Stock Analysis Methods
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Questions and Answers

What happens to a limit order if the stock price does not reach the specified limit?

  • The order is executed at the current market price.
  • The order will remain unfulfilled. (correct)
  • The order converts to a market order immediately.
  • The order gets automatically canceled after one day.

    • What is the primary risk associated with placing a buy-stop order?

  • You cannot sell shares after buying them.
  • Your order may not execute if the price drops suddenly.
  • You may end up buying shares at a higher price than expected. (correct)
  • It is difficult to cancel once placed.

    • What does the term 'margin call' refer to?

  • A notification that profits have been realized from trades.
  • A requirement to pay off all borrowed funds immediately.
  • An alert to add more cash or equity to maintain a minimum percentage. (correct)
  • A request to close all open market orders.

    • What does owning stocks represent?

    <p>Ownership in a company</p> Signup and view all the answers

    What are stock exchanges primarily used for?

    <p>To facilitate buying and selling of stocks</p> Signup and view all the answers

    How is the maximum loan value determined when buying stock on margin?

    <p>It's the remaining percentage after you provide your own equity.</p> Signup and view all the answers

    What occurs during the Initial Public Offering (IPO) of a stock?

    <p>The company sells stocks to the public for the first time</p> Signup and view all the answers

    In short selling, what is the ultimate goal of the process?

    <p>To profit from the decline in the stock price.</p> Signup and view all the answers

    When can stocks be traded in the secondary market?

    <p>Immediately after they are issued in an IPO</p> Signup and view all the answers

    Which of the following best describes the consequences of a company experiencing growth after an initial sale?

    <p>The value of shares may increase, allowing for potential profits</p> Signup and view all the answers

    What criteria must a company meet for its stock to be traded on a stock exchange?

    <p>Meet specific rules and requirements set by the exchange</p> Signup and view all the answers

    If a pizza shop's value drops, what happens to the ownership shares?

    <p>They decrease in value, leading to potential losses for owners</p> Signup and view all the answers

    What is the primary function of the secondary market for sellers?

    <p>To sell shares at a profit when no longer wanted.</p> Signup and view all the answers

    Which exchange is primarily for large, established companies in Canada?

    <p>Toronto Stock Exchange</p> Signup and view all the answers

    What characterizes senior equities listed on the Toronto Stock Exchange?

    <p>They are stocks of large, financially stable companies.</p> Signup and view all the answers

    What is the role of options in financial markets?

    <p>To let the buyer purchase stock at today's price at a future date.</p> Signup and view all the answers

    What happens if the market price of wheat rises above the fixed price in a futures contract?

    <p>The seller misses out on potential profit as they must still sell at the agreed price.</p> Signup and view all the answers

    How do market makers profit from trades?

    <p>By earning the difference between the bid and ask prices.</p> Signup and view all the answers

    What is a key characteristic of a high-quality stock exchange?

    <p>A small difference between bid and ask prices.</p> Signup and view all the answers

    Which market is specifically designed for smaller or riskier companies?

    <p>TSX Venture Exchange</p> Signup and view all the answers

    What was a main function of the open-outcry system in trading?

    <p>Floor traders negotiate deals in person.</p> Signup and view all the answers

    What does a smaller bid-ask spread indicate for traders?

    <p>Fairer prices for trading.</p> Signup and view all the answers

    What is the main characteristic of a market that has high liquidity?

    <p>Many shares available for buying or selling.</p> Signup and view all the answers

    How does demutualization affect a stock exchange?

    <p>It transforms the exchange into a publicly traded company.</p> Signup and view all the answers

    In the over-the-counter (OTC) market, how are prices determined?

    <p>By dealers setting prices individually.</p> Signup and view all the answers

    What is a key difference between the OTC market and organized exchanges?

    <p>OTC trades occur one-on-one with no fixed price.</p> Signup and view all the answers

    What is represented by an equity security?

    <p>A piece of ownership in a company.</p> Signup and view all the answers

    What type of security involves lending money with a promise of interest payments?

    <p>Debt securities.</p> Signup and view all the answers

    How does increased market depth benefit investors?

    <p>It prevents significant price changes with large orders.</p> Signup and view all the answers

    Why is transparency important in stock exchanges?

    <p>It enables easy access to real-time trading information.</p> Signup and view all the answers

    What is one characteristic of organized exchange markets?

    <p>Trades happen in a centralized location.</p> Signup and view all the answers

    What does the ticker symbol for a stock represent?

    <p>The unique identifier for the stock in trading</p> Signup and view all the answers

    What does a beta value greater than 1 indicate about a stock?

    <p>The stock is more volatile than the market</p> Signup and view all the answers

    What is a market order in stock trading?

    <p>A request to buy or sell a stock at the current market price</p> Signup and view all the answers

    Which of the following best describes a limit order?

    <p>An order to buy or sell only at a specified price or better</p> Signup and view all the answers

    What does the 'volume' in stock quotations refer to?

    <p>The number of shares traded during a specific time frame</p> Signup and view all the answers

    What could be a consequence of frequent trading based on broker recommendations?

    <p>Higher commissions due to multiple transactions</p> Signup and view all the answers

    Why might a discount broker appeal to certain investors?

    <p>They charge lower fees without offering advisory services</p> Signup and view all the answers

    What does a stock's closing price indicate?

    <p>The final price at which the stock was traded within the day</p> Signup and view all the answers

    Why is it important to recognize the exchange on which a stock trades?

    <p>It helps avoid confusion when investing in stocks</p> Signup and view all the answers

    What could indicate a negative beta for a stock?

    <p>The stock's price rises when the market declines</p> Signup and view all the answers

    Study Notes

    Stock Analysis Methods

    • Stock valuation methods include technical analysis and fundamental analysis.

    Technical Analysis

    • Technical analysis evaluates stocks based on historical price patterns.
    • Examples: If a stock rises three days consecutively, it may indicate a continued upward trend; if it declines over several days, it suggests a possible downward trend.

    Fundamental Analysis

    • Fundamental analysis assesses a stock by reviewing a company's financial health, performance, and economic factors.
    • It analyzes key metrics like revenues, earnings, assets, and future growth potential to assess if a stock is undervalued, overvalued, or fairly priced.

    Stock Demand and Supply

    • Demand refers to the number of investors wanting to buy a stock. High demand generally leads to higher prices.
    • Supply refers to investors wanting to sell a stock. High supply typically results in lower prices.
    • These forces, along with numerous other factors, influence the stock price.

    Economic Factors

    • Economic growth, interest rates, and inflation significantly influence stock prices.
    • Generally, stocks often increase in value with rising economic growth, declining interest rates, and falling inflation.

    Industry Analysis

    • Industry conditions affect stock prices. Key factors include consumer preferences and industry competition.
    • A stock is typically favored when companies recognize consumer preferences and face less rivalry.

    Interpreting Financial Statements

    • Financial statements (balance sheets and income statements), along with other reports, are essential for assessing a firm.
    • This analysis considers a company's liquidity, efficiency, financial leverage, and profitability.
    • It's crucial to consider that accounting guidelines permit firms to use methods which can sometimes exaggerate or underestimate their performance.

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    Description

    Explore the key methods of stock analysis including technical and fundamental analysis. Learn how historical price patterns and a company's financial health can influence investment decisions. This quiz covers essential concepts that drive stock prices through demand and supply dynamics.

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