Introduction to Stocks

Show your work for each problem.

1.
What is a stock?
1. a)A government bond
2. b)A loan to a company
3. c)A share of ownership in a company
4. d)A type of bank account
Answer: A share of ownership in a company
A stock is a share of ownership in a company. When you buy a stock, you become a part-owner of that company.
2.
You buy 10 shares at 5 dollars each. What is your total investment?
Answer: 50
. Your total investment is 50 dollars.
3.
Sarah buys 25 shares at 8 dollars each. How much does she spend?
Answer: 200
. Sarah spends 200 dollars.
4.
What is a dividend?
1. a)A type of stock
2. b)A payment from company profits to shareholders
3. c)The price of one share
4. d)A fee you pay to buy stocks
Answer: A payment from company profits to shareholders
A dividend is a payment made by a company to its shareholders from its profits. Not all companies pay dividends.
5.
Tom bought 30 shares at 20 dollars each. The price rose to 25 dollars. What is his profit?
Answer: 150
1. What is Tom's initial investment? (30 shares × 20 dollars) 600
2. What is the current value? (30 shares × 25 dollars) 750
3. What is the profit? (Current value - Initial investment) 150
6.
Lisa invested 400 dollars. Her investment is now worth 480 dollars. What is her profit?
Answer: 80
dollars. Lisa made a profit of 80 dollars.
7.
A stock was 100 dollars yesterday. Today it is up 10%. What is the new price?
1. a)110 dollars
2. b)10 dollars
3. c)100 dollars
4. d)90 dollars
Answer: 110 dollars
dollars, or dollars.
8.
You invested 500 dollars and now have 600 dollars. What is your percent return?
Answer: 20
1. What is your gain? (600 - 500) 100
2. Divide gain by initial investment: 100 ÷ 500 = ? 0.2
3. Convert to percent: 0.2 × 100 = ? 20
9.
A company pays a dividend of 2 dollars per share. You own 40 shares. How much do you receive?
Answer: 80
dollars. You receive 80 dollars in dividends.
10.
Mike bought 50 shares at 16 dollars. The price dropped to 12 dollars. What is his loss?
Answer: 200
1. What was Mike's initial investment? (50 × 16) 800
2. What is the current value? (50 × 12) 600
3. What is the loss? (800 - 600) 200
11.
Anna invested 800 dollars. After one year, her investment is worth 920 dollars. What is her percent return?
Answer: 15
1. What is Anna's gain? (920 - 800) 120
2. Divide gain by initial investment: 120 ÷ 800 = ? 0.15
3. Convert to percent: 0.15 × 100 = ? 15
12.
A stock drops 50%. What percent gain is needed to return to the original price?
1. a)25%
2. b)100%
3. c)50%
4. d)75%
Answer: 100%
If a 100 dollar stock drops 50%, it's worth 50 dollars. To get back to 100 dollars, you need a gain of 50 dollars, which is of the new price.
13.
You have 1200 dollars. You buy 30 shares of Stock A at 20 dollars each. You spend the rest on Stock B at 15 dollars each. How many shares of Stock B do you buy?
Answer: 40
1. How much do you spend on Stock A? (30 × 20) 600
2. How much money remains? (1200 - 600) 600
3. How many shares of Stock B? (600 ÷ 15) 40
14.
A stock was 80 dollars. It dropped 25%. What is the new price?
Answer: 60
dollars, or dollars.
15.
Jake bought 40 shares at 25 dollars. The price is now 30 dollars. What is his percent return?
Answer: 20
1. What is Jake's initial investment? (40 × 25) 1000
2. What is the current value? (40 × 30) 1200
3. What is the gain? (1200 - 1000) 200
4. What is the percent return? (200 ÷ 1000 × 100) 20