Stock Basics and Types Quiz

Study Notes

Stock Basics

Stocks represent ownership in a company.
Buying stock means purchasing a share of that company.
Stock ownership entitles shareholders to a portion of the company's profits and assets.
Stock prices fluctuate based on supply and demand, influenced by factors like company performance, market sentiment, and economic conditions.

Types of Stocks

Common Stock: Provides voting rights and the potential for higher returns, but with greater risk.
Preferred Stock: Offers a fixed dividend payment and priority in dividends and liquidation over common stock; it usually carries less voting rights.
Growth Stocks: Companies projected to experience high growth in earnings and revenue but often trade at higher valuations.
Value Stocks: Companies whose stock price may be undervalued relative to their intrinsic value, indicating potential for price appreciation.
Income Stocks: Companies that pay significant dividends, providing consistent income for investors.

Stock Market Structures

Public Exchanges (e.g., NYSE, NASDAQ): Centralized marketplaces where stocks are bought and sold.
Over-the-Counter (OTC) Market: Stocks of companies not listed on major exchanges trade on a decentralized network.
Brokerage Firms: Act as intermediaries connecting buyers and sellers of stocks.

Factors Affecting Stock Prices

Company Performance: Profitability, growth, and financial health directly influence investor confidence and stock value.
Economic Conditions: Recessions, inflation, and interest rates all impact market sentiment and stock prices.
Market Sentiment: Investor optimism or pessimism affects the perception of stock value.
News and Events: Corporate announcements, industry news, and global events can significantly influence stock price movements.
Interest Rates: Higher interest rates can increase borrowing costs for companies, which can depress stock valuations.
Supply and Demand: High demand with limited supply can lead to price increases.

Stock Valuation Methods

Price-to-Earnings (P/E) Ratio: Compares a company's stock price to its earnings per share.
Price-to-Book (P/B) Ratio: Compares a company's stock price to its book value.
Dividend Yield: Annual dividend per share divided by share price; indicates income potential.

Stock Trading Strategies

Fundamental Analysis: Evaluating a company's financial health and prospects to determine its intrinsic value.
Technical Analysis: Studying historical price and volume data to predict future price movements.
Day Trading: Buying and selling stocks within the same trading day.
Swing Trading: Holding stocks for several days or weeks.
Long-term Investing: Holding stocks for extended periods (months or years).

Risks Involved in Stock Investing

Market Risk: Fluctuations in the overall stock market.
Company-Specific Risk: Performance of the individual company impacting stock value.
Interest Rate Risk: Changes in interest rates affecting borrowing costs.
Inflation Risk: Rise in prices reducing the purchasing power of investments.
Liquidity Risk: Difficulty selling stocks quickly without affecting price.

Stock Market Terminology

Dividend: A portion of a company's profits distributed to shareholders.
Earnings Per Share (EPS): Measures a company's profitability on a per-share basis.
Book Value: A company's assets minus its liabilities.
Bear Market: A prolonged period of declining stock prices.
Bull Market: A prolonged period of rising stock prices.

Regulations

Securities and Exchange Commission (SEC): Regulates the securities industry, including stocks, to protect investors.

Description

Test your understanding of the basics of stocks and the various types available in the market. This quiz covers concepts including ownership, stock prices, and the distinctions between common, preferred, growth, value, and income stocks. Perfect for beginners looking to solidify their knowledge in investment fundamentals.