Deck 16: Securities and Investments

Question 1

New stocks and bonds are brought and sold by firms and governments in primary securities markets.

Answer 1

True

Question 2

The Securities and Exchange Commission is the federal agency that administers laws to protect the investing public and maintain smoothly functioning markets.

Answer 2

True

Question 3

Blue-chip stocks are issued by new companies.

Answer 3

False

Question 4

The over-the-counter market trades stock outside the formal institutional setting of the organized stock exchanges.

Question 5

A bond is a security through which an issuer promises to pay the buyer a certain amount of money by a specified future date.

Question 6

A debenture is an unsecured corporate bond.

Question 7

The net asset value of a share of stock at the time it is originally issued is the market value.

Question 8

A limit order instructs the broker to sell if a stock price falls to a certain level.

Question 9

A short sale occurs when an investor borrows securities from a broker to be sold and then replaced at a specified future date.

Question 10

A prospectus is a potential buyer of a security.

Question 11

Insider trading involves the use of special knowledge about a firm for profit or gain.

Question 12

Stocks and bonds are referred to as securities because they guarantee a profit to investors.

Question 13

Both blue-chip stocks such as Wal-Mart, and dot-coms such as Yahoo! can be evaluated exactly the same using tools such as earnings per share, dividend yield, and book value.

Question 14

To gain entry to the trading floor of a stock exchange, a potential trader must own at least one share of stock being traded on the exchange.

Question 15

Scottrade is a full-service broker.

Question 16

The largest regional stock exchanges are the Chicago and Pacific Stock Exchanges.

Question 17

The U.S. Government is the world's largest debtor.

Question 18

U.S. government bonds are among the most risky investments available.

Question 19

The most attractive feature of municipal bonds is the fact that investors do not pay taxes on interest earned.

Question 20

Ideally, an investor will diversify his or her portfolio within one category of investments.

Question 21

While daily stock quotations are reported in most newspapers, quotations for bonds and mutual funds are rarely published.

Question 22

The margin requirement for stock purchases has remained fixed at 50 percent in recent decades.

Question 23

Circuit-breaker rules suspend trading on the New York Stock Exchange in the event of a national emergency.

Question 24

Program trading has been identified as the cause of some sudden market fluctuations.

Question 25

According to the text, some "newcomers" are regarded as blue-chip stocks.

Question 26

With preferred stock, shares have priority over common stock when dividends are paid out and those dividends are expressed as a percentage of par value.

Question 27

Neither the activity of the dealers nor the geographic location of the market distinguishes a stock exchange from an electronic market.

Question 28

NASDAQ's telecommunication system operates by broadcasting trading information over the Internet.

Question 29

An investor could lose money in a fantasy market, where the investor pays slightly higher commissions.

Question 30

Capital appreciation funds seek maximum long-term capital growth, sacrificing current income and safety by investing in stocks of new and high-risk companies.

Question 31

Conservative investors will most likely invest in global stocks and junk bonds.

Question 32

In considering global stocks, junk bonds, and high-grade corporate bonds, an aggressive investor is least likely to choose the high-grade corporate bonds.

Question 33

With a price-earnings ratio of 20 and a dividend of $0.09 per share, the dividend yield for XYZ stock would be .75 percent with a current price of $13.80.

Question 34

The price-earnings ratio for ABC stock is indicated as cc; therefore, ABC's price-earnings ratio was less than 100.

Question 35

Today's close was just reported with a new change of -1/2; therefore, with yesterday's closing price at $16.20, today's closing price must have been $15.70.

Question 36

A stock's _____ is the face value of a share at the time it is originally issued.

A) par value
B) market value
C) book value
D) no-load value

Question 37

The current price of a share of stock in the stock market is called its _____.

A) par value
B) book value
C) resale value
D) market value

Question 38

_____ is a security through which an issuer promises to pay the buyer a certain amount of money by a specified future date.

A) Preferred stock
B) A bond
C) A loan
D) Common stock

Question 39

A _____ bond is issued by the federal government.

A) corporate
B) government
C) callable
D) municipal

Question 40

A _____ bond is issued by a company as a source of long-term funding.

A) corporate
B) convertible
C) municipal
D) secured

Question 41

_____ are companies that pool investments from individuals and organizations to purchase a portfolio of stocks, bonds, and other securities.

A) Stock companies
B) Mutual funds
C) Stock exchangers
D) Brokers

Question 42

Investors who purchase _____ are not charged sales commissions when they buy into or sell out of the funds.

A) no-load funds
B) load funds
C) free floating funds
D) in-and-out slides

Question 43

A(n) _____ authorizes the purchase of a stock only if its price is less than or equal to a specified dollar value.

A) go-no-go
B) limit order
C) less/equal rule
D) acquisition command

Question 44

A(n) _____ order instructs the broker to sell if a stock price falls to a certain level.

A) request-to-sell order
B) dump order
C) stop order
D) unhooking

Question 45

A round lot is the purchase of securities in multiples of ____.

A) 10
B) 50
C) 100
D) 500

Question 46

A(n) _____ is a stock transaction in which an investor borrows securities from a broker to be sold and then replaced at a specified future date.

A) short sale
B) long sale
C) futures sale
D) insider trade

Question 47

When new securities are sold to single buyers or small groups of buyers it is a(n) _____.

A) private investment
B) public investment
C) IPO
D) private placement

Question 48

_____ are desirable because they allow the issuers to keep their plans confidential.

A) Bonds
B) Public issues
C) Private placements
D) Investment banks

Question 49

Corporate stocks valued at more than _____ were brought to the market in 2004 by U.S. investment bankers.

A) $100 billion
B) $150 billion
C) $200 trillion
D) $400 trillion

Question 50

For preferred stock, dividends are typically expressed as a percentage of _____.

A) par value
B) sales
C) net income
D) market value

Question 51

To become a member of a stock exchange, an individual must purchase one of a limited number of memberships. Such a membership is called a _____.

A) plural institutional permit
B) spot on the floor
C) trader's position
D) seat

Question 52

A(n) _____ is a dealer on the trading floor of a stock exchange who is appointed to control the trade of a given stock.

A) agent
B) coordinator
C) runner
D) specialist

Question 53

A(n) _____ is a dealer who buys and sells stock for his or her own inventory, but also acts as the exclusive auctioneer for it.

A) agent
B) coordinator
C) runner
D) specialist

Question 54

The largest regional exchanges are the _____ and _____ Stock Exchanges.

A) Cincinnati; Spokane
B) Philadelphia; Pacific
C) Chicago; Pacific
D) Philadelphia; New York

Question 55

The _____ Stock Exchange exceeds the NYSE in number of stocks listed.

A) London
B) Tokyo
C) Chicago
D) Pacific

Question 56

The _____ is the organization of securities dealers formed to trade stock outside the formal institutional setting of the organized stock exchanges.

A) Internet market
B) primary market
C) secondary market
D) over-the-counter market

Question 57

The _____ has no trading floor.

A) Internet market
B) primary market
C) secondary market
D) over-the-counter market

Question 58

Bonds can be issued by _____.

A) public corporations
B) municipalities
C) the U.S. government
D) corporations, municipalities, and the government

Question 59

Which of the following is well known for their ratings of bonds?

A) The Wall Street Journal
B) Chase Manhattan
C) Standard & Poor's
D) CitiBank

Question 60

Another name for low-grade bonds is _____ bonds.

A) junk
B) risky
C) gambler's
D) speculative

Question 61

The government of which of the following nations is the world's largest debtor?

A) Great Britain
B) Russia
C) United States
D) Germany

Question 62

In early 2006, the total United States government debt had already reached which figure?

A) $6 billion
B) $60 billion
C) $2 trillion
D) $8 trillion

Question 63

Which of the following is NOT issued by the United States Treasury?

A) bills
B) stock
C) notes
D) bonds

Question 64

One of the safest investments available is bonds issued by _____.

A) public corporations
B) private corporations
C) municipalities
D) the U.S. government

Question 65

With _____ bonds, the names of the bondholders are tracked by the corporation, who simply mails the interest checks directly to the bondholders.

A) bearer
B) secured
C) registered
D) debenture

Question 66

A registered bond is _____.

A) a bond backed by the pledge of assets to the bondholders
B) a bond requiring the holder to clip and submit a coupon to receive an interest payment
C) a bond bearing the name of the holder and registered with the issuing company
D) an unsecured bond for which no specific property is pledged as security

Question 67

A bearer bond is _____.

A) a bond backed by the pledge of assets to the bondholders
B) a bond requiring the holder to clip and submit a coupon to receive an interest payment
C) a bond bearing the name of the holder and registered with the issuing company
D) a bond that may be called in and paid for by the issuer before its maturity date

Question 68

A secured bond is _____.

A) a bond backed by the pledge of assets to the bondholders
B) a bond requiring the holder to clip and submit a coupon to receive an interest payment
C) a bond bearing the name of the holder and registered with the issuing company
D) a bond that maybe called in and paid for by the issuer before its maturity date

Question 69

On the stock pages of The Wall Street Journal, which column indicates how many shares of a given stock were sold during the market session reported on?

A) Vol 100s
B) Close
C) Net Chg
D) Div

Question 70

The _____ is the current price of the stock divided by the firm's current annual earnings per share.

A) dividend yield
B) price-earnings ratio
C) debenture
D) trading volume

Question 71

On the stock pages of The Wall Street Journal, which of the following abbreviations designates the difference between today's closing price of a stock and the closing price of the previous market day?

A) Vol 100s
B) Close
C) Net Chg
D) 52-Week High

Question 72

_____ is a market index based on the performance of 400 industrial firms, 40 utilities, 40 financial institutions, and 20 transportation companies.

A) Standard & Poor's Composite Index
B) The NYSE index
C) The Dow Jones Industrial Average
D) The NASDAQ composite index

Question 73

When an investor pays a broker only a portion of the entire purchase price of the stock acquired, that investor is said to be buying on _____.

A) faith
B) the edge
C) hope
D) margin

Question 74

Every broker/dealer in the U.S. who conducts securities business with the public is required to be a member of the _____.

A) Securities and Exchange Commission
B) National Association of Securities Dealers
C) World Bank
D) Association of Commodities Brokers and Agents

Question 75

While the Securities and Exchange Commission (SEC) is the federal effort to police trading in stocks, states have become involved, too, with their _____.

A) antitrust divisions
B) customer complaint divisions
C) legislative investigative committees
D) blue sky laws

Question 76

To bring a new security to market requires the services of _____.

A) an investment bank only
B) the Securities and Exchange Commission only
C) Moody's
D) both an investment bank and the Securities and Exchange Commission

Question 77

Corporate bonds valued at _____ were brought to the market in 2004 by U.S. investment banks.

A) $100 billion
B) $150 billion
C) $350 billion
D) $500 billion

Question 78

Which statement is true regarding Wal-Mart stock?

A) Wal-Mart stock is a blue-chip stock.
B) A $10,000 investment would have grown to only $12,000 between 1997 and 2002.
C) Wal-Mart is considered a "newcomer," not a traditional blue-chip company.
D) None of the above

Question 79

Instead of paying cash dividends to stockholders, what does Starbucks do?

A) it uses earnings to pay for new facilities only
B) it uses earnings to pay debt only
C) it uses earnings to pay for growth projects only
D) it uses earnings to pay for new facilities and growth projects

Question 80

Which of the items below are considered services offered by a discount broker such as Charles Schwab?

A) person-to-person sales conversations
B) investment advice
C) automated online services
D) estate planning