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How the Stock Market Works

3 cards · Stock Market & Investing · answer each one, then read the explanation. Your score tallies below.

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Stock Market & Investing · How the Stock Market Works · Card 001/003 medium

A company with 10 million shares outstanding trades at $50 per share and has $100 million in total debt. What is its enterprise value (EV)?

  1. $400 million, because enterprise value equals market capitalisation minus total debt
  2. $600 million, because enterprise value equals market capitalisation plus total debt
  3. $600 million, but only if the company has zero cash on its balance sheet — otherwise the cash must be subtracted from that figure
  4. $500 million, because enterprise value equals the market capitalisation alone
Stock Market & Investing · How the Stock Market Works · Card 002/003 easy

An investor buys 100 shares of a company at $40 each. The company later announces a 2-for-1 stock split. Immediately after the split, and assuming no other market movement, how many shares does the investor hold and at what approximate price per share?

  1. 100 shares at roughly $80 each, because a stock split doubles the price of each existing share
  2. 200 shares at roughly $20 each, because a stock split increases the share count while proportionally reducing the price per share, leaving total value unchanged
  3. 200 shares at roughly $40 each, because the split doubles both the number of shares and the market capitalisation of the company
  4. 50 shares at roughly $80 each, because a 2-for-1 split means the investor gives back half the shares in exchange for a higher price
Stock Market & Investing · How the Stock Market Works · Card 003/003 easy

What is the primary difference between a market order and a limit order when buying shares on a stock exchange?

  1. A market order can only be placed during regular trading hours, while a limit order can be placed at any time including overnight, giving limit orders a timing advantage that market orders lack
  2. A limit order always executes faster than a market order because it is given priority by the exchange's matching engine
  3. There is no practical difference — both execute at the current market price and the terms are used interchangeably by most brokers
  4. A market order guarantees execution at the current best available price but not a specific price, while a limit order specifies the maximum price the buyer will pay and may not execute if the market price stays above that limit