Question 1

Another term for portfolio strategy is:

Accepted Answer

Portfolio strategy and allocation model are often used interchangeably to refer to the process of selecting and managing a mix of assets to achieve specific investment objectives. The term "modulation model" is not commonly used in the context of portfolio management, and "formula model" and "equity model" are too specific and do not capture the broad range of asset classes that may be included in a portfolio strategy.

Question 2

Investing online is usually ________ than trading through a traditional stock brokerage firm.

Accepted Answer

Investing online is generally less expensive than trading through a traditional stock brokerage firm. Online brokers often have lower commission fees and may not charge as many other fees as traditional brokers, such as account maintenance fees or fees for assistance from a broker.

Question 3

The ABC Corporation issues a $1,000 bond,with an interest rate of 10%,and a maturity date of 2015.This creates a liability for the ABC Corporation to pay the bondholder:

Accepted Answer

The bond has an interest rate of 10%, which means the bondholder will receive $100 in interest per year ($1,000 x 0.10). The bond matures in 2015, at which point the ABC Corporation will be required to pay the bondholder the principal amount of $1,000. Therefore, the correct choice is A.

Question 4

Maplewood Toy Company hopes to raise long-term capital by promising in writing to repay the principal provided by potential creditors in ten years.Additionally,the certificate issued by Maplewood promises to pay 5% interest annually for the ten year life of the security.Maplewood intends to issue:

Accepted Answer

The characteristics described in the scenario (repayment of principal in ten years and payment of annual interest) are indicative of a bond issuance. Stocks represent equity in a company, not debt, while mutual funds are investment vehicles that pool together funds from multiple investors to purchase a diversified portfolio of assets, and commodities are physical goods such as oil or gold.

Question 5

Which of the following is not an important criterion to consider before investing?

Accepted Answer

The exchange where the company offering the investment is traded may not be as important as the other criteria listed in determining whether or not to invest. However, the riskiness, duration, and expected rate of return are all crucial factors to consider before making an investment decision.

Question 6

Ashleigh is looking for an investment that will pay a little better than what she can get from a government bond.You suggest that she consider a new issue of debenture bonds by Very Vegetarian that pay 8.5% annually and mature in 2025.A debenture bond:

Accepted Answer

A debenture bond is an unsecured corporate bond that pays a higher interest rate because the investor is taking more risk. It is not backed by collateral and is legally callable, so there is a possibility that Ashleigh may need to look for another investment if the company chooses to call the bond. However, the higher interest rate may make it a more attractive investment option for Ashleigh.

Question 7

Investors trading online:

Accepted Answer

Investors trading online generally do their own research and make their own investment decisions. They have access to information about various stocks and are able to execute trades on their own without the assistance of a traditional stockbroker or brokerage firm. There is no guarantee or insurance against market downturns.

Question 8

Moody's Investor Service currently rates the Sasha Deal Corporation bonds as a C grade.This indicates that these bonds are:

Accepted Answer

A rating of C by Moody's Investor Service indicates that the Sasha Deal Corporation bonds are of the lowest quality and have the highest risk of default.

Question 9

Seattle Music,Inc.recently offered bonds for sale to the public.The unsecured corporate bond paid interest of 9% to investors for the twenty-year life of the bonds.Seattle Music is obligated to:

Accepted Answer

Seattle Music, Inc. is obligated to pay interest semi-annually to the bondholders.

Question 10

A ________ is a registered representative acting as an intermediary to buy and sell securities for clients.

Accepted Answer

A stockbroker is a registered representative who acts as an intermediary between clients and the stock exchange. They buy and sell securities on behalf of their clients and charge a commission for their services. A certified stock underwriter may be involved in the underwriting process of securities issuance, while a securities banker is typically involved in the corporate finance side of securities transactions. A trading accountant may be involved in accounting and financial reporting for trading activities, but not necessarily in the buying and selling of securities.

Question 11

When an investor places a buy order with a stockbroker,the broker contacts an)__________ to complete the transaction.

Accepted Answer

The stock exchange member or dealer where the stock is traded is the entity that completes the transaction when a buy order is placed by an investor with a stockbroker. They match buyers with sellers and facilitate the exchange of securities. Certified underwriters and investment bankers may be involved in the initial offering of securities, but they would not be directly involved in completing transactions for individual investors. The Securities Exchange Commission regulates the securities industry but does not directly facilitate transactions.

Question 12

As your elderly Uncle Bill approaches retirement,he asks for your advice for a safe place to invest several thousand dollars.He wants to receive some kind of payment each year for investing his money without a great deal of risk.You explain:

Accepted Answer

Treasury and top-grade corporate bonds are known for their low risk and consistent payment of interest two times each year, making them a safe and stable investment for someone like Uncle Bill who wants regular payments without a lot of risk. Yankee bonds may also be a good option, but they are not the only safe choice and do not necessarily provide regular payments. Common stock and junk bonds are generally considered riskier investments and may not provide the stability and regular payments that Uncle Bill is looking for.

Question 13

Investors buying bonds and corporations issuing bonds both)accept investment risk.Which of the following statements is most correct when it comes to the investment that one or the other party accepts?

Accepted Answer

When market interest rates go down, the fixed interest rate on existing bonds becomes more attractive, and their market value increases. Therefore, if Joe needed to sell his bond, he could probably sell it at a premium. Conversely, when market interest rates go up, the fixed interest rate on existing bonds becomes less attractive, and their market value decreases. Therefore, if Joe wanted to sell his bond, he would have to sell it at a discount. As for option D, it is generally to the issuer's advantage to issue bonds when interest rates are lower, not higher.

Question 14

Creating a portfolio by buying several different types of investments to spread the risk of investing is called _______________.

Accepted Answer

Diversification is the process of investing in a variety of assets to reduce the risk of loss. By spreading your investments across different types of assets, such as stocks, bonds, mutual funds, and real estate, you increase the probability of earning a positive return while minimizing the impact of any one investment's performance on your overall portfolio. This strategy can also help you achieve your financial goals over time by providing both income and capital appreciation.

Question 15

Juan recently invested in 15-year Bellandro Bay Brewery bonds paying 6% interest annually,with a maturity date of 2020.The bonds are callable in 2015.If interest rates go down to 4.5% in the year 2015,the brewery is likely to:

Accepted Answer

If interest rates go down, the brewery is likely to exercise the call option and redeem the bonds early because they can issue new bonds at a lower interest rate, thus saving them money on interest payments.

Question 16

The interest rate on a AAA rated government treasury bond is 3.5%.A secured corporate bond is likely to pay:

Accepted Answer

A secured corporate bond is likely to pay more than a government treasury bond because it carries a higher risk. The higher the risk, the higher the potential reward. Therefore, a secured corporate bond would most likely pay more than the 3.5% interest rate on a AAA rated government treasury bond.

Question 17

Portland Power and Light recently issued bonds that offered no collateral except the reputation and established name of the Portland Power and Light Company.These represent ________ bonds.

Accepted Answer

Debenture bonds are unsecured bonds that do not have any collateral backing them, and the issuer's reputation and creditworthiness are the only sources of security for the bondholders.

Question 18

Ebony Enterprises decides to pay off its bonds several years before the maturity date.Apparently,the bonds ______________.

Accepted Answer

Bonds that are callable can be redeemed before their maturity date. This means that the issuer has the option to pay off the bonds at a certain price before the bonds' maturity date. Therefore, the most likely reason for Ebony Enterprises to pay off its bonds early is that the bonds are callable.

Question 19

After owning a Cordero Company bond for five years,Gabrielle exercised an option that allowed her to exchange her bond for 20 shares of the company stock.Gabrielle owned a:

Accepted Answer

A convertible bond is a type of bond that can be exchanged for a predetermined number of shares of the issuer's stock. Gabrielle's ability to exchange her bond for shares indicates that it was a convertible bond, not a callable bond which can be redeemed early by the issuer, a revenue bond which is used to finance income-generating projects, or a junk bond which has a high credit risk.

Question 20

Wyoming Mining Corporation makes regular monetary deposits that will accumulate and provide for an orderly retirement of their bonds when they come due in 2015.Wyoming Mining appears to be utilizing a:

Accepted Answer

Wyoming Mining Corporation is using a sinking fund, which is a means of setting aside money on a regular basis in order to retire a debt issue, in this case, their bonds due in 2015. This allows the company to ensure they have the funds necessary to pay off the bonds when they come due.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities