Answers: Chapter 16 - Buying Stocks Directly from Companies


16.1: Which one of the following is the reason why companies allow investors to buy stocks directly from them:

  1. They see direct purchase as a way to encourage consumer loyalty

  2. They see direct purchase as a way to do market research

The correct answer is #1

 

16.2: True or False. You can participate in a company's Dividend Reinvestment Plan or DRIP only if you already own at least one share of the company's stock. The correct answer is True.

Historically, a company that offers only a Dividend Reinvestment Plan (DRIP) will generally not allow you to purchase your first share from it directly (unless you spend a ridiculous amount of money for the initial purchase). Unless you already own a share of that company and it is registered in your name, you would have to purchase your first share of the company’s stock through a broker.

 

16.3: True or False. You can participate in a company's direct investment plan only if you already have at least one share of the company's stock. The correct answer is False.

A direct purchase plan allows you to purchase your first share, and all other shares, of a company's stock stock directly from them without going through a broker.

 

16.4  The term street name relates to which of the following:

  1. The name of the brokerage firm that buys stocks for you

  2. The headquarter address of the company whose stock you intend to buy

The correct answer is #1
Usually, when a stockbroker buys shares for you, the stocks are registered in the name of the firm for which the broker works (or in the street name, as it is called).

 

16.5: Which one of the items below is not an advantage of investing in Dividend Reinvestment Plans and direct investment plans

  1. Both plans allow optional small cash investments to buy fractions of a share

  2. Both charge very little transaction fees

  3. Both allow you to reinvest dividends

  4. Both require that the stock you buy is in the "street name"

The correct answer is #4
Answer #4 is the only choice that is false. To invest in a direct investment plan or a Dividend Reinvestment Plan, the company whose stock you own must be aware that you personally own one of their shares, so the shares must be registered under your name and not a brokerage firm's "street name".

 

16.6: Use the following instructions to find the details of the DRIP and direct investment plans associated with Nike.  

  1. Visit the site, DirectInvesting.com

  2. In the "Find Drip" box, type in NKE

  3. The page you land on will show you the DRIP and direct investing plans associated with Nike