1. Eight risks that stocks are susceptible to are (1) interest-rate risk, (2) company risk, (3) inflation risk, (4) financial risk, (5) liquidity risk, (6) political or regulatory risk, (7) exchange-rate risk, and (8) market-rate risk.

2. Leverage is the process of increasing your purchasing power by borrowing money to invest in financial assets. Leverage increases risk.

3. Common stock is an ownership share of a company that, after the company initially sells it in an initial public offering, is then traded among investors in secondary markets. Preferred stock is also an ownership share of a company. However, this type of stock differs from common stock in that the dividend is guaranteed, and the dividend is paid before dividends on common stock are paid.

4. The two ways an investor makes money in stocks are through (1) dividends and (2) capital gains.

5. The goal of stock valuation is to determine the intrinsic value of a company, or the company's fundamental economic value. It is important for an investor to know a company's intrinsic value so that he can decide whether to buy, sell, or hold a specific stock. If the market price of the company's stock is greater than the company's intrinsic value, the investor should sell the stock. If the market price of the company's stock is less than the company's intrinsic value, the investor should buy the stock.