Quiz 19: Using Securities Markets for Financing and Investing Opportunities
Business
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True False
True
Q 2Q 2
Securities markets provide private investors a place to buy and sell stocks, bonds, and mutual funds.
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True False
True
Q 3Q 3
An initial public offering (IPO) represents the first time a corporation's stock is offered and sold to persons outside of the company.
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True False
True
Q 4Q 4
The proceeds from a secondary market sale of securities go to the corporation whose security is being traded.
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True False
Q 5Q 5
In a secondary market sale of stock, the proceeds go to the investor selling the stock, not to the corporation.
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True False
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True False
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True False
Q 8Q 8
The secondary market is where investors (both individuals and companies) go to find someone who is interested in selling their investments to them.
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True False
Q 9Q 9
When given a choice, businesses prefer to obtain long-term financing through retained earnings or by borrowing from a lending institution such as a bank.
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True False
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True False
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True False
Q 12Q 12
It is easier for a small business to raise funds through a stock issuance than for a large, well-known company.
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True False
Q 13Q 13
Before issuing stock or bonds, corporations must meet the disclosure requirements of the Federal Trade Commission (FTC).
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True False
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True False
Q 15Q 15
When investment bankers underwrite an issue, they buy at a discounted price the entire stock issue of a firm and then sell the stock, at full price, to private investors.
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True False
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True False
Q 17Q 17
Examples of institutional investors are pension funds, mutual funds, and insurance companies.
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True False
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True False
Q 19Q 19
Many observers suggest that the stock market is dominated by the buying and selling activities of institutional investors.
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True False
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True False
Q 21Q 21
Institutional investors include insurance companies, individual investors, and mutual funds.
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True False
Q 22Q 22
Corporations receive needed funds when they sell a new issuance of a security in the primary market.
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True False
Q 23Q 23
Investors who trade securities buy securities they are interested in holding or sell securities to make a profit or cut losses by trading in the secondary market.
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True False
Q 24Q 24
The Securities and Exchange Commission does not intercede in any way in the process of an IPO. Doing so would disrupt the natural process of the capital markets.
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True False
Q 25Q 25
Government employees, public school system employees, and even employees of some large companies pay a percentage of their monthly earnings into pension funds. These funds collect a large pool of money that they invest in securities. Pension funds, insurance companies and mutual fund companies which collect large sums of money and then invest these funds into stocks, bonds or other securities are called institutional investors.
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True False
Q 26Q 26
Investment bankers are in the business of underwriting securities. They profit from purchasing the new stock offering of a corporation at a discount, and then selling those shares of stock to the public at the market price.
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True False
Q 27Q 27
Your privately held firm needs additional funding for a planned expansion. Having never issued stock to the public, your firm is well advised to seek the assistance of an investment banker prior to an initial public offering of stock.
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True False
Q 28Q 28
Hottie Potatee, Inc., wants to raise an undisclosed amount of funds in order to expand the company-owned potato bar stores overseas. The CFO of the company will negotiate with an expert at the FTC who will underwrite the issue of stock that Hottie Potatee plans to offer.
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True False
Q 29Q 29
Ina Vestor inherited $75,000 when her grandfather died and decided to invest it in the Hottie Potatee company. As a student of business, you inform her that she can call a stockbroker who will help her purchase stock on the secondary market.
Free
True False
Q 30Q 30
Sam Schiester, a stockbroker at Schemes Financial Services Company, called you the other day asking if you would like to purchase an IPO. "The hot new company, Hottie Potatee, is going public, and I thought you might want to get in on it," he exclaimed. If you agree to buy shares of this company, this trade will occur on the secondary market.
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True False
Q 31Q 31
Idle Time Gaming, Inc., has reached the point where it needs several million dollars in order to expand and become the international company that it says it wants to be in its strategic plan. After consulting with an investment banker who is willing to underwrite the issue, it learned that investors will purchase the stock for $22/share. Idle Time will receive a smaller amount for each share that is sold.
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True False
Q 32Q 32
If investor Jones buys a share of stock in the ABC Corporation from investor Smith, the ABC Corporation automatically receives a fixed percentage of the selling price.
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True False
Q 33Q 33
Stocks that are not listed as trading on one of the national or international stock exchanges can be traded on the OTC, Over-The-Counter exchange.
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True False
Q 34Q 34
A stock exchange provides a marketplace where the public can directly buy and sell securities without the help of intermediaries.
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True False
Q 35Q 35
Only those individuals and/or companies with a membership on a stock exchange can buy and sell securities on that stock exchange.
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True False
Q 36Q 36
Securities and Exchange Commission (SEC) rules prohibit the listing of the stock of foreign firms on U.S. stock exchanges.
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True False
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True False
Q 38Q 38
The stock of companies that fail to meet a stock exchange's minimum requirements can be delisted.
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True False
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True False
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True False
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True False
Q 42Q 42
Before a corporation's stock can be sold on a major stock exchange, the firm must provide detailed financial information to the Securities and Exchange Commission.
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True False
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True False
Q 44Q 44
The Securities and Exchange Commission requires that all prospective investors receive a copy of a firm's prospectus prior to investing.
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True False
Q 45Q 45
Insider trading refers to someone who benefits unfairly from information about a security not available to the general public.
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True False
Q 46Q 46
Insider trading laws prevent employees from buying or selling the securities of their employers.
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True False
Q 47Q 47
Well-known foreign exchanges that also exchange the securities of U.S. firms include the London Exchange and the Tokyo Exchange.
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True False
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True False
Q 49Q 49
The prospectus is summarization of the results of detailed financial documents that a firm files with the SEC prior to being given approval to issue securities.
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True False
Q 50Q 50
Once a stock exchange agrees to list a company, the firm can be assured that it will always be listed by that exchange.
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True False
Q 51Q 51
With recent mergers of stock exchanges, beginning with the New York Stock Exchange merger with Archipelago, and subsequently with Euronext and then Deutsche Borse, most exchange floors are symbolic because trades usually take place via computers.
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True False
Q 52Q 52
According to the Spotlight on Small Business box, the goal of the Jumpstart Our Business Startups Act (JOBS Act) is to ease small business financing problems.
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True False
Q 53Q 53
In an effort to profit from stock market trading, Chad landed a job with the ABC Corporation. Chad intends to use his position to obtain privileged information about his new employer that would not be available to the public. While Chad realizes that he may be benefiting unfairly, as an employee he is not acting illegally.
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True False
Q 54Q 54
According to the Securities Act of 1933 it is against the law for a firm that is publicly trading securities to deny an investor from knowing how the firm is doing financially.
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True False
Q 55Q 55
An executive secretary at a major investment banking firm is asked to copy documents that detail a major merger that's going to be finalized in the next two weeks. This merger will be a positive outcome for one of the companies in this deal. The secretary is thrilled to read about the merger, plans to call her broker immediately and buy stock in the company, and suggests that you should also act on her stock tip. Since you are not employed at her firm your purchase is legal.
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True False
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True False
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True False
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True False
Q 59Q 59
Dividends represent a portion of a firm's profits that are distributed to bondholders first then stockholders.
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True False
Q 60Q 60
Although companies that issue bonds are required to pay interest, companies issuing stock are not required to pay dividends.
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True False
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True False
Q 62Q 62
Issuing new common stock usually expands ownership, giving all owners the right to vote for the firm's board of directors.
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True False
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True False
Q 64Q 64
If paid, dividends come from any profits remaining after the firm has paid taxes. The company cannot deduct dividends as an expense of doing business.
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True False
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True False
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True False
Q 67Q 67
Preferred stockholders receive dividend payments before common stockholders are paid any dividends.
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True False
Q 68Q 68
If the firm should find itself in bankruptcy, preferred stockholders would have claim to the value of any remaining assets before common stockholders.
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True False
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True False
Q 70Q 70
Preemptive rights provide common stockholders the first right to purchase any new shares of common stock issued by the firm.
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True False
Q 71Q 71
Cumulative preferred stockholders enjoy the first right to purchase any new shares of stock issued by the firm.
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True False
Q 72Q 72
Cumulative preferred stockholders enjoy a promise that missed dividends will accumulate and be paid later, before any dividends are paid to common stockholders.
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True False
Q 73Q 73
Both preferred stocks and bonds represent funding sources that require repayment to investors.
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True False
Q 74Q 74
Corporations that issue preferred stock incur a legal obligation to pay dividends to those stockholders.
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True False
Q 75Q 75
For the firm, the cost of paying dividends to common stockholders is higher than the cost of the same amount of interest paid to bondholders.
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True False
Q 76Q 76
The similarities between common stocks and bonds include a face or par value and a fixed rate of return for investors.
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True False
Q 77Q 77
While common stockholders of corporations have voting rights, preferred stockholders generally do not.
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True False
Q 78Q 78
A preferred stock's par value establishes the base used for calculating the preferred stockholders' dividend.
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True False
Q 79Q 79
A company with cash flow shortages must pay common stockholders their dividends before paying preferred stockholders their dividends.
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True False
Q 80Q 80
Preferred stockholders possess the first right to purchase any new stock the company issues.
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True False
Q 81Q 81
Zach purchased 200 shares of Fast Track Corporation last year. This year, he plans to hire an attorney to go after the company for failure to pay dividends. If Zach follows through with his plan, he will probably win the lawsuit because companies are obligated to pay their stockholders dividends for owning and holding the firm's stock.
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True False
Q 82Q 82
Through disciplined investing, Alyssa now owns 10% or 50,000 shares of a small biotech company. Although she has enjoyed a lot of control, she realizes that in order for the firm to acquire the funds to grow in a recessionary economy, it will need to issue more stock. Her regret is that it will dilute her ownership.
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True False
Q 83Q 83
A share of preferred stock currently sells for $120. It offers the investor a dividend rate of 8%, with a par value of $100. If the company is able to pay dividends, preferred stockholders would receive a dividend of $9.60 per share.
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True False
Q 84Q 84
When acquiring funds through the sale of a bond, the business incurs a legal obligation to pay regular interest payments.
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True False
Q 85Q 85
A bond represents a contract of indebtedness issued by a corporation that promises payment of a principal amount plus interest at a specified future date.
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True False
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True False
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True False
Q 88Q 88
Although the interest rate is fixed when the bond is issued, the interest rate that one firm must pay compared to another may vary depending upon risk factors such as the reputation of the firm.
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True False
Q 89Q 89
U.S. government bonds are considered safe investments. Therefore such government bonds usually have a lower interest rate than corporate bonds.
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True False
Q 90Q 90
The maturity date of a bond refers to the date on which the interest payment is due to be paid.
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True False
Q 91Q 91
Bond classifications include, but are not limited to Corporate bonds, T-bills, Treasury bonds, Treasury notes, and Municipal bonds.
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True False
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True False
Q 93Q 93
Bond interest is usually paid in two times each year, even though the interest rate that is usually quoted is an annual rate.
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True False
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True False
Q 95Q 95
Bonds represent a permanent source of funding for companies. The money firms acquire by issuing bonds does not need to be repaid.
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True False
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True False
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True False
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True False
Q 99Q 99
Firms are at a disadvantage when issuing bonds because the interest rate that they must pay to bondholders is not tax deductible.
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True False
Q 100Q 100
As creditors of a firm, bondholders enjoy voting privileges for the firm's board of directors' elections.
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True False
Q 101Q 101
Both stocks and bonds represent temporary sources of funding for a firm. Eventually they must be repaid.
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True False
Q 102Q 102
By issuing bonds, a firm's debt level increases, which may adversely affect the firm's image in the financial community.
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True False
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True False
Q 104Q 104
A sinking fund is a reserve account where the firm will periodically deposit funds in anticipation of repayment of a bond issue on the maturity date.
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True False
Q 105Q 105
A callable bond allows a bondholder to exchange his/her bond for shares of common stock in the same corporation.
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True False
Q 106Q 106
The owner of a convertible bond can exchange the bond for a specified number of shares of common stock in the same corporation.
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True False
Q 107Q 107
Raising long-term funds through the sale of bonds requires the firm to make debt repayment when and if the organization has sufficient cash flow.
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True False
Q 108Q 108
With everything else constant, investors prefer a bond issued with a sinking fund compared to a bond without a sinking fund.
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True False
Q 109Q 109
A bond sold with a sinking fund provision requires the firm to allow a stockholder to exchange his/her bond for a specified number of shares of common stock.
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True False
Q 110Q 110
A company often exercises the call provision of a bond if it's available when prevailing interest rates fall below the interest rate currently being paid to bondholders.
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True False
Q 111Q 111
Taking into account the risk/return trade-off, it would stand to reason that a secured bond holds a lower interest rate than an unsecured bond.
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True False
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True False
Q 113Q 113
After retirement, Hector began a search for a low-risk investment. He should consider buying a secured bond of a major corporation.
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True False
Q 114Q 114
The U.S. government just announced an increase in the interest rate paid on U.S. government bonds. This will likely cause a decrease in the interest rates paid on corporate bonds.
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True False
Q 115Q 115
Tyler is looking for an investment that will pay a little better than what he can get from a government bond. You suggest that he consider a new issue of debenture bonds by Very Vegetarian that pay 8.5% annually. You explain that Very Vegetarian has operated for a long time, and the debenture feature makes these bonds more secure than others.
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True False
Q 116Q 116
Investors and corporations are on the opposite sides of the interest rate risk scenario. If interest rates go up to 7%, the bondholder holding a bond with a 6% interest rate knows that he could do better. If he is forced to sell his bond on the secondary market before it matures, he will receive less than the face value.
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True False
Q 117Q 117
As a registered representative of a stock brokerage firm, a stockbroker works as an intermediary to buy and sell securities for clients.
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True False
Q 118Q 118
The high start-up costs of web-based businesses cause online brokers to charge higher commissions than traditional brokerage firms.
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True False
Q 119Q 119
Online investors expect more expert advice than investors using traditional brokerage firms.
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True False
Q 120Q 120
Young investors place more importance on low-risk investments, while elderly investors prefer significant growth in the value of their investments.
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True False
Q 121Q 121
Diversification means buying several different types of investments with the funds you have available for investment.
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True False
Q 122Q 122
For starters, investors should consider the return on investment, the liquidity and riskiness of an investment.
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True False
Q 123Q 123
A well-diversified portfolio would consist of a variety of investments and even cash for emergencies. The important thing is that the choice of investments spreads the risk. Some investments may perform very well in any one year while others may lag. Those performing well will balance out those that are underperforming.
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True False
Q 124Q 124
The advantage of using an online broker is that these services usually provide you with a wealth of information and help you allocate your assets. Sometimes they even help you create an investment plan for life!
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True False
Q 125Q 125
In the Reaching Beyond Our Borders box, one of the global investment suggestions given was to invest in global stocks listed on U.S. exchanges.
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True False
Q 126Q 126
In the Reaching Beyond Our Borders box, one of the global investment suggestions given was to invest in stocks from countries with a history of currency problems or political instability.
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True False
Q 127Q 127
Monica met with a financial planner last week and he urged her to consider only government bonds and mutual funds in her portfolio. Since she is in her 20s, Monica believes she can tolerate a little more risk. You suggest that it is a better plan to follow the advice of the financial planner, rather than research her choices on her own.
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True False
Q 128Q 128
Raul and his grandfather receive individualized investment advice from the same chartered financial analyst. When comparing their customized investment recommendations, it is likely that Raul's strategy targets lower-risk investment options than the advice received by his grandfather.
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True False
Q 129Q 129
Having just returned from the war in Afghanistan, David has $25,000 in his savings account. His girlfriend suggests that he talk with an investment advisor and let his money "make more money." David has his eye on a new Ford truck, but realistically he knows that his old Jeep Cherokee will probably last another four years, at which time he will definitely need this money as a down payment on the purchase of something new. He knows he may have other needs as well. David should buy high-growth stock with his funds because even though they are risky, they also have the greatest potential of bringing in a better return on his investment.
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True False
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True False
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True False
Q 132Q 132
The market price and growth potential of a common stock depends heavily on the performance of the firm in meeting its objectives.
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True False
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True False
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True False
Q 135Q 135
Growth stocks are the stocks of corporations whose earnings are expected to grow faster than the overall economy.
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True False
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True False
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True False
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True False
Q 139Q 139
A penny stock generally sells for a low initial price, pays regular dividends and provides consistent growth in the stock's value.
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True False
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True False
Q 141Q 141
When you place a limit order, it means you are willing to buy or sell the stock at the best price available.
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True False
Q 142Q 142
An investor placing a market order with a broker agrees to buy or sell a stock immediately at the best price available.
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True False
Q 143Q 143
If a company announces a stock split, the investor may receive two or more shares of the company stock, for every one share that he/she holds.
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True False
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True False
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True False
Q 146Q 146
The stocks of high-quality companies such as Coca-Cola and Microsoft are called blue chip stocks.
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True False
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True False
Q 148Q 148
A margin call requires an investor to repay money borrowed from the broker used to purchase the stock.
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True False
Q 149Q 149
Buying on margin means you are borrowing part of the value of the stock purchase from the brokerage firm.
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True False
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True False
Q 151Q 151
Corporations and brokers prefer to have stock purchases conducted in round lots of 100 shares.
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True False
Q 152Q 152
A stock split refers to buying a share of stock at a discounted price if full payment is made at the time of purchase.
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True False
Q 153Q 153
A round lot refers to the purchase of 100 shares of stock in the same company in a single transaction.
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True False
Q 154Q 154
Investing in common stock can give an individual the opportunity to participate in the success or failure of a corporation.
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True False
Q 155Q 155
If you are willing to hold on to your growth stock long enough, at least five years or more, you will realize capital gains.
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True False
Q 156Q 156
Buying stock on margin allows investors to increase the potential rate of return made on a stock investment.
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True False
Q 157Q 157
If you buy 100 shares of IBM for $120/share, and the margin on your account is 50%, the broker will float you an interest-free loan of $6,000, until the price of IBM sufficiently rises to the point where you are willing to sell. You pay the broker back its $6,000, and you enjoy the capital gain.
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True False
Q 158Q 158
Lamont bought a share of stock in the ABC Corporation for $50. When he sold the stock later that year, he received $70. The par value of the stock is $5. Lamont's capital gain is $25.
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True False
Q 159Q 159
If an individual investor places a limit order at $38 and the stock currently sells for $41 per share, the broker will buy the stock for the investor.
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True False
Q 160Q 160
Ricardo owns 100 shares of stock in the ABC Corporation that currently sell for $100 per share. ABC just announced a two-for-one stock split for all current stockholders. Ricardo now owns $20,000 worth of stock in the ABC Corporation.
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True False
Q 161Q 161
Ken owns 100 shares in XYZ Company, currently selling for $60 per share. His stock split yesterday 3-for-1. The number of shares that Ken owns has tripled.
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True False
Q 162Q 162
Yesterday, Alberto purchased on margin 100 shares of stock in the ABC Corporation for $40 per share. Today, the price of the shares dropped by $10 per share. Alberto expects his broker to issue a margin call.
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True False
Q 163Q 163
For investors who desire the least possible risk, a share of stock in an established corporation provides the safest investment.
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True False
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True False
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True False
Q 166Q 166
Corporate bonds provide investors the option of reselling the bond back to the issuing corporation at any time during the life of the bond.
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True False
Q 167Q 167
A corporate bond provides the owner with the right to sell the bond to other investors at any time during the life of the bond.
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True False
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True False
Q 169Q 169
Normally, the higher the risk associated with a bond issue, the higher the interest rate the organization must offer potential investors.
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True False
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True False
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True False
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True False
Q 173Q 173
From an investor's viewpoint, bonds generally provide a safer investment option than does the stock of the same corporation.
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True False
Q 174Q 174
A U.S. government bond paying 3.25% interest annually is a lower risk than a Bellandro Bay Brewery bond paying 6%.
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True False
Q 175Q 175
If an investor owns a bond that pays a higher rate of interest than other bonds of similar risk, the investor should be able to sell the bond on the secondary market for more than its face value.
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True False
Q 176Q 176
Junk bonds are offered at higher interest rates than government bonds or corporate bonds with good ratings.
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True False
Q 177Q 177
Jennifer prefers corporate bonds as an investment option because investors always receive the face value of the bond whenever it is sold.
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True False
Q 178Q 178
A bond offering description reads: "6s of 2015." This means the bond pays 3% interest semi-annually and matures in 2015.
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True False
Q 179Q 179
Andrew invested in a new issue corporate bond on the primary market for $1,000, with a coupon rate of 5%, and a maturity date of 2025. The bond was held in his brokerage account electronically, so he did not think about it on a daily basis. In 2015, he thought about selling the bond on the secondary market to help pay for his school tuition. At that time, interest rates had climbed to 6.5%. This was great news for Andrew because now he could sell his bond for more than the principal amount he would receive in 2025.
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True False
Q 180Q 180
Demetrius recently bought a bond with face value of $1,000. He paid $1,150 for the bond. Demetrius's bond investment undoubtedly pays a higher interest rate than the going rate for similar bonds currently out on the market.
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True False
Q 181Q 181
A mutual fund pools investors' money and then buys stocks and bonds in many companies in accordance with the purpose of the fund.
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True False
Q 182Q 182
A mutual fund's purpose is rapid investment growth, not to provide diversification for investors.
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True False
Q 183Q 183
When investing in mutual funds, the investor will buy shares of a fund that consists of stocks or bonds; the fund will hold shares of many companies.
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True False
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True False
Q 185Q 185
On a mutual fund quotation, the Net Asset Value (NAV) = the number of persons who are investing in the fund.
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True False
Q 186Q 186
We calculate the mutual fund's NAV (Net Asset Value) by dividing the total market value of the fund, by the number of shared outstanding.
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True False
Q 187Q 187
Small investors can spread the risk of investing by purchasing shares of mutual funds or ETFs.
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True False
Q 188Q 188
Most mutual funds provide investors an opportunity to buy shares directly without using a stockbroker.
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True False
Q 189Q 189
A mutual fund that carries a load will require the investor to pay a commission, only if the fund appreciates in price.
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True False
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True False
Q 191Q 191
When comparing the investments of different mutual funds, little variation in the risk level exists.
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True False
Q 192Q 192
Index funds invest in one specific type of investment; for example, an index fund might only invest in income stocks, companies whose stocks pay dividends.
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True False
Q 193Q 193
Exchange traded funds are like mutual funds because these funds permit the investor to buy shares of a collection of several stocks or shares of a collection of stocks and bonds, but, unlike mutual funds, they are traded during the day on the exchanges.
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True False
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True False
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True False
Q 196Q 196
The degree of risk in mutual fund investments remains nearly the same from one fund to the next.
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True False
Q 197Q 197
Most investment advisors put mutual funds high on the list of recommended investments for experienced investors, but consider them too risky for beginning investors.
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True False
Q 198Q 198
From a risk standpoint, stocks are considered the riskiest investments, followed by mutual funds, preferred stock, and ETFs. Bonds represent a lower-risk investment.
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True False
Q 199Q 199
Last year Alexis landed her first professional job after graduating from college. She also started her first investment account. Having met with several brokers before choosing someone to work with, Alexis wanted to make certain that her investment choices would provide for long-term growth, yet satisfy her concern for diversification. The person who won her business prepared an asset allocation plan that would start her account by investing in several index funds. Her adviser has offered her a sound way to combine the concern for diversification since index funds are a sensible way for Alexis to start.
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True False
Q 200Q 200
Every time someone sells a stock believing the price has reached its maximum, someone else buys it believing the price will go still higher.
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True False
Q 201Q 201
The Dow Jones Industrial Average reflects the daily average price of all the stocks traded on the New York Stock Exchange.
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True False
Q 202Q 202
The Dow Jones Industrial Average utilizes the prices of the same 30 companies' stocks each year to ensure consistency.
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True False
Q 203Q 203
The Dow Jones Industrial Average provides us with a sense of direction (up or down) of the overall stock market.
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True False
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True False
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True False
Q 206Q 206
Program trading refers to computer trading software that automatically sells stocks when their price dips to a predetermined level.
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True False
Q 207Q 207
Trading curbs motivate traders to utilize their computerized programs to reduce market volatility.
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True False
Q 208Q 208
Stock market "circuit breakers" stop stock trading for a short time when the stock market experiences a significant drop in stock values.
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True False
Q 209Q 209
Many stock market analysts suggest that program trading was a big cause of the stock market crash of 1987.
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True False
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True False
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True False
Q 212Q 212
The Dow Jones Industrial Average reflects the average of the eleven largest corporations traded on the New York Stock Exchange as originally selected by Charles Dow.
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True False
Q 213Q 213
One of the criticisms of the Dow Jones Industrial Average is that it does not include enough stocks to provide a good representation of the entire stock market.
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True False
Q 214Q 214
Many stock analysts believe that program trading decreases the volatility of stock market prices.
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True False
Q 215Q 215
Corporations benefit from securities markets primarily by:
A) creating an efficient mechanism to invest in stocks and bonds.
B) obtaining the capital they need to finance their operations.
C) securing memberships on various stock exchanges.
D) participating in the mutual funds of investment bankers.
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Multiple Choice
Q 216Q 216
Private investors benefit from securities markets primarily by:
A) having a place to buy and sell stocks and bonds.
B) obtaining the capital they need to finance their operations.
C) securing memberships on various stock exchanges.
D) participating in the primary markets of investment bankers.
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Multiple Choice
Q 217Q 217
A(n) ________ refers to the first public offering of a corporation's stock.
A) primary market offer (PMO)
B) initial securities proposal (ISP)
C) initial public offering (IPO)
D) primary public sale (PPS)
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Multiple Choice
Q 218Q 218
Trading in newly issued securities takes place in the:
A) primary market.
B) secondary market.
C) initial offerings market.
D) corporate trading market.
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Multiple Choice
Q 219Q 219
The trading of previously issued securities from one investor to another takes place in the:
A) primary market.
B) secondary market.
C) initial offerings market.
D) corporate trading market.
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Multiple Choice
Q 220Q 220
When retained earnings are not enough to meet their long-term funding needs, businesses may be able to raise funds by:
A) selling common stock.
B) petitioning the government for a loan.
C) purchasing additional assets.
D) decreasing their accounts payable.
Free
Multiple Choice
Q 221Q 221
_________ represent a powerful force in the buying and selling of corporate securities.
A) Individual investors
B) Mutual banks
C) Institutional investors
D) Investment banks
Free
Multiple Choice
Q 222Q 222
Investment bankers ________ new issues of bonds or stocks by purchasing, at a discount, the entire stock or bond issue of a firm and selling the issue to interested investors at a higher price.
A) syndicate
B) underwrite
C) guarantee
D) sanction
Free
Multiple Choice
Q 223Q 223
Corporations receive the proceeds for the sale of their stock in:
A) the primary market.
B) the secondary market.
C) both primary and secondary markets.
D) venture capital markets.
Free
Multiple Choice
Q 224Q 224
Security markets assist businesses in performing their ________ function.
A) long-term investing
B) long-term planning
C) long-term financing
D) concurrent controlling
Free
Multiple Choice
Q 225Q 225
Which of the following would be classified as an institutional investor?
A) Pension funds
B) Federal Reserve banks
C) Stock exchanges
D) Commodity brokers
Free
Multiple Choice
Q 226Q 226
Most businesses prefer to meet their long-term financial needs through:
A) debt financing.
B) capital from the sale of stock.
C) retained earnings.
D) capital from the sale of bonds.
Free
Multiple Choice
Q 227Q 227
Investment bankers provide ________ services by purchasing the entire new security issue from a corporation seeking to raise capital, and selling it to interested investors.
A) underwriting
B) investing
C) leveraging
D) discounting
Free
Multiple Choice
Q 228Q 228
How do investment bankers generate revenues for their firms?
A) They invest their own funds, or the funds of others, in mutual funds and commodities.
B) They earn commissions by managing the investments of insurance companies and mutual funds.
C) They buy, at a discount, the entire issue of a new security and then sell the issue to investors at full price.
D) They receive consulting revenues from the advice they offer the Securities and Exchange Commission.
Free
Multiple Choice
Q 229Q 229
Molly Manufacturing plans to issue $75 million of common stock. The firm will likely rely on the advice and assistance of a(n):
A) Federal Reserve bank.
B) commercial bank.
C) mutual fund.
D) investment banker.
Free
Multiple Choice
Q 230Q 230
Shareholder Jones sells 100 shares of Very Vegetarian Corporation stock to investor Smith. This transaction takes place in the:
A) primary market.
B) secondary market.
C) initial offerings market.
D) security resale market.
Free
Multiple Choice
Q 231Q 231
As the chief financial officer (CFO), you identify that your firm needs to raise additional funds by selling new shares of stock. Which of the following refers to a specialist that assists corporations in the issue and sale of new securities?
A) An investment banker
B) A commodities broker
C) An officer of the Securities and Exchanges Commission (SEC)
D) An institutional investor advisor
Free
Multiple Choice
Q 232Q 232
As a new father, Sean plans to accumulate funds over the next 18 years to help pay for his son's college education. Security markets provide Sean with:
A) financing opportunities.
B) investing opportunities.
C) opportunities to reduce his taxes.
D) borrowing opportunities.
Free
Multiple Choice
Q 233Q 233
Ina Vestor has a brokerage account with one of the remaining large investment firms. This morning her broker called asking if she is interested in participating in an IPO. He went on to say that he could get her 200 shares for $23/share. If Ina agrees to buy the IPO, the trade will take place in the _____________.
A) fair trade market
B) Boston market
C) primary market
D) secondary market
Free
Multiple Choice
Q 234Q 234
Idle Time Gaming, Inc., has reached the point where it needs several million dollars in order to expand and follow its strategic plan. In negotiations with the investment banker, they agree to issue 40 million shares of common stock, at $22/share. If the investment banker's fee for underwriting the total sale is 6.82%, what is the discounted price that the investment bank is willing to pay Idle Time for the shares?
A) Approximately $300,000,000
B) Approximately $820,000,000
C) Approximately $ 880,000,000
D) Approximately $88,000
Free
Multiple Choice
Q 235Q 235
Chipper's Golf Resort has learned that Rory McIlroy is interested in putting his name on golf course designs; however, in order for any golf course to be acceptable to him, it will cost a minimum of $20 million to build. Chipper's owners want an international presence, and they believe that "just the way golf club companies became publicly traded corporations, it may be time for golf courses to do the same." The plan is to begin to purchase real estate for four new golf resorts. Proceeding with their venture, the owners have calculated that they will need approximately $100 million. But putting together an IPO is another matter. After meeting with their investment banker, they believe that investors will be willing to pay $16/share for the IPO. As the ___________ for this issue, the investment bank requires 3% of the revenues generated by the sale. Chipper's will need to issue _______ shares in order to have the $100 million they need to proceed with their plan.
A) underwriter; more than 6.250 million shares
B) underwriter; 6.250 million shares
C) regulator; more than 10 million shares
D) regulator; more than 60 thousand shares
Free
Multiple Choice
Q 236Q 236
Which of the following terms best describes the relationship between the New York Stock Exchange and the NASDAQ?
A) Cooperative
B) Dependent
C) Competitive
D) Disastrous
Free
Multiple Choice
Q 237Q 237
An organization whose members can buy and sell securities for companies and investors is known as a:
A) public securities dealer.
B) securities facilitator.
C) transfer medium.
D) stock exchange.
Free
Multiple Choice
Q 238Q 238
A company's stock does not have to be listed on one of the major stock exchanges in order to trade. It can be traded on _____________.
A) Over-the-counter market
B) NYSE Euronext
C) NASDAQ
D) AMEX
Free
Multiple Choice
Q 239Q 239
If a publicly traded corporation fails to maintain specific minimum requirements, the exchange can ________ the firm's securities.
A) relist
B) transfer ownership of
C) delist
D) provide preemptive rights to
Free
Multiple Choice
Q 240Q 240
The ________ is a large national electronic stock trading market.
A) SEC
B) NYSE
C) NASDAQ
D) NLRB
Free
Multiple Choice
Q 241Q 241
Which of the following trades corporate stocks not listed on the national securities exchanges?
A) Federal Investment Assurance Agency
B) American Stock Exchange
C) The over-the-counter market
D) Chicago Board of Trade
Free
Multiple Choice
Q 242Q 242
A(n) ________ represents a condensed version of the registration statement that enables prospective investors to evaluate a stock for possible purchase.
A) insider report
B) securities disclosure
C) evaluative report
D) prospectus
Free
Multiple Choice
Q 243Q 243
Which of the following federal government agencies has responsibility for regulating the various stock exchanges in the U.S.?
A) SEC
B) NASDAQ
C) FCC
D) ICC
Free
Multiple Choice
Q 244Q 244
Using information not available to the public to unfairly benefit in the stock market represents:
A) security fraud.
B) an unethical, but a legal activity.
C) blue-sky violations.
D) insider trading.
Free
Multiple Choice
Q 245Q 245
Which of the following legislative acts created the Securities and Exchange Commission?
A) Dealers Trust and Assistance Act of 1933
B) Federal Trade Commission Act of 1933
C) Securities and Exchange Act of 1934
D) Bond Trading Act of 1934
Free
Multiple Choice
Q 246Q 246
Which of the following statements best describes the current legal interpretation of insider trading?
A) Is only possible when you are a board member or a chief officer of a company.
B) Can be any employee and relatives or friends of the employee.
C) Would involve members of the SEC (Securities and Exchange Commission) and the investment banker who handles most of a firm's transactions.
D) Anyone who has securities information about a particular firm that is not known by the general public.
Free
Multiple Choice
Q 247Q 247
According to the Spotlight on Small Business box, which of the following is NOT a way the SEC changes altered securities laws following the JOBS Act?
A) Raised the number of shareholders a company could have before registering with the SEC from 500 to 2,000.
B) Allows equity crowdfunding through investment brokers or portals.
C) Expanded the ability of private companies to raise capital through limited stock offerings.
D) Required small businesses to have at least 100 employees before allowing crowdfunding to be pursued.
Free
Multiple Choice
Q 248Q 248
After operating for years as a privately held corporation, MidAtlantic Ironworks plans to publicly trade its stock. As a midsized firm, MidAtlantic wants to avoid excessive paperwork, and the fear of being delisted in the future. The ________ provides the best fit for MidAtlantic's plans.
A) over-the-counter market
B) New York Stock Exchange
C) American Stock Exchange
D) secondary market
Free
Multiple Choice
Q 249Q 249
Suzanne wants to purchase stock in a company that is headquartered in Germany. Suzanne:
A) will have to place her order through the Frankfurt Stock Exchange.
B) cannot legally own the stock of a German corporation.
C) can buy the shares from a broker on a U.S. exchange.
D) must obtain an investor visa to complete the purchase.
Free
Multiple Choice
Q 250Q 250
The Securities and Exchange Commission has accused Martha of benefiting unfairly from information secured from a corporate officer of Stewart Engineering. Because Martha used that information to profit in the stock market, she faces ________ charges.
A) insider trading
B) security tampering
C) corporate fraud
D) short selling
Free
Multiple Choice
Q 251Q 251
Which of the following situations would be considered insider trading?
A) You open the morning paper and read that Sun Microsystems has a new CEO, who plans to bring in his own team. You decide to call your broker and buy shares of Sun Microsystems.
B) Your Uncle Jerry works for Microsoft and sends you a news release put out by the company that talks about the acquisition of a Chinese company. You believe this will significantly boost Microsoft revenues so you buy 200 shares through an online service.
C) You call your stockbroker and ask him to buy 500 shares of your company, Best Dressed Computers, Inc., because you just heard from the CEO's administrative assistant that the CEO just got the boot! You figure that this emotional news has got to help the stock price.
D) Your stockbroker calls and recommends that you diversify your portfolio with a few shares of SLB [Schlaumberger] because SLB's request through the FTC and several international trade commissions to finalize the purchase of two oil companies was successful. You act on this information.
Free
Multiple Choice
Q 252Q 252
Although you were not fortunate enough to get Chipper's Golf Resort stock [ticker symbol: CHPR] as an IPO, you are still thinking about trying to add some to your portfolio. Last week when you mentioned it to your broker, he said that there are plenty of shares trading on ____________, but he wanted to send you the company's financial disclosures provided in the ______ before you finalize your decision.
A) the secondary market; prospectus
B) the NASDAQ; regulatory agreement
C) the OTC; regulatory agreement
D) the primary market; prospectus
Free
Multiple Choice
Q 253Q 253
Which of the following securities provides the owner the right to vote for the corporate board of directors?
A) Common stock
B) Bonds
C) Preferred stock
D) Callable bonds
Free
Multiple Choice
Q 254Q 254
Two kinds of equity financing are:
A) common and preferred stock.
B) convertible and superior stock.
C) fixed and variable stock.
D) common and superior stock.
Free
Multiple Choice
Q 255Q 255
A ________ certificate provides evidence of ownership in a specific corporation.
A) stock
B) bond
C) debt
D) capital
Free
Multiple Choice
Q 256Q 256
__________ represents the most basic form of company ownership and includes voting rights and dividends, if and when the firm elects to pay dividends.
A) Capital stock
B) Common stock
C) Preferred stock
D) Carrier stock
Free
Multiple Choice
Q 257Q 257
___________ are the firm's after tax profits that are distributed to stockholders.
A) Equity capital
B) Interest payments
C) Dividends
D) Retained earnings
Free
Multiple Choice
Q 258Q 258
The dollar amount assigned to shares of stock by the corporation's charter represents the stock's:
A) net asset value.
B) legal value.
C) market value.
D) par value.
Free
Multiple Choice
Q 259Q 259
When investors purchase ________ stock, they receive a priority claim in the payment of dividends, as well as assets, if the business is liquidated. However, these investors do not have voting rights.
A) common
B) preferred
C) secured
D) debenture
Free
Multiple Choice
Q 260Q 260
Investors in ________ preferred stock receive a guarantee that missed dividends will accumulate and potentially be paid later.
A) participating
B) superior
C) convertible
D) cumulative
Free
Multiple Choice
Q 261Q 261
Each share of common stock provides the investor with a ________ right that offers the investor the first right to purchase any new shares of common stock the firm decides to issue. This allows common stockholders to maintain a proportional share of ownership in the company.
A) participating
B) preemptive
C) cumulative
D) convertible
Free
Multiple Choice
Q 262Q 262
When issuing stock to obtain long-term funding, dividend payments are:
A) tax deductible.
B) legally required.
C) intended to discourage firms from issuing an excessive number of shares.
D) not tax deductible.
Free
Multiple Choice
Q 263Q 263
Similar to bond investments, preferred shares can be _________, meaning the firm may buy them back.
A) cumulative
B) callable
C) responsive
D) retroactive
Free
Multiple Choice
Q 264Q 264
Stock certificates represent evidence of ownership in an organization. A stock certificate contains which of the following?
A) Current market value of the stock
B) The total number of shares issued by the company
C) The type of stock the investor is buying
D) The stock symbol and trading exchange of the company
Free
Multiple Choice
Q 265Q 265
Dividends are paid out of a corporation's:
A) profit, before taxes.
B) profit, after taxes.
C) sales revenue.
D) capital contributed by bondholders.
Free
Multiple Choice
Q 266Q 266
Dividends on preferred stock are:
A) paid after common stockholders receive their dividends.
B) guaranteed, except in the event of bankruptcy.
C) normally fixed, if and when dividends are paid.
D) always greater than dividends on common stock.
Free
Multiple Choice
Q 267Q 267
Which of the following securities guarantees preferred stockholders payment of missed dividends before any dividends are paid to common stockholders?
A) Call provision
B) Cumulative preferred
C) Participating preferred
D) Convertible preferred
Free
Multiple Choice
Q 268Q 268
Mark impresses his friends by stating that he just cast four votes in the election of the board of directors of Microsoft, indicating that Mark owns __________ stock in Microsoft.
A) preferred
B) cumulative preferred
C) registered
D) common
Free
Multiple Choice
Q 269Q 269
After many years as a privately held corporation, Connecticut Industries decided to offer stock to the general public. Connecticut may discover that stockholders:
A) expect to be repaid at a future date.
B) can legally demand dividend payments if the corporation maintains profitability.
C) adversely affect the company's debt level.
D) can exercise a significant impact on company management and policies.
Free
Multiple Choice
Q 270Q 270
The disadvantages of selling stock to obtain long-term financing include:
A) the legal obligation to pay dividends if the company is profitable.
B) the funds contributed by stockholders must be repaid from after-tax profits.
C) a reduction in the market value of the firm's products.
D) a possible change in management and policies in the company.
Free
Multiple Choice
Q 271Q 271
When Tong Su purchased 500 shares of preferred stock in the Vibrates Corporation, his certificate indicated the stock had a par value of $50 per share. This means that Tong Su:
A) will never get less than $50 per share when selling his stock.
B) has shares that are currently worth $50 per share.
C) may receive dividends based on this value per share.
D) must receive a $5 dividend each and every year.
Free
Multiple Choice
Q 272Q 272
Georgia Corporation, known for its very generous dividend policy, easily attracts investors. These dividend payments basically represent:
A) a part of the firm's profit distributed to stockholders.
B) the increase in market share the company has earned.
C) current value of the firm's stock holdings.
D) income that is sheltered from taxes.
Free
Multiple Choice
Q 273Q 273
Ellie owns stock in Rotary Technologies. Her stock provides a priority claim on dividend payments and on the firm's assets in the event of liquidation. However, her ________ stock ownership does not offer her voting rights.
A) common
B) preferred
C) superior
D) callable
Free
Multiple Choice
Q 274Q 274
Maureen owns 20% of the common stock of the Queen Bean Corporation. The company announced plans to offer an additional 10,000 shares of common stock for sale. If Maureen exercises her preemptive rights, Queen Bean must offer her the opportunity to purchase:
A) 8,000 shares.
B) 2,000 shares.
C) as many of the new shares as the investor is willing and able to buy.
D) 20% of the outstanding preferred stock.
Free
Multiple Choice
Q 275Q 275
Greg purchased 2,000 shares of common stock of the Rite Track Corporation last year. He learned several months later that the stock does not pay a dividend. Greg should proceed to:
A) hire an attorney and file a lawsuit.
B) hire an attorney and go after the registered representative that brokered the trade.
C) do the proper research before he invests.
D) immediately proceed to sell the shares.
Free
Multiple Choice
Q 276Q 276
Maggie owns 10% or 50,000 common shares of a small biotech company. Although she has enjoyed a lot of control, Maggie realizes that in order for the firm to acquire the funds to grow in a recessionary economy, it will need to issue more stock. Unless she and others exercise preemptive rights,
A) the company will surely begin to pay dividends.
B) the new issue will dilute her ownership.
C) the new issue will decrease the market price of the stock.
D) The new issue will be traded on the secondary market.
Free
Multiple Choice
Q 277Q 277
A share of preferred stock currently sells for $120. It offers the investor a dividend rate of 8%, on a par value of $100. If the investor owns 500 shares, her total annual dividend will equal:
A) $800
B) $8.00
C) $2,000
D) $4,000
Free
Multiple Choice
Q 278Q 278
The corporate certificate issued to an investor that has loaned money to the corporation or government is called a:
A) common stock.
B) preferred stock.
C) bond.
D) debt document.
Free
Multiple Choice
Q 279Q 279
Issuing bonds to obtain long-term funds legally compels a firm to pay regular ________ payments and repay the ________ at the maturity date.
A) dividend; par value
B) interest; bond premium
C) dividend; maturity value
D) interest; principal
Free
Multiple Choice
Q 280Q 280
The cost of a firm borrowing money is called the:
A) interest rate.
B) dividend payment.
C) prime charge.
D) opportunity charge.
Free
Multiple Choice
Q 281Q 281
Another name for the fixed rate of interest attached to a bond is the:
A) Yield to maturity
B) Dividend
C) Coupon rate
D) Security rate
Free
Multiple Choice
Q 282Q 282
A bond's face value is the same as its:
A) risk rating.
B) principal.
C) coupon value.
D) yield.
Free
Multiple Choice
Q 283Q 283
Government bonds can vary in denomination, but most corporate bonds are issued in ____________.
A) discounted denominations
B) $1,000 denominations
C) $100 denominations
D) $5,000 denominations
Free
Multiple Choice
Q 284Q 284
Which of the following accurately describes an advantage of selling bonds to raise long-term capital?
A) Interest is a legal obligation.
B) Face value must be repaid.
C) Bondholders have voting rights.
D) Interest is a tax-deductible expense.
Free
Multiple Choice
Q 285Q 285
Issuing ________ increases a firm's debt and may adversely affect the financial community's perception of the firm.
A) common stock
B) bonds
C) preferred stock
D) retained earnings
Free
Multiple Choice
Q 286Q 286
An unsecured bond, backed only by the well-respected name of the organization, is called a________ bond.
A) mortgage
B) leveraged
C) debenture
D) convertible
Free
Multiple Choice
Q 287Q 287
Corporations issuing ________ bonds pledge a tangible asset as collateral to reduce the risk incurred by a bondholder.
A) secured
B) endorsement
C) escrow
D) replacement
Free
Multiple Choice
Q 288Q 288
Firms establish a ________ so that sufficient funds are available to repay bondholders on the maturity date.
A) mutual fund
B) sinking fund
C) retirement account
D) encumbered account
Free
Multiple Choice
Q 289Q 289
By issuing bonds with a ________, the corporation retains the right to pay off the bond prior to the maturity date.
A) redemption feature
B) discount clause
C) retirement privilege
D) call provision
Free
Multiple Choice
Q 290Q 290
By buying a ________ bond, investors will have an option to exchange their bond for shares of common stock in the company at a future date.
A) discount
B) contingent
C) convertible
D) preferred
Free
Multiple Choice
Q 291Q 291
According to the Standard & Poor's Investor Services ratings, which of these ratings indicates a highly speculative bond?
A) AA
B) B
C) C
D) BBB
Free
Multiple Choice
Q 292Q 292
Which of the following represents a disadvantage of issuing bonds?
A) Bonds are permanent debt on the firm's balance sheet.
B) Dividends are legally required.
C) Bonds increase the firm's debt.
D) Bondholders receive voting rights.
Free
Multiple Choice
Q 293Q 293
Bonds perceived as high risk typically pay ________ interest rates.
A) higher
B) lower
C) more volatile
D) less volatile
Free
Multiple Choice
Q 294Q 294
The investor will receive the face value of the bond on the ________ date.
A) purchase anniversary
B) declaration
C) maturity
D) annual interest
Free
Multiple Choice
Q 295Q 295
Which of these represents a special feature included with some bond issues?
A) No repayment of par value
B) No obligation to pay dividends
C) No increase in the firm's debt level
D) Convertibility of a debt security (bond) into an equity security (stock)
Free
Multiple Choice
Q 296Q 296
A convertible bond allows the bondholder to exchange the bond for:
A) preferred stock.
B) common stock.
C) collateral.
D) debt holder privileges.
Free
Multiple Choice
Q 297Q 297
Seattle Music, Inc., recently offered bonds for sale to the public. The unsecured corporate bond paid interest of 9% to investors for the twenty-year life of the bonds. Seattle Music is obligated to:
A) Represent each bondholder as an owner in the company.
B) Pay interest semi-annually.
C) Pay stockholders their dividends, before paying bondholders their interest.
D) Pay each owner their principal if and when they want to cash in their investment.
Free
Multiple Choice
Q 298Q 298
As your elderly Uncle Bill approaches retirement, he asks for your advice for a safe place to invest several thousand dollars. He wants to receive some kind of payment each year for investing his money without a great deal of risk. You explain:
A) Yankee bonds are certain not to default.
B) common stock always pays quarterly dividends.
C) junk bonds do not pay annual interest.
D) treasury and top-grade corporate bonds pay interest two times each year.
Free
Multiple Choice
Q 299Q 299
The ABC Corporation issues a $1,000 bond, with an interest rate of 10%, and a maturity date of 2025. This creates a liability for the ABC Corporation to pay the bondholder:
A) $100 interest per year and $1,000 in the year 2025.
B) 10% of the selling price of the bond.
C) an interest payment equal to the dividend payment distributed to the common stockholders.
D) $1,100 annually until the year 2025.
Free
Multiple Choice
Q 300Q 300
Moody's Investor Service currently rates the Sasha Deal Corporation bonds as a C grade. This indicates that these bonds are:
A) of the highest quality with lowest default risk.
B) moderately speculative.
C) corporate bonds with variable interest rates.
D) the lowest quality and the highest risk.
Free
Multiple Choice
Q 301Q 301
Ebony Enterprises decides to pay off its bonds several years before the maturity date. Apparently, the bonds ______________.
A) contain an early dismissal clause
B) have an early retirement option
C) are callable
D) have discount authorization
Free
Multiple Choice
Q 302Q 302
Wyoming Mining Corporation makes regular monetary deposits that will accumulate and provide for an orderly retirement of their bonds when they come due in 2025. Wyoming Mining appears to be utilizing a:
A) call provision.
B) sinking fund.
C) compensating balance system.
D) retirement escrow account.
Free
Multiple Choice
Q 303Q 303
Maplewood Toy Company hopes to raise long-term capital by promising in writing to repay the principal provided by potential creditors in ten years. Additionally, the certificate issued by Maplewood promises to pay 5% interest annually for the ten-year life of the security. Maplewood intends to issue:
A) stocks.
B) bonds.
C) mutual funds.
D) commodities.
Free
Multiple Choice
Q 304Q 304
After owning a Cordero Company bond for five years, Gabrielle exercised an option that allowed her to exchange her bond for 20 shares of the company stock. Gabrielle owned a:
A) callable bond.
B) revenue bond.
C) junk bond.
D) convertible bond.
Free
Multiple Choice
Q 305Q 305
Juan recently invested in 15-year Bellandro Bay Brewery bonds paying 6% interest annually, with a maturity date of 2030. The bonds are callable in 2025. If interest rates go down to 4.5% in the year 2025, the brewery is likely to:
A) not exercise the call.
B) exercise the call.
C) give bondholders a choice of whether they want to turn the bonds back to the brewery.
D) decrease the interest rate that they are willing to pay the holder.
Free
Multiple Choice
Q 306Q 306
Investors buying bonds and corporations issuing bonds (both) accept investment risk. Which of the following statements is most correct when it comes to the investment that one or the other party accepts?
A) If investor Joe is holding a bond that pays 5% and market interest rates on similar bonds go down, Joe must hold the bond until maturity because if he were to sell it today, he would have to sell it at a discount.
B) If investor Joe is holding a bond that pays 5% and market interest rates on similar bonds go down, Joe's bond is now worth more than its face value, and if he needed to sell it on the secondary market, he could probably sell it at a premium.
C) If investor Joe is holding a bond that pays 5% and interest rates on similar bonds go up, Joe stands to gain more than the face value of the bond if he were to sell it on the secondary market today.
D) If XYZ Corporation wants to issue bonds to pay for an expansion project, and analysts predict that interest rates are projected to climb over the next few years, it is to the corporation's advantage to wait until next year to issue the bonds.
Free
Multiple Choice
Q 307Q 307
A ________ is a registered representative acting as an intermediary to buy and sell securities for clients.
A) certified stock underwriter
B) stockbroker
C) securities banker
D) trading accountant
Free
Multiple Choice
Q 308Q 308
When an investor places a buy order with a stockbroker, the broker contacts a(n) __________ to complete the transaction.
A) certified underwriter
B) investment banker
C) stock exchange member or dealer where the stock is traded
D) trading officer of the Securities Exchange Commission
Free
Multiple Choice
Q 309Q 309
Investors trading online:
A) receive more advice than offered by traditional stockbrokers.
B) buy and sell securities without using a brokerage firm.
C) generally do their own research and make their own investment decisions.
D) generally were insured against the market downturn of the early and late 2000s.
Free
Multiple Choice
Q 310Q 310
Investing online is usually ________ than trading through a traditional stock brokerage firm.
A) more expensive
B) less expensive
C) more volatile
D) less profitable
Free
Multiple Choice
Q 311Q 311
Which of the following is not an important criterion to consider before investing?
A) Exchange where the company offering the investment is traded
B) The riskiness of the investment
C) The duration of the investment
D) The expected rate of return on the investment
Free
Multiple Choice
Q 312Q 312
Creating a portfolio by buying several different types of investments to spread the risk of investing is called _______________.
A) modulation
B) diversification
C) re-allocation
D) formula investing
Free
Multiple Choice
Q 313Q 313
Another term for portfolio strategy is:
A) modulation model
B) formula model
C) allocation model
D) equity model
Free
Multiple Choice
Q 314Q 314
When an investor purchases a security, the investor does so with the expectation of:
A) maintaining his or her capital position.
B) minimizing risk.
C) making a profit.
D) providing commissions.
Free
Multiple Choice
Q 315Q 315
Online trading services target those investors who:
A) require the research and advice of a licensed stockbroker.
B) are interested in purchasing government bonds.
C) are willing to do their own research.
D) trade the securities of foreign firms.
Free
Multiple Choice
Q 316Q 316
Which of the following measures how quickly an investor has access to his/her invested funds, if they are needed?
A) risk
B) tax consequences
C) yield
D) liquidity
Free
Multiple Choice
Q 317Q 317
Diversification means:
A) allocating all your investment funds into one type of investment.
B) buying investments on margin.
C) being knowledgeable about the various types of investment opportunities.
D) allocating your investment funds to several types of investments.
Free
Multiple Choice
Q 318Q 318
The risk/return trade-off investors assume means:
A) the less you risk, the more you stand to gain.
B) the same as diversification of your portfolio.
C) you will assume added risk, if you believe you can get a greater return.
D) the goal is to never risk liquidity; your investments should always be liquid and of short duration.
Free
Multiple Choice
Q 319Q 319
Michael and Kelly plan to invest in corporate securities. While Michael plans to retire next year on his 65th birthday, Kelly is celebrating her first job after college and her 22nd birthday. Which of the two investors would be well advised to choose a more conservative investment strategy?
A) Michael
B) Kelly
C) A conservative investment strategy is always the best strategy for both of them.
D) It depends on whether they want to invest in stocks or bonds.
Free
Multiple Choice
Q 320Q 320
Alejandro relies on his stockbroker to execute his buy and sell orders for shares of stock in different companies. He has found that the process of buying or selling a share of stock on a major stock exchange normally takes:
A) weeks.
B) seconds.
C) days.
D) months.
Free
Multiple Choice
Q 321Q 321
Having just returned from serving with the U.S. Marines in Afghanistan, Callahan has managed to save most of his earnings. He has enrolled in the local community college and he is living in his parent's lower level while he assimilates back into U.S. life. As his business major friend, he has come to you for advice. He would like to see his $40,000 savings grow, yet he knows that he will need it in about five years when he and his girlfriend are out of school and make plans to get married. He also worries that his car may break down and he will need to invest in another used car. Which of the following would you suggest for Callahan?
A) In order for Callahan to see growth, he will need to place the entire $40,000 in one stock offering. You suggest a biotech stock that promises growth.
B) Callahan is still young. He needs to consider high-growth, higher-risk stocks and corporate bonds. He is young enough to recoup his investment if it should experience a loss.
C) Callahan should determine what types of companies he is passionate about. Does he like socially conscious companies? Does he want to show his appreciation to the defense industry for weaponry that brought him back safely? He should lead with his heart, but should be warned that some of those companies will produce better yields than others.
D) Since liquidity is a concern, Callahan would do best to diversify into four to eight different investments, and keep a reasonable amount in cash (a savings account) for emergencies.
Free
Multiple Choice
Q 322Q 322
An investor who purchases stock in a company becomes a(n):
A) creditor.
B) owner.
C) blue chip master.
D) speculator.
Free
Multiple Choice
Q 323Q 323
The market price of a share of common stock depends heavily on:
A) the number of stocks traded on the New York Stock Exchange.
B) the default rate on U.S. government bonds.
C) the overall performance of the company.
D) the relative value of the U.S. dollar compared to the euro.
Free
Multiple Choice
Q 324Q 324
When an investor sells a security for more than the purchase price, the investor earns a(n):
A) dividend payment.
B) appreciated interest receipt.
C) corporate benefit.
D) capital gain.
Free
Multiple Choice
Q 325Q 325
The term ________ refers to investors who anticipate increases in stock prices.
A) bears
B) bulls
C) dogs
D) lions
Free
Multiple Choice
Q 326Q 326
When stock prices decline steadily, investors refer to the market as a ________ market.
A) bear
B) bull
C) dog
D) lion
Free
Multiple Choice
Q 327Q 327
Stocks of corporations with earnings expected to increase faster than other stocks are called ________ stocks.
A) penny
B) growth
C) preferred
D) blue sky
Free
Multiple Choice
Q 328Q 328
Some analysts refer to ___________ stocks as issues that sell for less than $2 (others say for less than $5).
A) dollar
B) growth
C) penny
D) discount
Free
Multiple Choice
Q 329Q 329
Which of the following securities are historically considered high quality and usually pay dividends?
A) Dollar stocks
B) Growth stocks
C) Preferred stocks
D) Blue chip stocks
Free
Multiple Choice
Q 330Q 330
Stocks offering investors a high dividend yield are called:
A) growth stocks.
B) blue chip stocks.
C) income stocks.
D) penny stocks.
Free
Multiple Choice
Q 331Q 331
An investor places a ________ order with a broker to buy a particular stock at a specific price, if and when that price becomes available.
A) call
B) market
C) put
D) limit
Free
Multiple Choice
Q 332Q 332
An investor places a ________ order with a broker to sell a stock at the best price available at that time.
A) discretionary
B) market
C) limit
D) leveraged
Free
Multiple Choice
Q 333Q 333
Brokers prefer trading shares of a firm's stock in multiples of 100, known as:
A) margin blocks.
B) odd lots.
C) round lots.
D) market lots.
Free
Multiple Choice
Q 334Q 334
When corporations elect to issue two or more shares of stock to existing stockholders for each share they currently own, they have initiated a(n) _________.
A) stock split
B) dividend spread
C) share dividend
D) earnings split
Free
Multiple Choice
Q 335Q 335
Which of the following describes the process where an investor borrows a percentage of the purchase price of stocks from the brokerage firm?
A) A margin call
B) futures trading
C) buying on margin
D) dealer's account trading
Free
Multiple Choice
Q 336Q 336
What agency sets the margin rates for purchasing stock in the U.S.?
A) The high commissioners of the Securities and Exchange Commission
B) The board of governors of the Federal Reserve System
C) The Securities Division of the Treasury Department
D) The Federal Trade Commission on Exchange Markets
Free
Multiple Choice
Q 337Q 337
If a stock's closing price for the day is 32.47, the stock's price in U.S. dollars would be:
A) $32 plus a $.47 commission.
B) $32.47.
C) in between a low of $32 and a high of $47.
D) $3,247.
Free
Multiple Choice
Q 338Q 338
If an investor's strategy is: "buy low, and sell high." We could conclude that his optimism regarding future stock price increases indicates that he is:
A) bullish.
B) bearish.
C) only marginally confident about the stock market.
D) lionish.
Free
Multiple Choice
Q 339Q 339
In the securities markets, capital gains take place when:
A) the value of the Dow Jones Industrial Average appreciates.
B) a security sells for more than the original purchase price.
C) additional investors buy stock in an existing corporation.
D) stockholders profit from the firm's use of leverage.
Free
Multiple Choice
Q 340Q 340
________ stocks represent investments in emerging fields that have the potential to realize better than average increases in the stock's prices.
A) Blue chip
B) Penny
C) Growth
D) Income
Free
Multiple Choice
Q 341Q 341
Which of the following is not an odd lot of stock?
A) 10 shares
B) 20 shares
C) 3,000 shares
D) 78 shares
Free
Multiple Choice
Q 342Q 342
Stock quotations are now available online. Which of the following pieces of information is not likely to be on the stock quotation?
A) 52-week high price
B) P/E ratio
C) Dividend
D) Profit for most recent quarter
Free
Multiple Choice
Q 343Q 343
The stock of well-known, high-quality firms, such as Coca-Cola, General Electric, and Procter & Gamble, fit the characteristics of ________ stocks, because investors can almost always be assured a dividend and consistent stock price appreciation.
A) growth
B) blue chip
C) income
D) callable
Free
Multiple Choice
Q 344Q 344
Corporations that want to attract more investors by lowering the selling price of their common stock might consider declaring a:
A) bankruptcy filing.
B) cash dividend.
C) margin call.
D) stock split.
Free
Multiple Choice
Q 345Q 345
Buying stock on margin allows an investor to borrow funds from the brokerage company as part of the transaction. This __________ the potential return to the investor and ___________ the risk.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Free
Multiple Choice
Q 346Q 346
Cynthia plans to buy 100 shares of common stock in the Idaho Spud Corporation. She willingly accepts the risk of this investment because she:
A) understands that creditors are protected from risk.
B) desires an opportunity to share in the success of this company.
C) knows that every gambler wins occasionally.
D) believes that a bear market is on the way.
Free
Multiple Choice
Q 347Q 347
After buying 100 shares of common stock in the It's All Good Corporation for $20 per share, Popeye later sold the same shares for $25 per share. Popeye's capital gain on the total transaction is:
A) $5.
B) $50.
C) $500.
D) $2,500.
Free
Multiple Choice
Q 348Q 348
Samad wants to supplement his current investments with a high-risk, low-priced security. Which of these best fits his strategy of high risk, low price and a potentially high rate of return?
A) Time deposits
B) Penny stocks
C) Blue chip stocks
D) Split stocks
Free
Multiple Choice
Q 349Q 349
Roberto directed his broker to buy 75 shares of New Mexico Technologies at the best possible price available that day. These directions indicate that Roberto placed a ________ order with his broker.
A) market
B) limit
C) margin
D) split
Free
Multiple Choice
Q 350Q 350
Realizing that Mississippi Industries stock currently sells for $35 a share, Juanita directed her broker to buy 100 shares if and when the price dropped to $33. Juanita placed a ________ order with her broker.
A) market
B) limit
C) margin
D) confirmation
Free
Multiple Choice
Q 351Q 351
Jason instructed his stockbroker to buy 100 shares of Utah Industries common stock if and when the price falls to $25 per share. Jason placed a(n):
A) market order.
B) odd-lot order.
C) limit order.
D) contingent order.
Free
Multiple Choice
Q 352Q 352
Idle Time Gaming announced a 2-for-1 common stock split for investors on record. Which of the following will occur?
A) The stock price will increase to reflect the value of two shares for every one share.
B) Each share will be worth ½ of its previous value, but shareholders' total value of Idle Time Gaming will remain the same.
C) The value of Idle Time common stock will remain the same, for a short period of time, and then experience a guaranteed growth spurt.
D) The shareholders will sell their shares immediately after the split and take their capital gains, as well as provide others an opportunity to invest in Idle Time Gaming.
Free
Multiple Choice
Q 353Q 353
Before the announcement of a three-for-one stock split, the selling price for a share of stock in Olympia Oil Refineries was $150 per share. Immediately after the stock split, the probable price per share is:
A) $450.
B) $ 50.
C) $350.
D) $150.
Free
Multiple Choice
Q 354Q 354
Lupe's stockbroker called to inform Lupe of a margin call that requires that she pay $1,000. This indicates that the value of Lupe's stock has:
A) just split.
B) decreased.
C) increased.
D) changed causing the Federal Reserve to increase the margin rate.
Free
Multiple Choice
Q 355Q 355
Laura read about Living Longer Biotechnology, Inc., and wants to buy 100 common shares at $45 per share. Unfortunately, she only has $3,000 available to invest. One risky strategy Laura could consider is:
A) buying on margin.
B) buying from the dealer's account.
C) arranging for security funding.
D) Leveraging her future professional earnings.
Free
Multiple Choice
Q 356Q 356
Bondholders can sell their bonds:
A) on the secondary market prior to the maturity date.
B) early if the bonds were issued with a callable option.
C) after the bonds are converted into common stock.
D) after receiving the written permission of other stakeholders.
Free
Multiple Choice
Q 357Q 357
Which of the following organizations provides an assessment of the relative level of risk of a particular firm's bond issue?
A) The Securities and Exchange Commission
B) E*trade
C) The Wall Street Journal
D) Standard & Poor's
Free
Multiple Choice
Q 358Q 358
Bonds sold at a ________ sell for less than face value.
A) secondary market
B) discount
C) premium
D) date before the maturity date
Free
Multiple Choice
Q 359Q 359
Bonds offering a higher interest rate than other bonds of similar risk will likely sell at a:
A) secondary market.
B) discount.
C) premium.
D) price equal to the face value of the bond.
Free
Multiple Choice
Q 360Q 360
The higher the risk associated with a bond issue, the ________ the interest rate the organization must offer investors.
A) higher
B) lower
C) more stable
D) less stable
Free
Multiple Choice
Q 361Q 361
Which of the following offers low risk, guaranteed income, backed by the full faith and credit of the federal government?
A) Municipal bonds
B) U.S. government preferred stocks
C) Common stock in the U.S. postal service
D) U.S. government bonds
Free
Multiple Choice
Q 362Q 362
Bonds that pay very high interest rates and typically have a higher risk of default are known as:
A) zero-coupon bonds
B) bearer bonds
C) junk bonds
D) volatile bonds
Free
Multiple Choice
Q 363Q 363
High-risk, high-interest bonds are called:
A) convertible bonds.
B) preferred bonds.
C) discount bonds.
D) junk bonds.
Free
Multiple Choice
Q 364Q 364
Bond prices in the newspaper or online are quoted as a percentage of their face value of $1,000. If the bond price is 103.25, this bond's value is equal to:
A) $103.25
B) $1,032.50
C) $10,325.00
D) $10.33
Free
Multiple Choice
Q 365Q 365
A recent publication referred to a series of bonds as "the 6s of 25."
A) This means that they were issued in 2006, and they mature in 2025.
B) This means that any bond in this issue, whose series' numbers end in "6" are callable in the year 2025.
C) This means they are 25-year bonds, that were due in 2006.
D) This means they pay 6% interest and they mature in 2025.
Free
Multiple Choice
Q 366Q 366
When market interest rates increase, the selling price of existing bonds will:
A) increase.
B) decrease.
C) remain constant.
D) be less volatile.
Free
Multiple Choice
Q 367Q 367
Abraham found a $1,000 face value bond that belonged to his father. He checked The Wall Street Journal and found the bond was currently selling for $1,220. This bond sells at a:
A) discount.
B) premium.
C) price that is overvalued.
D) primary market.
Free
Multiple Choice
Q 368Q 368
The risk associated with Firm A's bond is greater than the risk of Firm B's bond. All other things being equal, investors would be willing to pay ________ for Firm B's bond.
A) less
B) more
C) the same
D) a premium
Free
Multiple Choice
Q 369Q 369
U.S. government bonds are considered a secure investment because:
A) the interest rates are protected from inflation and tied to the consumer price index.
B) they are backed by the full faith and credit of the federal government.
C) the interest rates are higher than for corporate bonds of equal duration.
D) if they are lost or stolen the federal government promises to replace them when the proof of purchase is provided.
Free
Multiple Choice
Q 370Q 370
The new issue $1,000 face value bonds due in 2020 issued by Bay Books, Ltd., are perceived by investors as being less attractive than other bonds offered by other businesses at the same time. The coupon rate attached to these bonds will need to be __________ than other corporate bond issues in order to attract investors.
A) the same
B) lower
C) higher
D) not important because it is a new issue
Free
Multiple Choice
Q 371Q 371
Erica invests $5,000 in five ABC Corporation bonds that mature in 10 years. Unexpectedly just the week after she invests, she has the opportunity to work abroad, which she has always wanted to do, but she needs cash. Which of the following most likely applies to Erica?
A) She can immediately sell the bonds for $5,000 plus interest for the week.
B) She is out of luck. She must keep the bonds for the full 10 years.
C) She may immediately sell the bonds but it is unclear how much money they will sell for.
D) She will be able to sell the bonds immediately on the primary market.
Free
Multiple Choice
Q 372Q 372
An investment that pools together investors' money in order to buy securities in many different companies or governments is a ___________.
A) commercial fund.
B) mutual fund.
C) holding company.
D) Public Investment Corporation.
Free
Multiple Choice
Q 373Q 373
A mutual fund company buys securities from corporations and governments and packages them together into a "mutual fund." It then ________________.
A) sells shares of this packaged investment to interested investors.
B) deposits the mutual fund into a pension fund for institutional investors.
C) charges investors a fee to find out how these investments fared, so that investors can decide for themselves as to whether they want to own the investments.
D) gives investors the option to bid on a share of this investment.
Free
Multiple Choice
Q 374Q 374
Which of the following describes a benefit enjoyed by investors in mutual funds?
A) Guaranteed dividend payments are received annually.
B) Investment risk is eliminated.
C) Investors buy an ownership interest in many different companies.
D) Investors exercise managerial authority in many different companies.
Free
Multiple Choice
Q 375Q 375
New investors may want to consider _______ funds, which are mutual funds that invest in one particular kind of stock or a particular kind of bond, or even stocks that are representative of the entire market.
A) international
B) index
C) global
D) relief
Free
Multiple Choice
Q 376Q 376
__________ are collections of stocks that are traded on exchanges but are traded more like individual stocks than like mutual funds.
A) REITs
B) ETFs
C) LOCs
D) SRTs
Free
Multiple Choice
Q 377Q 377
Buying several different investment alternatives to spread the risk helps an investor achieve:
A) lower rates of return.
B) lower commission fees.
C) isolation.
D) diversification.
Free
Multiple Choice
Q 378Q 378
____________ means that the mutual fund company does not show a fee or commission for investing in the fund.
A) Front load
B) Back load
C) Double load
D) No load
Free
Multiple Choice
Q 379Q 379
_____________ have a set dollar goal the fund manager wants to manage. Once the fund has reached that goal, it does not accept new investors.
A) No-load funds
B) Closed-end funds
C) Drop-off funds
D) Zero-sum load funds
Free
Multiple Choice
Q 380Q 380
When reading mutual fund quotations, the ________ is the price per share.
A) NAV (Net Asset Value)
B) PSV (Per Share Value)
C) MFV (Mutual Fund Value)
D) PAV (Partial Asset Value)
Free
Multiple Choice
Q 381Q 381
________ represent the best way for investors to have their investments managed by a trained specialist for a fee.
A) Individual stocks
B) Mutual funds
C) Corporate bonds
D) Government bonds
Free
Multiple Choice
Q 382Q 382
To reduce the risk of investing in an individual stock, an ownership position in many different companies can be achieved by purchasing shares in a(n):
A) indexed security.
B) mutual fund.
C) diversification bond.
D) stock cooperative.
Free
Multiple Choice
Q 383Q 383
Which of the following describes a mutual fund that charges no commission to buy or sell its shares?
A) Open-end fund
B) Closed-end fund
C) No-load fund
D) Front-load fund
Free
Multiple Choice
Q 384Q 384
Mutual fund investors will note that:
A) Fund managers have not yet added foreign securities into their funds.
B) Mutual funds cannot be purchased through a traditional brokerage house.
C) Loads can vary from one mutual fund to another. The fund manager dictates the commissions and fees.
D) By law, mutual funds can no longer charge loads.
Free
Multiple Choice
Q 385Q 385
The initial cost of investing in mutual funds depends in part on:
A) whether the fund is a load or no-load fund.
B) the risk tolerance of the companies in the fund.
C) the tax rate on capital gains.
D) the imposition of government tariffs.
Free
Multiple Choice
Q 386Q 386
Yolanda has an ownership interest in many different companies, yet she owns the shares of stock of just one organization. Yolanda undoubtedly owns shares in a(n):
A) investment trust.
B) security account.
C) options association.
D) mutual fund.
Free
Multiple Choice
Q 387Q 387
Gerald, a recent graduate of a community college, is about to make his first investment in the stock market. Which of the following would be a cautious way for Gerald to start investing?
A) Future contracts in oil
B) Index funds
C) Short-selling technology stocks
D) Commodity market transactions in precious metals
Free
Multiple Choice
Q 388Q 388
Six years ago, Angie invested $50,000 that she inherited from her grandfather into a growth stock mutual fund. Each share of the fund cost $22/share. Yesterday, she perused a mutual fund quote on the Internet. The quotation showed (1) Year To Date Return; (2) Yield; (3) Net Asset Value; (4) Previous Close. Which of these will provide her with an indication of the present price per share she can expect to realize if she calls her broker tomorrow morning and asks her to sell the shares?
A) Year to Date Return
B) Yield
C) Net Asset Value
D) Previous Close
Free
Multiple Choice
Q 389Q 389
During Ben's lunch break, he logged on to his computer to find the mutual fund he wanted to buy. As he made his way around several websites, he realized that the NAV (net asset value) quoted was yesterday's close. His shares would be purchased tomorrow, with today's closing price. Looking over his shoulder, one of his coworkers suggested that he look into _________ because they are similar to mutual funds, but could be traded during the entire trading day, just like stocks.
A) index funds
B) reality funds
C) exchange traded funds
D) barter funds
Free
Multiple Choice
Q 390Q 390
Applying what you have learned about investments as introduced to you in Chapter 19, put the following investments in order from least risky to riskiest. Which of following lists begin with the least risky investment and ends with the most risky? Least risky = 1; most risky = 5.
A) 1) Bonds; 2) Mutual Funds; 3) ETFs; 4) Preferred Stock; 5) Common Stock
B) 1) Preferred Stock; 2) Common Stock; 3) Mutual Funds; 4) ETFs; 5) Bonds
C) 1) Common Stock; 2) Bonds; 3) Mutual Funds; 4) ETFs; 5) Preferred Stock
D) 1) Bonds; 2) Common Stock 3) Mutual Funds 4) ETFs 5) Preferred Stock
Free
Multiple Choice
Q 391Q 391
The traditional market barometer used to measure the direction of the stock market is the:
A) Value Line Composite.
B) Moody's Investment Index.
C) Dow Jones Industrial Average.
D) Fitch's Industrial Index.
Free
Multiple Choice
Q 392Q 392
The Dow Jones Industrial Average represents the average price of ________ industrial stocks.
A) 11
B) 30
C) 500
D) all the above
Free
Multiple Choice
Q 393Q 393
________ involve(s) computer instructions that automatically sell stocks whose value has dropped by a predetermined amount.
A) Software action
B) Program trading
C) Curbs
D) Circuit breakers
Free
Multiple Choice
Q 394Q 394
To reduce market volatility, ________ require that a key computer is turned off so that program trading must be done "by hand" rather than automatically by computer.
A) ultra restraints
B) trading curbs
C) market stops
D) nutmeg halts
Free
Multiple Choice
Q 395Q 395
The Securities and Exchange Commission developed ________ to halt trading in the stock market for a short time when the market has experienced a dramatic decrease in prices.
A) program trading
B) online investing
C) circuit breakers
D) insider trading
Free
Multiple Choice
Q 396Q 396
One criticism of the Dow Jones Industrial Average suggests that it:
A) magnifies the fluctuations in the stock market.
B) does not indicate the cause of changes in stock prices.
C) is too small (too few companies) to get a good statistical representation.
D) is biased causing an overstatement of bond price increases and an understatement of stock price decreases.
Free
Multiple Choice
Q 397Q 397
Daily reporting of the Dow Jones Industrial Average serves to:
A) show the direction of the market over time.
B) distort short-term fluctuations for the financial community.
C) identify the beginning of a recession in the economy.
D) disclose the average price of a share of stock on the major exchanges.
Free
Multiple Choice
Q 398Q 398
The purpose of the SEC's circuit breakers rule is to:
A) prevent market disruption caused by a communication malfunction.
B) halt trading for a short time following a dramatic drop in stock prices.
C) allow floor traders to specialize in trading the securities of specific industries.
D) prevent individuals from profiting from information not available to the general public.
Free
Multiple Choice
Q 399Q 399
In reviewing the firms whose stocks comprise the Dow Jones Industrial Average, we discover:
A) The same 30 stocks have been used since the inception of the indicator.
B) Different companies are used each year.
C) These stocks change periodically as deemed appropriate.
D) There is an even mix between big and small companies.
Free
Multiple Choice
Q 400Q 400
Bonds represent a major source of long-term financing. What is a bond? Explain the major elements that must be in a bond issue.
Free
Essay
Q 401Q 401
Explain the major advantages and disadvantages of issuing stock as a source of long-term financing.
Free
Essay
Free
Essay
Free
Essay
Q 404Q 404
The risk/return trade-off is inherent in any investment strategy. What are the five key criteria investors should consider when selecting investment options?
Free
Essay
Q 405Q 405
Describe four different types of common stock that an investor may consider, depending upon the investor's strategy and risk tolerance.
Free
Essay
Q 406Q 406
Mini-Case
Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million.
The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company.
-One funding source under consideration is the issuance of $150 million worth of corporate bonds. A financial advisor predicted that in order for the fast growing company to attract investors, it would have to put up collateral to back up the bond issue. The type of bond the financial advisor suggests is:
A) debenture bonds.
B) asset bonds.
C) secured bonds.
D) preferred bonds.
Free
Multiple Choice
Q 407Q 407
Mini-Case
Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million.
The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company.
-Penny is concerned about the interest rate risk if the company decides to issue bonds. Penny would like protection from interest rate fluctuation. Therefore, the bond issue's features should include a(n):
A) equity proposition.
B) call provision.
C) convertibility clause.
D) collateral agreement.
Free
Multiple Choice
Q 408Q 408
Mini-Case
Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million.
The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company.
-If Pirate Recording elects to offer an IPO (Initial Public Offering), it will involve preparing full financial disclosure with the ___________. The firm is advised to solicit the services of an investment banker/underwriter, who will analyze the market and determine the best price for the new issue of Pirate Recording stock. The offering will then be sold on the ____________.
A) Internal Revenue Service; secondary market
B) Fair Trade Commission; primary market
C) Federal Trade Commission; secondary market
D) Securities and Exchange Commission; primary market
Free
Multiple Choice
Q 409Q 409
Mini-Case
Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million.
The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company.
-If stock is issued in Pirate Recording, analysts predict that the company has potential for strong growth. The prospects for dividend payments to stockholders, at least in the beginning, are not good. Pirate Recording will need to retain its earnings in order to grow rapidly. The firm's stock would most likely be classified as a(n):
A) blue chip stock.
B) income stock.
C) growth stock.
D) capital stock.
Free
Multiple Choice
Q 410Q 410
Mini-Case
Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million.
The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company.
-Penny is impressed with contemporary high-tech companies that have listed their stock on an electronic telecommunications network of securities dealers who trade the stock. She is referring to firms such as Microsoft [MSFT], Google [GOOG], and Apple [AAPL]. Penny ideally would like her company's stock listed on the ____________.
A) AMEX
B) NASDAQ
C) OTC
D) NYSE Euronext
Free
Multiple Choice