Deck 12: Investing in Stocks and Bonds

Question 1

Capital appreciation of an investment is a form of Current Income.

Answer 1

False

Question 2

In most investments,there is a risk-return tradeoff.

Answer 2

True

Question 3

A lower expected return will mean a higher risk will have to be accepted.

Answer 3

False

Question 4

A company with low financial risk has little to no long-term debt.

Question 5

Common stockholders are considered to be the residual owners of the company.

Question 6

An investment is acceptable if the expected rate of return is greater than the desired rate of return.

Question 7

Interest rate risk is greater for stocks than for bonds.

Question 8

Interest rate risk is greater for long-term bonds than for short-term bonds.

Question 9

All securities involve risk of some kind.

Question 10

Recovery of principal and capital gain are elements of total return.

Question 11

Changes in the value of securities due to social,political,or economic factors are referred to as market risk.

Question 12

An asset traded in secondary markets has a low market risk.

Question 13

The risk free rate of return is often measured by the return on US Treasury Bills.

Question 14

Total investment return can be approximated using the current yield.

Question 15

Market risk considers the possibility that the firm may fail.

Question 16

Event risk occurs when something substantial happens to a company that has an immediate impact on its financial condition.

Question 17

Compound interest is a very important concept when evaluating the return on an investment you plan to hold for a long time.

Question 18

Purchasing power risk is of most concern during economic recession.

Question 19

The returns you expect from securities are income and growth.

Question 20

Real estate is generally a less liquid investment than common stock.

Question 21

Most companies pay their stockholders cash dividends on a semi-annual basis.

Question 22

Stocks with high betas will have larger price gains but lower price declines than those with low betas.

Question 23

All categories of common stock are voting.

Question 24

If Wristwatch Arm Corporation (WAC)has assets of $10 million,liabilities of $5 million,and preferred stock of $1 million,its book value is $6 million.

Question 25

Net Profit margin is a key measure of profitability that relates the net profits of a firm to its sales.

Question 26

John and Mary Smith own 500 shares of ABE stock.After the company pays a 6 percent stock dividend,John and Mary will own 530 shares of ABE stock.

Question 27

In the late 1990's,common stock prices for technology stocks fell dramatically.

Question 28

Without using margin accounts,common stock holders cannot lose more than they initially invest in a common stock.

Question 29

Stocks with high betas will have larger price gains and losses than those with low betas.

Question 30

Typically,common stockholders get to cast one vote for each round lot of stock they own.

Question 31

Low price/earnings ratios indicate limited or low investor confidence.

Question 32

Common stocks pay a guaranteed dividend each year.

Question 33

Earnings per share (EPS)tell the stockholder the amount of dividend earned.

Question 34

You received a stock dividend this year instead of cash.This is taxable income.

Question 35

Publicly traded issues are shares only available to qualified investors.

Question 36

Bondholders will receive interest payments after the stockholders receive dividends.

Question 37

You received a cash dividend from your stock investment this year.This is taxable income.

Question 38

A stocks beta is an indication of its relationship to the general market.

Question 39

Stock dividends are taxed at Long Term Capital Gains Rates.

Question 40

If the current price of an investment increases,the investment's annual yield will decrease.

Question 41

A stronger dollar has a positive effect on the total returns U.S.investors receive on foreign securities.

Question 42

A callable bond allows the issuer contact the bond issuer at any time.

Question 43

Bonds represent a form of corporate debt capital.

Question 44

Dividend Reinvestment Plans provide shareholders with cash,so that they can invest in similar stocks.

Question 45

Investors typically welcome their bonds being called because of the generous call premium paid.

Question 46

Treasury notes,bills,and bonds represent loans to the federal government.

Question 47

Dividend reinvestment plans should be avoided because of their relatively high cost.

Question 48

Typically the best time to invest in the stock market is when the market is very volatile.

Question 49

Bonds can be used conservatively by investors seeking current income and aggressively by investors seeking capital gains.

Question 50

Bonds provide for investment return primarily in the form of growth.

Question 51

Blue-chip stocks are expected to pay dividends more regularly than growth stocks.

Question 52

Income stocks are similar to bonds in that they pay annual interest to owners.

Question 53

The callable feature of a bond protects the issuer when current rates are falling.

Question 54

Tech stocks represent stocks in the technology and utility sectors.

Question 55

The value of a stock at any time is a function of future returns rather than of past performance.

Question 56

An investor who wants to preserve capital should purchase bonds with at least 10 years to maturity.

Question 57

Price fluctuations of defensive stocks follow the fluctuations of the market as a whole.

Question 58

One would prefer a stock with steadily increasing earnings per share and return on equity.

Question 59

Bond return can include both interest and capital gains.

Question 60

Earnings per share can be defined as the return earned on behalf of each share of common and preferred stock,calculated by dividing all earnings by the total number of shares outstanding.

Question 61

Junk bonds have higher risk and similar returns to investment grade bonds.

Question 62

Bonds rated AA by S&P and Aa by Moody's would be investment quality.

Question 63

Bond prices are impacted by both the direction and magnitude of interest rate changes.

Question 64

TIPS are appropriate investors who are conservative and concerned about inflation.

Question 65

All treasury bonds issued today are non-callable.

Question 66

A premium bond sells at par value.

Question 67

A bond with a yield to maturity that equaled or exceeded an investor's desired rate of return is considered an attractive investment.

Question 68

At the time you buy a convertible bond,you will know the number of stock shares for which it can be exchanged.

Question 69

An investor is guaranteed to make a positive return on Treasury notes and bonds.

Question 70

Convertible preferred stock can be exchanged for common stock.

Question 71

A bond with a S&P rating of BBB is considered investment-grade.

Question 72

Only the federal government issues zero coupon bonds.

Question 73

There is an inverse relationship between the bond prices and current interest rates.

Question 74

Common stock owners must receive dividends before preferred stockholders.

Question 75

If you buy a zero coupon bond,you will receive no cash from the corporation until the bond matures.

Question 76

Municipal bonds can be attractive investments,despite their lower interest rate,since their interest income is exempt from federal income tax.

Question 77

Preferred stock can be exchanged for common stock.

Question 78

The higher the tax bracket you are in,the more attractive the purchase of municipal bonds becomes.

Question 79

You would expect more growth with the preferred stock you own than with the common stock in your portfolio.

Question 80

A bond with a market value of $1,000 and a coupon rate of 7.0% has a 7.0% current yield.