Question

1. What three questions should be answered before purchasing stock?

2. What is stock?

3. Which is better, top down or bottom up budgeting?

4. Why do people buy stock when stocks are risky and savings are FDIC insured?

5. What is an example of a stock overreacting to news and how might you benefit from such news?

6. What is the difference between debt financing and equity financing?

7. Which is better from the perspective of the company seeking funding, debt financing or equity financing?

8. How are interest rates determined on business loans?

9. What is a balance sheet?

10. What is an income statement?

Answer 1

The three questions to ask before purchasing a stock:

1. What does the company do :So, after a look into the company website, the investor can get an idea about what the company is into.

2. Is the company making profits :A look into the quarterly, annual reports to check how much net income the company has reported. So, the investor can get an idea as to how much net income the company has reported in it's financial statements.

3. Who are the competitors of the company : Does the company has the largest market share, is it a small or niche player.

4. What is the level of debt in the balance sheet of the company : Is the company earning enough to pay off it's debts.If the company can too much debt, then the investors should stay away from investing in that stock.  It is important to know that is the company making efforts to spend on research and developments and what are it's inventory levels.

What is stock ?

A stock in a share in the ownership of the company. By buying a stock, the owner , the stock owner claims the company's earnings and profits.

Which is better down or bottom up budgeting ?

The top -down budgeting is better than bottom- up budgeting. Bottom -up budgeting leads to higher targets for spending so with bottom up budgeting it is easy to over-budget as the lower level management can ask for more money than what is actually needed, it is also easy to miss a step while doing bottom , which can result in miscalculating the budget as well .As with top down budgeting, budgeting is done with the help of higher level executives and so, they prepare the budget based on certain higher level of tasks within the company, so it is more accurate.

Why do people buy stocks are risky and savings are FDIC insured?

Stocks are risky, investing in stocks are risky . Savings are safer than stock investing. Returns are based on the amount of risk the investor is exposed to ,  if risk is more then the returns are higher. The level of risk is lower then the returns are also lower. Investors invests in stocks to earn higher returns although it is risky and savings are not risky and they offer a low level of return.