Question 1

The date a bond comes due is called its record date.

Accepted Answer

The date a bond comes due is called its maturity date, not the record date. The record date is when the bondholder must be on record to receive the next interest payment.

Question 2

In a public offering, securities are sold to anyone among the interested investors who is willing and financially able to buy them.

Accepted Answer

In a public offering, securities are made available to the general public, allowing any interested and financially capable investors to purchase them.

Question 3

Financial diversification is a strategy of investing in a wide variety of securities in order to reduce risk.

Accepted Answer

Diversification involves spreading investments across various financial instruments, industries, and other categories to minimize the impact of any single asset's poor performance on the overall portfolio.

Question 4

The Dodd-Frank Act of 2010 created the Financial Stability Oversight Council to identify emerging risks in the financial sector so that action could be taken to rein in risky practices before they led to a crisis.

Accepted Answer

The answer of The Dodd-Frank Act of 2010 created the...

Question 5

The Securities Act of 1933 created the Federal Reserve System to serve as the central bank in the United States.

Accepted Answer

The Federal Reserve System was created by the Federal Reserve Act of 1913, not the Securities Act of 1933. The Securities Act of 1933 was designed to regulate the securities industry and ensure transparency in financial statements.

Question 6

A bond or share of preferred stock that gives its holder the right to exchange it for a stated number of shares of common stock is referred to as a century bond.

Accepted Answer

A bond or share of preferred stock that gives its holder the right to exchange it for a stated number of shares of common stock is referred to as a convertible bond or convertible preferred stock, not a century bond. A century bond is a bond with a maturity of 100 years.

Question 7

One of the key responsibilities of an investment bank is to arrange for the actual sale of the securities.

Accepted Answer

Investment banks help companies issue new securities by underwriting and distributing them to investors, facilitating the sale process.

Question 8

Members of the general public can directly trade stocks in the over-the-counter market.

Accepted Answer

The answer of Members of the general public can directly...

Question 9

A downside of placing market orders is that investors may end up buying at a higher price than he or she expected to pay.

Accepted Answer

Market orders are executed immediately at the current market price, which can fluctuate, leading to potentially higher purchase prices than anticipated.

Question 10

National Association of Securities Dealers Automated Quotation System (NASDAQ) started as a physical location where brokers met to buy and sell stocks for their clients.

Accepted Answer

NASDAQ started as an electronic stock exchange, not a physical location, allowing brokers to trade stocks via a computerized system.

Question 11

Par value is the value of a bond at its maturity; what the issuer promises to pay the bondholder when the bond matures.

Accepted Answer

Par value, also known as face value, is the amount that the issuer agrees to pay the bondholder at maturity.

Question 12

Passed during the early twenty-first century, the Sarbanes-Oxley Act included provisions to ensure that external auditors offered fair, unbiased opinions when they examined a company's financial statements.

Accepted Answer

The Sarbanes-Oxley Act, enacted in 2002, was designed to protect investors by improving the accuracy and reliability of corporate disclosures, including provisions to enhance the independence of external auditors.

Question 13

The Sarbanes-Oxley Act of 2002 reversed the Glass-Steagall Act's prohibition of banks selling insurance or acting as investment banks.

Accepted Answer

The Sarbanes-Oxley Act of 2002 was designed to protect investors from fraudulent financial reporting by corporations, not to address the separation of commercial and investment banking, which was the focus of the Glass-Steagall Act.

Question 14

Exchange-traded funds (ETFs) allow investors to buy ownership in a market basket of many different securities.

Accepted Answer

ETFs are investment funds that hold a collection of assets like stocks, bonds, or commodities, allowing investors to buy shares that represent ownership in this diversified portfolio.

Question 15

In the context of each NASDAQ stock, the bid price indicates how much a market maker will pay per share to buy a stated quantity of the stock.

Accepted Answer

The bid price is the price a buyer is willing to pay for a stock, and in the context of NASDAQ, it reflects the price a market maker is willing to pay to purchase shares.

Question 16

Mr. Lewis bought 650 shares of stocks in Garrett Corp. the previous year at a price of $19 per share. The market price has now risen to $25 per share. This result indicates that Mr. Lewis could receive a capital gain if he sells his stock.

Accepted Answer

A capital gain occurs when the selling price of an asset is higher than its purchase price. Mr. Lewis bought the shares at $19 each and the current market price is $25, indicating a potential capital gain if he sells.

Question 17

The difference between the prices at which securities are bought and sold is called a thrift.

Accepted Answer

The difference between the prices at which securities are bought and sold is called a "spread," not a "thrift."

Question 18

Private placements are usually more time consuming and complex than public offerings.

Accepted Answer

Private placements are typically less time-consuming and complex than public offerings because they involve fewer regulatory requirements and are offered to a limited number of investors.

Question 19

In the context of bonds, the current yield expresses a bond's interest payment as a percentage of the bond's present market price rather than its par value.

Accepted Answer

The answer of In the context of bonds, the current...

Question 20

Institutional investors amass large pools of financial capital by accepting savings account deposits.

Accepted Answer

Institutional investors typically gather capital through investment funds, not by accepting savings account deposits, which is a function of banks.

Quiz 10: Securities Markets: Trading Financial Resources