Deck 16: Managing Finances

Question 1

Stocks are known as securities because they represent a secured interest in a company.

Answer 1

True

Question 2

A stock is a portion of the ownership of a corporation.

Answer 2

True

Question 3

The American Stock Exchange (AMEX),located in New York City,is the largest exchange.

Answer 3

False

Question 4

The New York Stock Exchange,the world's oldest electronic stock market,has orders gathered and executed on a computer network.

Question 5

An exchange-traded fund (ETF)is a bundle of stocks (or bonds)that are in an index that tracks the overall movement of a market.

Question 6

A dividend is a payment to shareholders,on a per-share basis,from the company's earnings.

Question 7

An investment bank is a financial institution that specializes in issuing and reselling new securities.

Question 8

The market in which mutual funds are sold are called securities markets.

Question 9

A stock's real value is its book value,the current price of a share in the stock market.

Question 10

Stock brokers earn commissions from the individuals and organizations for whom they place orders.

Question 11

The New York Stock Exchange is one of the smaller exchanges.

Question 12

The book value of a share of common stock is expressed as total shareholders' equity divided by the number of shares of stock.

Question 13

The FDIC is the regulation and enforcement agency that oversees the markets' activities,including the ways securities are issued.

Question 14

A stock exchange is an organization of individuals coordinated to provide an institutional auction setting in which stocks can be bought and sold.

Question 15

The compounding of interest paid to the investor over given time periods is called time value of money.

Question 16

To protect investors from fraudulent issues,a prospectus enforces laws against insider trading.

Question 17

Common stock is bought by average persons for the sake of making money with no voting privileges.

Question 18

Mutual funds are created by companies that pool cash investments from individuals and organizations to purchase portfolio of stocks,bonds,and other securities.

Question 19

While it's invested,money grows by earning interest or yielding some other form of return.We call this compound growth.

Question 20

In a secondary securities market,new stocks and bonds are bought and sold by firms and governments.

Question 21

Outside individuals who provide additional capital to a business for growth after its successful launch,are called devil investors.

Question 22

The Dow Jones Industrial Average (DJIA)focuses on 30 large companies and has remained unchanged in recent years.

Question 23

In a secured loan the borrower guarantees repayment of the loan by pledging the asset as interest to the lender.

Question 24

Interest from a loan is called current dividend yield and returns from stock dividends are commonly referred to as interest dividend yield.

Question 25

A bond is said to be in default if the borrower fails to make payment when due to lenders.

Question 26

The NASDAQ Composite Index is a specialty index that measures the performance of the smallest U.S.companies based on market capitalization.

Question 27

Asset allocation means buying several different kinds of investments rather than just one.

Question 28

Market indexes provide useful summaries of overall price trends,both in specific industries and in the stock market as a whole.

Question 29

Venture capital is private funds from wealthy individuals or companies that seek investment opportunities in new growth companies.

Question 30

Municipal bonds may be issued by federal,state,or local governments.

Question 31

Bankruptcy is the court-granted permission not to pay some or all debts.

Question 32

Each type of investment has a risk-return (risk-reward)relationship; whereas riskier investments tend to offer lower returns,safer investments tend to offer higher returns (rewards).

Question 33

The amount of interest owed depends on an annual percentage rate (APR)that is agreed upon between the lender and borrower.

Question 34

Bear markets are periods of rising stock prices,generally lasting 12 months or longer.

Question 35

Book-entry ownership replaces paper stock certificates.

Question 36

The amount of money that is loaned and must be repaid is called the collateral.

Question 37

A portfolio is the combined holdings of all the financial investments - stocks,bonds,mutual funds,real estate - of any company or individual.

Question 38

Profit realized from the increased value of an investment is known as capital gain.

Question 39

With an unsecured loan,the borrower puts up collateral.

Question 40

Price appreciation is an increase in the dollar value of an investment.

Question 41

Today's NYSE is a hybrid market that utilizes both floor and electronic trading.

Question 42

Any company can have a bad year and decide to reduce or omit dividend payments to stockholders.

Question 43

The stocks of approximately 3,800 companies,both emerging and well known,are traded by NASDAQ.

Question 44

With the advancement of online investing,keeping track of who owns what at any given time has become a monumental burden.

Question 45

Aggressive growth funds seek minimum long-term capital growth.

Question 46

A stock split is a stock dividend paid in additional shares to shareholders.

Question 47

A bull market is characterized by falling stock prices.

Question 48

Mutual funds that stress preservation of capital and current income,but also seek some capital appreciation,are called balanced funds.

Question 49

The best way to take advantage of the time value of money is to obtain a low rate of return on your investment.

Question 50

A corporate raider is an investor that helps many firms grow rapidly by providing venture capital.

Question 51

Although equity financing often has strong appeal,debt financing,looking inside the company for long-term funding,is sometimes preferable.

Question 52

Existing stocks and bonds are sold in a large secondary securities market which is handled by the New York Stock Exchange and by online trading with electronic communication networks.

Question 53

Each common share of common stock has a vote on major issues that are brought before the shareholders.

Question 54

When making an investment,the returns from an initial investment accumulate substantially over longer periods of time.

Question 55

Electronic communication networks have closed the door to around-the-clock and around-the-globe trading.

Question 56

An exchange-traded fund is a bundle of stocks or bonds that track the overall movement of the market.

Question 57

Book value reflects the amount that buyers are willing to pay for a share of the company's stock.

Question 58

A mutual-fund portfolio is expected to depreciate in market value and otherwise produce a loss for the fund and its investors.

Question 59

The Dow Jones Industrial Average is the most widely cited American stock index.

Question 60

Initial public offerings (IPOs)are the first sale of a company's stock to the general public and are a major source of funds that fuel continued growth for many firms.

Question 61

Aggressive growth funds are designed for investors who can accept the risk of loss inherent in common stock investing with severe price fluctuations,but also the potential for superior returns over time.

Question 62

Negative ratings do not necessarily keep issues from being successful.Rather,they raise the interest rates that issuers must offer to attract lenders.

Question 63

Private owners lose some control of the company when shares are sold to the public.

Question 64

An investment bank operates in the secondary securities market.

Question 65

The Dow Jones Industrial Average (DJIA)measures the performance of the industrial sector of the U.S.stock markets by focusing on just 30 blue-chip,large-cap companies as reflectors of the economic health of the many similar U.S.firms.

Question 66

The largest stock exchange in the world is the Tokyo exchange.

Question 67

Conservative investors prefer the higher risks and potential returns from long-term junk bonds and common stocks.

Question 68

Which of the following statements is NOT true about dividend payments?

A) Many companies distribute between 30 and 70 percent of their profits to shareholders.
B) Some firms, especially fast-growing companies, do not pay dividends.
C) Many fast-growing companies use cash earnings for expanding the company so that future earnings can grow even faster.
D) During bad years, companies are still required to pay dividends.

Question 69

Because of the uncertainties involved in stock prices,investment professionals believe day-to-day prices to be a generally poor indicator of any stock's real value.

Question 70

Dividend payments are optional and variable - the corporation's CEO decides whether and when a dividend will be paid,as well as the amount that is best for the future of the company and its employees.

Question 71

A stock's ________ can be calculated by dividing total shareholders' equity by the total number of shares of stock issued.

A) par value
B) market value
C) book value
D) all of the above

Question 72

When making an initial investment of $10,000,the gains for the last 10 years are much greater than for the first 10 years illustrating the ________ .

A) power of compound growth
B) total value of money
C) common stock approach
D) portfolio effect

Question 73

Although advising and underwriting may be tasks of an investment bank,distribution of new securities is NOT one of their services.

Question 74

Common shareholders owning a small proportion of the company's shares gains a powerful position in determining who runs the corporation and how.

Question 75

Interest paid to bondholders is a business expense and therefore not tax deductible for the firm.

Question 76

When an investment bank engages in underwriting,that investment bank is taking on risk in the process of launching new securities.

Question 77

In return for their investment,angel investors typically expect a small piece of ownership in the company (up to 10 percent of its equity).

Question 78

The investment industry categorizes firms according to size of capitalization.

Question 79

Unlike the Dow and the S&P 500,all NASDAQ-listed companies,not just a selected few,are included in the index for a total of some 3,800 firms across six continents.

Question 80

A(n)________ fund nearly matches the performance of a particular market.

A) aggressive
B) market
C) index
D) balanced