Deck 16: Securities and Investments

Question 1

To ensure they'll have the funds to pay back bond holders, companies MOST often put their money into a ________ annually.

A)savings account
B)money market account
C)managed fund
D)sinking fund

Answer 1

D

Question 2

Of the following, which is LEAST likely to buy stock in an IPO?

A)a mutual fund
B)a corporate pension plan
C)an insurance company
D)an individual investor

Answer 2

D

Question 3

Stocks and bonds are collectively known as ________.

A)fund generators
B)securities
C)the money market
D)corporate obligations

Answer 3

B

Question 4

What reward do bond holders get for the risk they take?

A)honor of supporting a struggling company
B)security of government guarantee for their money
C)option to buy more bonds in the company
D)ability to receive interest payments on money lent

Question 5

Which of the following sources of funds is MOST likely to be obtained just before a company raises money through a stock offering?

A)contributions from family members
B)personal sources of cash and credit
C)capital from business associates
D)money from angel investors

Question 6

What is the first thing a company's financial manager does once her company has decided to finance with bonds?

A)contact a financial advisory firm
B)contact the Securities and Exchange Commission
C)place the bond offering in primary market
D)issue a call for individual investors to buy the bonds

Question 7

Why do companies issue stock?

A)to raise capital from average investors
B)to raise capital from venture capitalists
C)to attract capital from angel investors
D)to comply with SEC requirements

Question 8

In a bond offering, financial advisors MOST often buy bonds of the company ________.

A)at higher than face value
B)at face value
C)at lower than face value
D)at a price of their own choosing

Question 9

Stock dividends ________.

A)are typically paid from company profits
B)are most likely to be paid by small startup companies
C)are usually paid with more shares of stock, not cash
D)must be paid by all companies that issue stock

Question 10

The first time a company issues stock, it does so through a(n)________.

A)primary market issuance
B)initial public offering
C)tertiary market sale
D)auction house

Question 11

Compared to a company issuing stock, a company issuing bonds ________.

A)has a more concentrated ownership
B)doesn't need to deal with financial institutions
C)doesn't need to deal with the Securities and Exchange Commission
D)need not publish information about its finances

Question 12

The STRONGEST factor affecting a company's decision of whether or not to finance with bonds is ________.

A)the interest rate
B)the length of the bond term
C)the general state of the economy
D)the success of other companies in raising money

Question 13

Of the following forms of funding for small business, which is MOST often used in the early stages?

A)angel investors
B)personal savings
C)issuing stock
D)government grants

Question 14

Most individual stock investors buy stock ________.

A)directly from companies
B)in the primary market
C)in the secondary market
D)through their local banks

Question 15

What is the biggest disadvantage of issuing stock, from the company's perspective?

A)being required to pay dividends to stockholders
B)dealing with financial advisors during the initial public offering
C)diluting ownership in the company
D)keeping track of individual stock holders

Question 16

Regarding use of debt and equity financing, it's true that most large companies ________.

A)rely primarily on bond financing
B)rely primarily on equity financing
C)use a mix of both bond and equity financing
D)use neither bond nor equity financing

Question 17

Which of the following is NOT an advantage of issuing bonds to raise funds for a company?

A)Issuing bonds means other company money is available for other uses.
B)Investors typically see bonds as less risky than stocks when investing.
C)Adverse business conditions may make it difficult to pay the interest on the bonds.
D)Issuing bonds allows a company to expand and potentially achieve greater profits.

Question 18

If you buy a $10,000, five-year corporate bond, what amount will the company pay you in a lump sum at the end of five years?

A)$10,000
B)$10,000 plus the principle amount invested
C)It's impossible to know before the investment is made.
D)the interest earned by the $10,000 only

Question 19

Which federal agency oversees and regulates the buying and selling of stocks and bonds?

A)Federal Trade Commission
B)Commerce Department
C)Federal Reserve Board
D)Securities and Exchange Commission

Question 20

Which of the following statements about financing with stocks is NOT true?

A)Equity financing does not need to be repaid.
B)Equity financing increases owner control of the company.
C)Equity financing allows the company to retain cash and profits.
D)Equity financing means less debt, which means the balance sheet looks stronger.

Question 21

An asset allocation of 95% stocks and 5% bonds is considered ________ risk.

A)conservative
B)moderate
C)no
D)aggressive

Question 22

Owning ten stocks rather than two illustrates the concept of ________.

A)asset allocation
B)the risk return relationship
C)diversification
D)money market funds

Question 23

An asset allocation of 50% stocks, 45% bonds, and 5% cash is considered ________ risk.

A)conservative
B)moderate
C)no
D)aggressive

Question 24

A ________ stock will likely suffer the least amount of depreciation in a major recession.

A)cyclical
B)blue chip
C)growth
D)defensive

Question 25

Of the following investments, which has the greatest risk?

A)real estate
B)mutual funds
C)options
D)common stock

Question 26

Of the following investments, which has the greatest risk?

A)real estate
B)mutual funds
C)corporate bonds
D)treasury bills

Question 27

Which of the following types of investments is best for money you may need in an emergency?

A)individual stocks
B)corporate bonds
C)money markets
D)real estate

Question 28

An investor with a strong appetite for risk should purchase a(n)________.

A)cyclical stock
B)blue chip stock
C)growth stock
D)income stock

Question 29

Which of the following is NOT a reason why savings accounts give low returns?

A)the low interest rates on most savings accounts
B)the cost of FDIC insurance
C)taxes on interest earned
D)the effect of inflation

Question 30

A ________ stock comes from a company that makes consumer goods such as food and drugs that have fairly constant demand regardless of the state of the economy.

A)blue chip
B)growth
C)defensive
D)cyclical

Question 31

A(n)________ stock is issued by a company that has a long history of consistent growth and stability and often pays regular dividends.

A)blue chip
B)income
C)defensive
D)cyclical

Question 32

A(n)________ stock pays a large dividend and is unlikely to experience major appreciation.

A)blue chip
B)income
C)defensive
D)cyclical

Question 33

Which of the following is NOT an advantage preferred stockholders have compared to common stockholders?

A)no chance of receiving voting privileges
B)greater likelihood of being paid dividends
C)greater chance of getting money back if the company fails
D)preferred position in getting company assets if the company fails

Question 34

The ________ details the company's history.

A)prospectus
B)marketing plan
C)business section
D)dissertation

Question 35

An investor who wants a fairly reliable and large dividend would be best served by purchasing a(n)________.

A)defensive stock
B)growth stock
C)blue chip stock
D)income stock

Question 36

If you wanted a moderate risk and moderate return for your investment, you would be wisest to choose ________.

A)Treasury bills
B)options
C)real estate
D)asset allocation

Question 37

A(n)________ stock's price is greatly affected by the state of the economy because the company makes a product that can have highly variable demand.

A)growth
B)income
C)defensive
D)cyclical

Question 38

A(n)________ stock is issued by a young and expanding company and usually doesn't pay a dividend.

A)blue chip
B)income
C)defensive
D)growth

Question 39

Of the following investments, which has the lowest risk?

A)government bonds
B)mutual funds
C)futures
D)common stock

Question 40

Of the following investments, which has the lowest risk?

A)government bonds
B)mutual funds
C)corporate bonds
D)Treasury bills

Question 41

Which of the following Standard & Poor's bond rating categories is most likely to pay the highest interest rate?

A)AAA
B)A
C)BBB
D)CCC

Question 42

A bear market is distinguished by ________.

A)a declining stock market and increasing investor confidence
B)a declining stock market and decreasing investor confidence
C)an increasing stock market and increasing investor confidence
D)an increasing stock market and decreasing investor confidence

Question 43

What is the cheapest way for you to buy a stock?

A)through a full-service stockbroker
B)through a discount broker
C)through your bank
D)through a New York Stock Exchange broker

Question 44

A 25-year-old with a good job and a high appetite for risk should put a significant portion of her portfolio into ________.

A)growth stocks
B)corporate bonds
C)the money market
D)a savings account

Question 45

If you want a bond that you can exchange into stock of a given company, you should buy a ________.

A)revenue bond
B)serial bond
C)convertible bond
D)secured bond

Question 46

If the demand for a stock is high and the supply of the stock is low, the price of the stock will ________.

A)rise
B)decline
C)stay about the same
D)fluctuate randomly

Question 47

Which of the following bonds has the longest maturity date?

A)Treasury bills
B)Treasury bonds
C)Treasury notes
D)All three types of bonds have the same maturity date.

Question 48

Of the following stock indexes, which one tracks the largest number of stocks?

A)DJIA
B)NASDAQ 100
C)S&P 500
D)All three indices track the same number of stocks.

Question 49

Callable bonds ________.

A)have no benefits from a corporation or the government's perspective
B)have a lower degree of uncertainty than similar non-callable bonds
C)have a higher interest rate than similar non-callable bonds
D)have a definite maturity date on which they are paid off

Question 50

An automobile company stock can best be characterized as being a ________ stock.

A)growth
B)cyclical
C)defensive
D)blue chip

Question 51

Which of the following bond types is safest?

A)convertible bonds
B)debenture bonds
C)secured bonds
D)Treasury bonds

Question 52

A corporate bond backed by collateral is called a ________.

A)debenture bond
B)secured bond
C)convertible bond
D)treasury bond

Question 53

A corporate bond that can be exchanged for stock is called a(n)________.

A)debenture bond
B)secured bond
C)convertible bond
D)equity bond

Question 54

Bonds issued by state and local governments are called ________.

A)municipal bonds
B)debenture bonds
C)treasury bonds
D)convertible bonds

Question 55

Which of the following bonds has the shortest maturity date?

A)Treasury bills
B)Treasury bonds
C)Treasury notes
D)All three types of bonds have the same maturity date.

Question 56

With stock investing, a capital gain occurs when ________.

A)the stock owner is paid dividends without having to sell shares
B)the stock owner sells the stock for a higher price than he paid for it
C)the stock owner sells the stock for a lower price than he paid for it
D)the stock owner receives legal entitlement to physical property of the company

Question 57

A corporate bond backed only by a company's promise to pay is called a ________.

A)debenture bond
B)secured bond
C)convertible bond
D)promissory bond

Question 58

A bull market is distinguished by ________.

A)a declining stock market and increasing investor confidence
B)a declining stock market and decreasing investor confidence
C)an increasing stock market and increasing investor confidence
D)an increasing stock market and decreasing investor confidence

Question 59

If your retired grandmother had modest means, yet wanted to invest in stock, which type of stock would you advise her to buy?

A)blue chip stock
B)defensive stock
C)growth stock
D)income stock

Question 60

A state government would issue a ________ bond to finance the construction of a toll bridge and then use the tolls to pay for the bond.

A)general obligation
B)revenue
C)convertible
D)secure

Question 61

Preferred stockholders are more likely to be paid a dividend than are common stockholders.

Question 62

Money market funds ________.

A)are backed by the FDIC
B)are similar to corporate bonds
C)are very liquid
D)are risky investments

Question 63

In general, the riskier an investment, the greater the opportunity for a large return.

Question 64

Junk bonds ________.

A)are paid with the highest interest rates
B)are typically rated in the A or B category
C)are relatively safe investments
D)are backed by insurance policies

Question 65

A company issuing bonds is the same as a company getting a loan from an individual bank.

Question 66

Issuing stock gives the founders of the company more control over company direction and management.

Question 67

A mutual fund is BEST characterized by ________.

A)multiple investors in a single bond or stock
B)multiple investors in a diversified set of bonds or stocks
C)multiple investors making collective decisions
D)multiple investors with limited knowledge of the market

Question 68

A "sinking fund" is a corporate bond that is declining rapidly in value.

Question 69

Which of the following is NOT one of four main reasons why mutual funds are popular with investors?

A)government guarantees that minimize risk
B)professional management by experienced people
C)professional assurance of diversification
D)ease of buying into it with little money

Question 70

A utility company that pays a good dividend can best be characterized as a growth stock.

Question 71

Most companies that issue stock are legally required by the Securities and Exchange Commission to pay dividends to shareholders.

Question 72

A wise investor will practice either diversification or asset allocation, but not both.

Question 73

Defensive stocks usually have a stock price that is greatly affected by the state of the economy.

Question 74

Which of the following Standard & Poor's bond rating categories is most likely to pay the lowest interest rate?

A)AAA
B)A
C)BBB
D)CCC

Question 75

The first time a company sells stock, it does so through an initial public offering.

Question 76

The net asset value of a mutual fund ________.

A)stays fixed and consistent at all times
B)reflects the value of the holdings of the mutual fund
C)determines whether or not it is a load fund or a no-load fund
D)remains unrelated to potential capital gains or losses

Question 77

A bond's interest rate is termed its ________.

A)rating
B)face value
C)par value
D)coupon

Question 78

A futures contract ________.

A)typically involves individual stocks
B)is usually held until it expires
C)is an obligation to purchase the underlying asset
D)is the same as an options contract

Question 79

The lower the interest rate on the bonds it issues, the better the situation for the company.

Question 80

When a company issues bonds, financial advisors buy the bonds at face value.