Deck 10: Stocks and Bonds

Question 1

In economics, _____ is spending on new capital goods.

A) investment
B) outsourcing
C) purchasing stocks and bonds
D) finance

Answer 1

A

Question 2

In economics, investment is the purchases of:

A) ETFs.
B) new capital goods.
C) stocks.
D) bonds.

Answer 2

B

Question 3

_____ is a share of ownership in a corporation.

A) A stock
B) A bond
C) A certificate of deposit
D) An investment

Answer 3

A

Question 4

_____ is where existing shares of stocks are bought and sold.

A) A foreign exchange market
B) A stock exchange
C) A bank
D) An insurance company

Question 5

_____ is where existing shares of stocks are bought and sold.

A) A foreign exchange market
B) A secondary market
C) A bank
D) An insurance company

Question 6

A _____ is an aggregate value of a set of representative stocks.

A) foreign exchange market
B) secondary market
C) stock exchange
D) stock market index

Question 7

The _____ is a U.S. stock index consisting of 500 large company stocks.

A) NASDAQ Composite Index
B) Dow Jones Industrial Average
C) Standard & Poor's 500
D) Wall Street Index

Question 8

According to the textbook, the world's best-known stock market index is the:

A) NASDAQ Composite Index.
B) Dow Jones Industrial Average.
C) Standard & Poor's 500.
D) Nikkei 225.

Question 9

_____ is the process of weighting large companies more heavily in a stock index.

A) Capitalization
B) Stock averaging
C) Indexing
D) Market-cap weighting

Question 10

The total value of all shares of a given stock is:

A) capitalization.
B) averaging.
C) indexing.
D) weighting.

Question 11

_____ is the value of a company's outstanding shares of stock.

A) Capitalization
B) Averaging
C) Indexing
D) Weighting

Question 12

If a company's stock is selling for $10 a share and it has a thousand shares outstanding, what is the market capitalization of the company?

A) $10
B) $100
C) $1,000
D) $10,000

Question 13

To determine the market capitalization of a company, multiply the outstanding shares of stock by the:

A) per share price of the stock.
B) sales revenue.
C) P/E ratio.
D) income.

Question 14

If a company's stock is selling for $20 a share and it has 5,000 shares outstanding, what is the market capitalization of the company?

A) $20
B) $250
C) $5,000
D) $100,000

Question 15

The _____ is a U.S. stock exchange that focuses on 30 leading companies.

A) NASDAQ Composite Index
B) Dow Jones Industrial Average
C) Standard & Poor's 500
D) Wall Street Index

Question 16

A startup technology company in the United States generally is listed on the:

A) NASDAQ Composite Index.
B) Dow Jones Industrial Average.
C) Standard & Poor's 500.
D) Nikkei 225.

Question 17

Jonah owns a small startup technology company in the United States and is considered an initial public offering. His company would probably be listed on the:

A) NASDAQ Composite Index.
B) Dow Jones Industrial Average.
C) Standard & Poor's 500.
D) Nikkei 225.

Question 18

Which U.S. stock exchange contains more than 3,000 technology stocks?

A) NASDAQ Composite Index
B) Dow Jones Industrial Average
C) Standard & Poor's 500
D) Nikkei 225

Question 19

In which U.S. stock index do all companies have an equal weight?

A) NASDAQ Composite Index
B) Dow Jones Industrial Average
C) Standard & Poor's 500
D) Nikkei 225

Question 20

_____ is the term for when stocks are offered to the general public for the first time.

A) A trading issue
B) An initial public offering
C) An initial stock sale
D) A closing stock issue

Question 21

Shares of Facebook first became available to the public in May 2012 when the company made:

A) an announcement.
B) a bond offering.
C) an initial public offering.
D) an initial private offering.

Question 22

_____ is the price of a stock divided by the earnings per share.

A) A stock split
B) An initial public offering
C) A company's value
D) A P/E ratio

Question 23

If the price of a stock is $20 and the earnings per share is $.60, what is the P/E ratio?

A) .03
B) 19.4
C) 20.6
D) 33.3

Question 24

If the price of a stock is $10 and the earnings per share is $.45, what is the P/E ratio?

A) .045
B) 10.45
C) 5.52
D) 22.2

Question 25

If a stock's P/E ratio is 14.64 and the earnings per share is $3.54, what is the price of the stock?

A) $4.14
B) $0.24
C) $18.82
D) $51.83

Question 26

If a stock's P/E ratio is 13.54 and the earnings per share is $0.98, what is the price of the stock?

A) $11.58
B) $13.81
C) $13.27
D) $14.52

Question 27

If a stock's P/E ratio is 38.37 and the price of the stock is $13.37, what is the earnings per share?

A) $2.86
B) $14.81
C) $0.35
D) $.513

Question 28

In which industry do we frequently see high P/E ratios?

A) transportation
B) mining
C) technology
D) farming

Question 29

Ivan, a financial investor, wants to purchase either a stock that will earn a guaranteed 6% per year or a stock that is variable, earning 0% some years and 12% other years. Assuming that he can purchase only one stock, which one will he likely choose?

A) none
B) guaranteed return
C) variable return
D) both

Question 30

_____ are the profits received from the sale of a property or financial asset resulting from a price increase between the time of purchase and the time of sale.

A) Guaranteed returns
B) Dividends
C) Variable returns
D) Capital gains

Question 31

Aman made a profit of $150,000 on a house that he sold last week. His profit is known as a:

A) guaranteed return.
B) dividend.
C) variable return.
D) capital gain.

Question 32

_____ are the portion of profits that are paid to stockholders per share of stock.

A) Guaranteed returns
B) Dividends
C) Variable returns
D) Capital gains

Question 33

Pauline owns 2,000 shares of an oil and gas company. As a result, she receives a quarterly payment throughout the year. This payment is a:

A) guaranteed return.
B) dividend.
C) variable return.
D) capital gain.

Question 34

A _____ is a tradable, legally binding obligation that promises to pay a specified amount of money at specific dates in the future.

A) stock
B) bond
C) dividend
D) coupon

Question 35

A _____ is a tradable, legally binding obligation to repay borrowed money and interest.

A) stock
B) bond
C) dividend
D) coupon

Question 36

The _____ is the annual interest payment on a bond.

A) dividend
B) interest rate
C) coupon
D) yield

Question 37

The _____ is the face value of a bond that is repaid at maturity.

A) par value
B) interest rate
C) coupon
D) yield

Question 38

A _____ bond is a bond that is issued by the U.S. government and that has maturity dates from one to 30 years.

A) corporate
B) municipal
C) state
D) treasury

Question 39

A _____ bond is a bond that is issued by a state or local government and that usually is used to fund specific projects.

A) corporate
B) municipal
C) state
D) treasury

Question 40

A _____ bond is a bond that is issued by a firm.

A) corporate
B) municipal
C) state
D) treasury

Question 41

A _____ is a bond that is issued by the U.S. government and that has a maturity date of up to one year.

A) corporate bond
B) municipal bond
C) treasury bill
D) treasury bond

Question 42

The state of Idaho is considering building a bridge. To fund the project, the state may issue _____ bonds.

A) corporate
B) municipal
C) treasury
D) state

Question 43

XYZ Corporation is considering expanding into a foreign market. To fund the expansion, the company may issue _____ bonds.

A) corporate
B) municipal
C) treasury
D) fiduciary

Question 44

Typically, _____ are purchased at a price less than the principal due at maturity.

A) corporate bonds
B) municipal bonds
C) treasury bills
D) treasury bonds

Question 45

In the bond market, there is ____ relationship between bond prices and interest rates.

A) no
B) an equal
C) a positive
D) a negative

Question 46

In the bond market, there is _____ relationship between interest rates and risks.

A) no
B) an equal
C) a positive
D) a negative

Question 47

A _____ generally carries the most risk and a high interest rate.

A) corporate bond
B) municipal bond
C) treasury bill
D) treasury bond

Question 48

In the bond market, there is typically _____ relationship between interest rates and maturity.

A) no
B) an equal
C) a positive
D) a negative

Question 49

The likelihood that a borrower will not make the required payment on a debt is _____ risk.

A) interest rate
B) nonpayment
C) default
D) unique

Question 50

The three largest bond credit rating agencies are Moody's, Standard & Poor's, and:

A) Fitch.
B) Murray.
C) Credit One.
D) Johnson & Johnson.

Question 51

The three largest bond credit rating agencies are Standard & Poor's, Fitch, and:

A) Moody's.
B) Murray.
C) Credit One.
D) Johnson & Johnson.

Question 52

The three largest bond credit rating agencies are Moody's, Fitch, and:

A) Standard & Poor's.
B) Murray.
C) Credit One.
D) Johnson & Johnson.

Question 53

The bonds that have the lowest risk of default have a credit rating of:

A) Aaa or AAA.
B) A.
C) Baa or BBB.
D) C or D.

Question 54

The bonds that have the highest risk of default have a Standard & Poor's credit rating of:

A) AAA.
B) BBB.
C) CC.
D) D.

Question 55

The bonds that have the highest risk of default have a Moody's credit rating of:

A) Aaa.
B) Baa.
C) Caa.
D) C.

Question 56

How often do bond rating agencies change their ratings?

A) never
B) seldom
C) often
D) daily

Question 57

_____ of returns is a method of measuring an investment risk.

A) Variance
B) Standard deviation
C) Expectation
D) Estimation

Question 58

A key guideline for long-run success in financial investing is to:

A) spend at least $100,000.
B) purchase only bonds.
C) purchase only stocks.
D) maximize diversification.

Question 59

_____ is an investment technique that reduces risk by putting funds into unrelated asset classes.

A) A mutual fund
B) Diversification
C) An exchanged-traded fund
D) Financing

Question 60

Paul has purchased individual stocks in five companies. One company is in the telecommunications industry, one is in the oil and gas industry, one is in the transportation industry, one is in the pharmaceutical industry, and one is in the technology industry. This is an example of:

A) nondiversification.
B) diversification.
C) an exchanged-traded fund.
D) an index fund.

Question 61

A financial investment that pools money from multiple investors to purchase a portfolio of stocks, bonds, or other financial assets but that is not traded on a stock exchange is:

A) a mutual fund.
B) an IRA.
C) an exchanged-traded fund.
D) an annuity.

Question 62

_____ pools money from multiple investors and trades on a stock exchange.

A) A mutual fund
B) An IRA
C) An exchanged-traded fund
D) An index fund

Question 63

______ is a fund that automatically invests in all of the stocks in a particular stock index.

A) A mutual fund
B) An IRA
C) An exchanged-traded fund
D) An index fund

Question 64

The _____ is the theory that financial asset pricing incorporates all relevant publicly available information.

A) wisdom of the crowd
B) rational expectations theory
C) efficient market hypothesis
D) greater fool theory

Question 65

The _____ is the idea that the market is collectively smarter than an individual.

A) dartboard theory of investing
B) rational expectations theory
C) greater fool theory
D) wisdom of the crowd

Question 66

Maria decides to purchase stock in XYZ Corporation after learning that many of her friends are enthusiastic about the stock. This is an example of the:

A) dartboard theory of investing.
B) rational expectations theory.
C) greater fool theory.
D) wisdom of the crowd.

Question 67

XYZ Corporation has been in the news as the subject of a takeover attempt. As a result, its stock price has jumped dramatically. This is an example of the:

A) dartboard theory of investing.
B) rational expectations theory.
C) efficient market hypothesis.
D) wisdom of the crowd.

Question 68

The _____ suggests that it is difficult to outperform the market on a risk-adjusted basis.

A) dartboard theory of investing
B) rational expectations theory
C) efficient market hypothesis
D) greater fool theory

Question 69

A _____ develops when investor enthusiasm drives asset prices up above their true fundamental value in a belief that prices will continue to rise.

A) bubble
B) stock indicator
C) market burst
D) greater fool theory

Question 70

Although beginning to slow, housing prices in Canada have risen tremendously over the last seven years relative to income. This is an example of a:

A) bubble.
B) construction market.
C) market burst.
D) housing deceleration.

Question 71

_____ is used by investors to manage both long- and short-term risk.

A) A mutual fund
B) An index fund
C) Portfolio analysis
D) Diversification

Question 72

_____ is owning a variety of different financial assets.

A) A mutual fund
B) An index fund
C) Portfolio analysis
D) Diversification

Question 73

When estimating the potential return of an investment, many economists recommend low-cost index funds because:

A) there are no management fees or expenses.
B) they are a completely safe investment.
C) it is difficult for anyone to beat the market over a long period of time.
D) they are tied to foreign stock indices.

Question 74

The _____ concept is the idea that receiving money today is worth more than receiving the same amount in the future.

A) present value
B) future value
C) time value of money
D) internal rate of return

Question 75

_____ is the discounted current value of a future sum of money.

A) Present value
B) Future value
C) Time value of money
D) Internal rate of return

Question 76

The total value of money going into and out of a business is called:

A) cash flows.
B) discounting.
C) time value of money.
D) internal rate of return.

Question 77

The discount rate that makes the present value of all current and future cash outflows and inflows from a project equal to zero is the:

A) present value.
B) future value.
C) net present value.
D) internal rate of return.

Question 78

Beatrice has $200 in the bank earning 8%. What is the future value of the $200 in one year?

A) $208
B) $216
C) $225
D) $185

Question 79

Amos has $1,000 in the bank earning 9%. What is the future value of the $1,000 in one year?

A) $1,009
B) $1,018
C) $1,090
D) $917

Question 80

If the future value of a sum is $220 and the annual interest rate is 10%, what is the present value?

A) $200
B) $210
C) $222
D) $242