Deck 9: Financial Markets and Instruments: Learning the Investment Environment

Question 1

Pooling arrangements would not include

A)mutual funds.
B)investment trusts.
C)warrants and rights.
D)limited partnerships.

Answer 1

warrants and rights.

Question 2

If you purchase a stock put,the put allows you to

A)buy stock at a stated price.
B)buy stock at the current market price.
C)sell stock at a stated price.
D)sell stock at the current market price.

Answer 2

sell stock at a stated price.

Question 3

Commodity and financial futures contracts

A)are highly risky investments.
B)are highly liquid assets.
C)are tangible investments.
D)impose no obligation on buyers.

Answer 3

are highly risky investments.

Question 4

An organized exchange refers to

A)a physical place where securities transactions are made.
B)a swap of common stock for bonds arranged by a broker.
C)a group of investors investing in limited partnerships.
D)criminal influences in the securities markets.

Question 5

If you purchase a stock option,the option allows you to

A)buy stock at a stated price.
B)buy stock at the current market price.
C)sell stock at a stated price.
D)sell stock at the current market price.

Question 6

A risk averter is someone who

A)never takes risks.
B)expects adequate compensation for undertaking risky investments.
C)limits his or her investments to insured savings accounts.
D)avoids risk by simply not investing.

Question 7

Contractual claims would not include

A)warrants and rights.
B)investment trusts.
C)put options.
D)call options.

Question 8

Which of the following investments is an example of a pooling arrangement?

A)A share of common stock
B)A commodity futures contract
C)A mutual fund
D)A corporate bond

Question 9

Highly liquid investments have

A)short-term maturities.
B)long-term maturities.
C)no maturity.
D)significant future returns.

Question 10

One advantage of a tangible asset over an intangible one is that

A)its price is guaranteed to increase over time.
B)it can be enjoyed or used while it is owned.
C)it represents a claim to an intangible asset.
D)you receive a title providing evidence of ownership.

Question 11

Which alternative is an example of an intangible asset?

A)A common stock
B)A bond
C)A mutual fund share
D)all of the above

Question 12

When compared to a risk averter,a risk seeker will accept identical risks for

A)a smaller additional return
B)a larger additional return.
C)similar current returns.
D)no additional return.

Question 13

Which one of these investment assets never matures?

A)Common stocks
B)Corporate bonds
C)Options
D)Municipal bonds

Question 14

Tangible assets would not include

A)personal residences.
B)commodity and financial futures.
C)gold.
D)collectibles.

Question 15

A future return is described most appropriately as

A)dividends or interest.
B)a total return.
C)a contractual promise to pay.
D)price appreciation.

Question 16

Which of these investments is most likely to have the highest expected risk?

A)commodity and financial futures
B)U.S.Treasury issues
C)Growth stock funds
D)Preferred stock

Question 17

An example of a current return is:

A)a quarterly dividend received from a common stock.
B)the price appreciation of a common stock.
C)the sale of a common stock at a profit.
D)the sale of a common stock at a loss.

Question 18

Which of these investments is most likely to have the highest expected total return?

A)commodity and financial futures
B)U.S.Treasury issues
C)Growth stock funds
D)Preferred stock

Question 19

Which item below is not true of the New York Stock Exchange?

A)It is the largest organized exchange in the world.
B)Companies must meet certain requirements to have their shares listed there.
C)In addition to stocks,bonds are also traded there.
D)The Exchange guarantees secrecy after a transaction is completed,all its relevant details are destroyed.

Question 20

Investments with long maturities would not include

A)common stocks.
B)preferred stocks.
C)corporate bonds.
D)put and call options.

Question 21

NASDAQ is

A)an electronic trading system in the over-the-counter market.
B)a post on the NYSE where certain stocks trade.
C)the trading symbol for a certain stock.
D)a regulatory branch of the SEC.

Question 22

A full-service stockbroker is best distinguished from a discount broker on which of the following characteristics?
I.commissions
II.research
III.range of investment products offered
IV.quality of order execution

A)I only
B)I,II
C)I,II,III
D)I,II,III,IV.

Question 23

On the New York Stock Exchange,the function of maintaining an orderly and continuous market is performed by

A)commission brokers.
B)floor brokers.
C)specialists.
D)floor traders.

Question 24

Binding arbitration is a process that

A)allows you to appeal to FINRA or any of the organized exchanges for resolution of a complaint against your broker.
B)is used by the SEC to determine appropriate damages against a broker for unethical conduct.
C)involves hiring an attorney and suing your broker.
D)resolves a conflict between the SEC and a broker with respect to charging excessive commissions.

Question 25

Which alternative is not characteristic of an Internet broker?

A)Easy account access for placing and monitoring orders
B)Typically offers an excellent Web site
C)Places restrictions on the number of trades you can make
D)Has very low commissions

Question 26

The Maloney Act led to the creation of

A)the Securities and Exchange Commission (SEC).
B)the American Arbitration Association (AAA).
C)the National Association of Securities Dealers (NASD).
D)the Securities Investor Protection Commission (SIPC).

Question 27

Which item below is not true of the Securities and Exchange Commission?

A)It oversees securities trades to assure that fair prices are set.
B)It was created by the 1934 Securities Act.
C)It requires that new issues of securities be registered with it.
D)It requires that potential securities buyers be provided prospectuses.

Question 28

The Securities Investor Protection Act of 1970

A)protects investors against all investment losses up to $500,000.
B)guarantees delivery of shares (up to $500,000)and cash (up to $100,000)held by a bankrupt broker.
C)is offered only by full-service brokers.
D)established binding arbitration as the method of resolving broker-related disputes.

Question 29

Which item below is not true of the Securities and Exchange Commission?

A)It insures investors against losses from fraud or theft.
B)It was created by federal government.
C)It approves securities for sale in financial markets.
D)It requires that potential securities buyers be provided prospectuses.

Question 30

Which of the following acts was meant to enhance financial disclosures and make financial analysts more responsive to investors.

A)Sarbanes Oxley Act
B)Registered Investment Advisors Act
C)Financial Institutions Act
D)Grasso Public Disclosure Act

Question 31

You are interested in buying some newly issued shares of a company.Prior to the sale,the company must provide the SEC with

A)all of its prior years' tax returns.
B)an insurance binder to underwrite the securities.
C)form 1040.
D)a prospectus.

Question 32

"Blue sky" laws refer to

A)state laws protecting investors in intrastate security sales.
B)federal laws protecting investors in interstate security sales.
C)municipal laws regulating building heights.
D)common laws that give shareholders the right to sue fraudulent securities issuers.

Question 33

Comprehensive financial information about a company is found in its

A)corporate by-laws.
B)10-K Report.
C)articles of incorporation.
D)presidential address.

Question 34

Which of the items below should you expect to receive from a full-service broker?

A)Privileged (inside)information about certain companies
B)Assistance in tailoring a portfolio to meet your needs
C)Assistance in preparing your income tax return
D)all of the above

Question 35

The over-the-counter market functions through

A)NASDAQ.
B)an organized exchange.
C)the tangible goods market.
D)government auctions.

Question 36

Investor complaints against brokers are primarily handled through

A)binding arbitration.
B)the federal court system.
C)the state court system.
D)the Federal Reserve system.

Question 37

In relation to the New York Stock Exchange,which item below is not true of the American Stock Exchange? It

A)lists lesser-known companies.
B)includes many energy-related companies.
C)is younger.
D)actually lists more companies and is larger in terms of trading activity.

Question 38

The Sarbanes-Oxley Act of 2002

A)attempted to control excessive investor trading.
B)intended to make financial analysts more responsive to investors.
C)disallowed insider trading.
D)prevented corporate officers from owning shares in their companies.

Question 39

Which item below is not true of the New York Stock Exchange?

A)It has been moving trades onto an electronic communications network.
B)It uses a "hybrid" systems that combines hand to hand trades with an electronic network.
C)It is one part of an organization that manages several exchanges.
D)It has eliminated the use of specialists.

Question 40

The over-the-counter market refers to

A)a section of the NYSE where stocks of small companies are traded.
B)an illegal operation where securities in non-existing companies are scammed.
C)a network of securities dealers who trade securities through an electronic communication system.
D)stock trading in different regions of the country.

Question 41

When you placed a market order,your broker quoted a price of $30.With this information we know that

A)you will trade the stock at a price of $30,or higher.
B)you will trade the stock at a price of $30,or lower.
C)you will trade the stock at exactly $30.
D)you will be unsure of the exact trade price.

Question 42

With a margin account,you can expect

A)to pay interest on a broker's loan.
B)to leverage the amount you invest.
C)to magnify your gains or losses.
D)all of the above

Question 43

You purchased 100 shares of KLM at $40 a share by depositing the minimum amount of margin.If the initial margin requirement was 50% and the maintenance margin requirement is 30%,you will get a margin call if KLM's price falls to

A)$12.
B)$20.
C)$29.
D)$32.

Question 44

Using a margin account

A)magnifies your gains and losses
B)only reduces your losses.
C)only reduces your gains
D)reduces your gains and losses.

Question 45

Which one of the items below is not an investment advisory service?

A)Moody's
B)Barron's
C)Value Line
D)Standard and Poor's

Question 46

A short position refers to

A)inadequate margin in a margin account.
B)securities you have sold but do not own.
C)an order to sell stock at a price below its current market price.
D)securities you purchased but have not yet taken delivery of the shares.

Question 47

If you tell your broker the maximum price to pay for a stock,you have placed a

A)market order.
B)limit order.
C)stop-loss order.
D)price order.

Question 48

An order for 1,850 shares of stock involves

A)one block lot,8 round lots,and one odd lot.
B)one block lot and one odd lot.
C)18 round lots and one odd lot.
D)one round lot and one odd lot.

Question 49

Which of the following publications is exclusively investment-oriented?

A)Changing Times
B)Forbes
C)Consumer Reports
D)Money

Question 50

You take a long position in a stock when you

A)buy the stock.
B)sell the stock.
C)margin the stock.
D)lend the stock.

Question 51

A brokerage account that lets you borrow is known as a

A)margin account.
B)cash account.
C)trading account.
D)options account.

Question 52

A round lot is

A)100 shares.
B)10 shares.
C)1,000 shares.
D)an even number group of shares.

Question 53

You purchased 100 shares of KLM at $60 a share by depositing the minimum amount of margin.If the initial margin requirement was 50% and the maintenance margin requirement is 30%,you will get a margin call if KLM's price falls to

A)$18.
B)$20.
C)$43.
D)$40.

Question 54

You bought a stock at $50 a share,and it has increased in price to $70 a share.You think its price will increase even more but you are also concerned that it might go back to $50,eliminating the entire gain.Given this information,you should place which kind of order?

A)Stop-loss
B)Profit-retention
C)Limit
D)Deferred sales

Question 55

A long position is described as one

A)where you buy,and then own securities.
B)where you have accumulated considerable investment gains.
C)where you have held the same securities for many years.
D)where you borrowed money to buy the securities.

Question 56

You engage in a short sale when you

A)sell shares of stock you do not own.
B)sell a put.
C)sell options on a stock for future sale.
D)sell stock to cover a margin call.

Question 57

The amount of funds needed to buy 100 shares of a stock at $80 a share with a margin account and an initial margin requirement of 50% is

A)$4,000.
B)$5,600.
C)$6,400.
D)$2,400.

Question 58

If you tell your broker to buy securities at the best possible price,you have placed a

A)market order.
B)limit order.
C)stop-loss order.
D)price order.

Question 59

Which one of the following market tools is used to limit downside risk in the price of a stock?

A)Stop order
B)Market order
C)Limit order
D)Deferred sales order

Question 60

A purchase order for less than 100 shares of stock is called

A)an odd lot.
B)an even lot.
C)a split order.
D)a broken lot.

Question 61

An investments total return consists of its current return plus its future return.

Question 62

NASDAQ is an electronic communications system employed to trade OTC securities.

Question 63

A risk seeker is someone willing to undertake risky investments,regardless of the potential return.

Question 64

The Securities Exchange Act of 1933 created the requirement for a document called a prospectus.

Question 65

The Securities Exchange Act of 1934 created the document called a 10-K report.

Question 66

A corporate stock is never redeemed by its issuer.

Question 67

The primary function of the specialist is to maintain an orderly and continuous market.

Question 68

Preferred stocks typically mature at a specific date set by the corporation.

Question 69

Yahoo! Finance is

A)a television station dedicated to financial news reporting.
B)the student edition of the Wall Street Journal.
C)a feature on the PBS program,The Nightly News.
D)an Internet site that provides financial information.

Question 70

The NYSE is an example of an organized exchange.

Question 71

The over-the-counter market (OTC)refers to exchanges in foreign countries.

Question 72

On electronic exchanges trades are generally conducted without specialists.

Question 73

Put and call options are classified as tangible investments.

Question 74

Which item below is not an investment newspaper?

A)Wall Street Week
B)Barron's
C)The Wall Street Journal
D)Investor's Business Daily

Question 75

Higher income individuals will tend to prefer investments that avoid or defer taxes.

Question 76

Interest on U.S.Treasury bonds is subject to federal income taxes,but interest on municipals is not subject to the federal income tax.

Question 77

A mutual fund is a pooling arrangement.

Question 78

Tangible assets are often viewed as a protection against inflation.

Question 79

The total return from a common stock,such as IBM,consists of interest and dividends.

Question 80

A risk averter is someone unwilling to undertake risky investments,regardless of the potential return.