the characteristics of low-priced common stocks?
A. They usually depreciate more readily than they appreciate.
B. They usually appreciate more readily than they depreciate.
C. They are always from companies in poor financial health.
D. They are typically not as volatile as high-priced stocks.
Question 2:
Why do most investors in low-priced stocks end up losing money?
A. Because low-priced stocks never appreciate.
B. Because they often buy stocks from companies in poor financial condition or make significant investments in seemingly inexpensive stocks.
C. Because high-priced stocks are inherently more valuable.
D. Because low-priced stocks are always artificially low due to a high share count.
Question 3:
What is a crucial aspect to determine before purchasing low-priced stocks?
A. Whether the stock is only attractive during a bull market.
B. Whether the stock is truly low-priced or artificially low-priced due to a large number of shares.
C. Whether the stock is listed on a major stock exchange.
D. Whether the stock is backed by tangible assets like gold or silver.
Question 4:
Which type of company could still have speculative potential even if their common stock is not low-priced?
A. Companies that are on the verge of receivership.
B. Speculatively capitalized businesses with a significant amount of senior securities and a relatively small common stock issue.
C. Companies with a high share count.
D. Companies with poor financial health.
Question 5:
When a commodity's price increases, whose shares typically appreciate more?
A. Mid-cost producers.
B. Low-cost producers.
C. High-cost producers.
D. All producers appreciate equally.
Question 6:
In the Northern Pipe Line Company example, where does a substantial portion of the income come from?
A. From copper production.
B. From high-cost producers.
C. From investment holdings.
D. From low-cost producers.
Question 7:
In the context of the Northern Pipe Line Company, what was emphasized as a crucial aspect to study?
A. The source of income in relation to specific assets owned by the company.
B. The company's dividend history.
C. The total number of shares the company has issued.
D. The market price of the company's common stock.
Answers: BBBBC CA