Question 1

Erica invests $5,000 in five ABC Corporation bonds that mature in 10 years. Unexpectedly just the week after she invests, she has the opportunity to work abroad, which she has always wanted to do, but she needs cash. Which of the following most likely applies to Erica?

Accepted Answer

While Erica may be able to immediately sell her bonds, it is uncertain how much she will receive for them. The value of bonds can fluctuate based on various factors, such as interest rates and market conditions. Therefore, although she may not receive the full value of her investment, she can still sell the bonds and potentially receive some cash. Option A is unlikely as she may not have accrued any interest in just one week. Option B is incorrect as bonds can be sold before maturity. Option D is also incorrect as the primary market is where new securities are issued, not where existing securities are sold.

Question 2

The new issue $1,000 face value bonds due in 2020 issued by Bay Books, Ltd., are perceived by investors as being less attractive than other bonds offered by other businesses at the same time. The coupon rate attached to these bonds will need to be __________ than other corporate bond issues in order to attract investors.

Accepted Answer

The answer of The new issue $1,000 face value bonds...

Question 3

An investment that pools together investors' money in order to buy securities in many different companies or governments is a ___________.

Accepted Answer

A mutual fund is a type of investment vehicle that pools together money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. The goal is to provide investors with broad market exposure and the potential for long-term capital appreciation. A commercial fund refers to any fund operated by a commercial bank or other financial institution, which may or may not be a mutual fund. A holding company is a type of company that owns other companies' outstanding stock. The Public Investment Corporation is a South African asset manager that manages assets on behalf of the government.

Question 4

A mutual fund company buys securities from corporations and governments and packages them together into a "mutual fund." It then ________________.

Accepted Answer

The mutual fund company sells shares of the packaged investment to interested investors.

Question 5

Abraham found a $1,000 face value bond that belonged to his father. He checked The Wall Street Journal and found the bond was currently selling for $1,220. This bond sells at a:

Accepted Answer

The bond is currently selling for more than its face value, indicating a premium.

Question 6

Bond prices in the newspaper or online are quoted as a percentage of their face value of $1,000. If the bond price is 103.25, this bond's value is equal to:

Accepted Answer

The answer of Bond prices in the newspaper or online...

Question 7

____________ means that the mutual fund company does not show a fee or commission for investing in the fund.

Accepted Answer

No load means that there is no fee or commission charged by the mutual fund company for investing in the fund. This can make it easier for investors to get started with investing, as there is no initial cost to consider.

Question 8

New investors may want to consider _______ funds, which are mutual funds that invest in one particular kind of stock or a particular kind of bond, or even stocks that are representative of the entire market.

Accepted Answer

Index funds invest in stocks that are representative of the entire market, making them a good choice for new investors looking for a diversified portfolio. Option A (international) and Option C (global) focus on specific regions or countries, which can be riskier for investors. Option D (relief) is not a type of mutual fund.

Question 9

Buying several different investment alternatives to spread the risk helps an investor achieve:

Accepted Answer

Diversification helps an investor spread the risk of investing in any single investment alternative, thus reducing the overall risk of the portfolio. This helps to achieve a balance between risk and return, leading to more stable returns over time.

Question 10

_____________ have a set dollar goal the fund manager wants to manage. Once the fund has reached that goal, it does not accept new investors.

Accepted Answer

Closed-end funds have a set dollar goal that the fund manager wants to manage. Once the fund has reached that goal, it does not accept new investors. No-load funds (A) do not charge fees for buying or selling shares, drop-off funds (C) and zero-sum load funds (D) are not commonly used financial terms.

Question 11

Which of the following offers low risk, guaranteed income, backed by the full faith and credit of the federal government?

Accepted Answer

U.S. government bonds offer low risk and guaranteed income backed by the full faith and credit of the federal government. Municipal bonds may also offer low risk, but not guaranteed income and are not backed by the full faith and credit of the federal government. U.S. government preferred stocks and common stock in the U.S. postal service do not offer guaranteed income and have higher risk compared to U.S. government bonds.

Question 12

Which of the following describes a benefit enjoyed by investors in mutual funds?

Accepted Answer

With mutual funds, investors are able to buy an ownership interest in a diversified portfolio of many different companies. This helps to spread out investment risk and potentially increase returns. Mutual funds do not offer guaranteed dividend payments or give investors managerial authority in the companies held in the portfolio.

Question 13

__________ are collections of stocks that are traded on exchanges but are traded more like individual stocks than like mutual funds.

Accepted Answer

ETFs (Exchange Traded Funds) are collections of stocks that are traded on exchanges but are traded more like individual stocks than like mutual funds. REITs (Real Estate Investment Trusts) are collections of properties that generate rental income and are traded on exchanges like stocks. LOCs (Lines of Credit) and SRTs (Structured Retail Products) are not related to stock trading.

Question 14

A recent publication referred to a series of bonds as "the 6s of 25."

Accepted Answer

The answer of A recent publication referred to a series...

Question 15

When reading mutual fund quotations, the ________ is the price per share.

Accepted Answer

The answer of When reading mutual fund quotations, the ________...

Question 16

High-risk, high-interest bonds are called:

Accepted Answer

High-risk, high-interest bonds are commonly referred to as junk bonds. They are considered high-risk because they are issued by companies with a low credit rating, which means there is a greater risk that the company will default on payments. Because of this risk, investors demand a higher interest rate, which is what makes them high-interest. Convertible bonds, preferred bonds, and discount bonds do not necessarily have a high level of risk or interest rate.

Question 17

When market interest rates increase, the selling price of existing bonds will:

Accepted Answer

When market interest rates increase, investors demand higher yields from new bonds to compensate for the increased opportunity cost of investing in bonds instead of other assets with higher returns. This makes existing bonds with lower yields less attractive, causing their prices to decrease in order to raise their yield to the new market levels.

Question 18

The risk associated with Firm A's bond is greater than the risk of Firm B's bond. All other things being equal, investors would be willing to pay ________ for Firm B's bond.

Accepted Answer

Investors would be willing to pay more for Firm B's bond because it has less risk than Firm A's bond. This is because investors generally demand a higher return for taking on greater risk. Therefore, Firm B's bond would be more attractive and investors would be willing to pay a premium for it.

Question 19

Bonds that pay very high interest rates and typically have a higher risk of default are known as:

Accepted Answer

Bonds that pay very high interest rates but also have a higher risk of default are commonly referred to as junk bonds. They are usually issued by companies or entities with a lower credit rating or financial stability, hence the higher risk. Zero-coupon bonds are issued at a discount and do not pay periodic interest, while bearer bonds are unregistered and can be bought and sold without a record of ownership. Volatile bonds may have fluctuations in price but do not necessarily have a higher risk of default.

Question 20

U.S. government bonds are considered a secure investment because:

Accepted Answer

U.S. government bonds are considered a secure investment because they are backed by the full faith and credit of the federal government. This means that in the unlikely event of default, the government has the ability to raise funds to pay back the bondholders.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities