Question 1

A lower interest rate will increase the present value of future income and thereby

Accepted Answer

A lower interest rate decreases the discount rate used to calculate the present value of future income, which in turn increases the present value of that income. This can lead investors to assign a higher value to stocks, increasing their market value.

Question 2

The current market value of a stock option contract to purchase 1,000 shares of IBM stock at a price of $100 that can be exercised five years from now would

Accepted Answer

The current market value of a stock option contract to purchase 1,000 shares of IBM stock at a price of $100 that can be exercised five years from now would increase if the expected future price of IBM stock rose. This is because with a higher expected future price, the option to purchase the stock at a lower price becomes more valuable. Therefore, the price of the option contract would increase.

Question 3

Buying shares of corporate stock tends to be more risky when

Accepted Answer

The answer of Buying shares of corporate stock tends to...

Question 4

If an investor's primary stock holding is currently Exxon Mobil,the purchase of which of the following stocks would provide the investor with the largest reduction in risk?

Accepted Answer

The answer of If an investor's primary stock holding is...

Question 5

Which of the following is true?

Accepted Answer

This is true of investments in general, as past performance does not necessarily guarantee future results. Market conditions as well as other factors can change, making a previously successful investment strategy ineffective or even risky. Choices A and B are not necessarily true as past performance is not always indicative of future returns, and indexed equity mutual funds can be tied to a variety of benchmarks, not just the CPI or GDP deflator.

Question 6

Which of the following is true?

Accepted Answer

Indexed equity funds generally have lower management and operating costs than managed funds due to their passive investment strategy. They simply track a broad stock market index, such as the S&P 500, rather than paying professional managers to actively select and manage stocks. This results in lower fees for investors. However, this is not to say that managed funds never outperform indexed funds or that managed funds do not engage in passive investment strategies at times.

Question 7

An indexed equity mutual fund

Accepted Answer

An indexed equity mutual fund merely holds stocks in the same proportion as they exist in a broad stock market index like the Standard & Poor's 500. This type of fund typically has low operating costs because there are usually fewer stock trades.

Question 8

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings,the purchase of which of the following stocks would provide you with the greatest reduction in risk?

Accepted Answer

Wal-Mart is in a different industry and sector than Apple Computer Corporation, providing diversification and decreasing overall portfolio risk. The other options are also in the technology industry and may have some correlation with Apple's stock performance, therefore not providing as much risk reduction.

Question 9

Investors can make their investments in corporate stocks less risky by

Accepted Answer

By purchasing shares of a mutual fund, investors can diversify their investments across a range of corporations, which helps to mitigate the risk in any one company's stock. This is a common strategy for mitigating stock risk. Buying and holding stocks for short periods of time may increase risk as the investor may be subject to volatility or changes in the market. Investing in firms in the same industries may actually increase risk as any negative events or changes affecting the industry as a whole could affect all of the investor's holdings.

Question 10

Which of the following represents a method for a firm to obtain funds for growth and product development?

Accepted Answer

A firm can obtain funds for growth and product development through a combination of methods, including using retained earnings from profits, borrowing money from lenders, and selling stock to investors. All of these options provide a way for a company to access capital needed for expansion and innovation.

Question 11

Which of the following is true?

Accepted Answer

The P/E ratio (price-to-earnings ratio) provides information on the price of a stock relative to its current earnings. It is calculated by dividing the current market price per share by the earnings per share (EPS) over the past 12 months. Option B is incorrect because the P/E ratio reflects past earnings, not future earnings. Option C is incorrect because the P/E ratio uses past earnings, not current earnings. Option D is incorrect because while the P/E ratio may have had an average of 26 from 1950-2008, this does not make it relevant or true for current market conditions.

Question 12

Which of the following has enhanced the ability of investors,without any special business skills,to benefit from the ownership of corporate America?

Accepted Answer

The increased availability of mutual funds that make it possible for even small investors to purchase a diverse stock portfolio at a low cost has enhanced the ability of investors, without any special business skills, to benefit from the ownership of corporate America. Options B and C are incorrect as small investors buying and selling stock frequently and using stock tips from investment experts does not necessarily enhance their ability to benefit from the ownership of corporate America. The virtual disappearance of business failures among corporations with publicly traded stock shares is also not necessarily relevant to the ability of investors to benefit from ownership of corporate America.

Question 13

Which of the following would reduce the risk of an investment in the stock market?

Accepted Answer

Investing in a portfolio of diverse firms helps to reduce the risk by spreading out the investment among different companies and industries. Holding the investment for a long period of time also reduces the risk as it allows for potential short-term volatility to even out over time. Therefore, both options together provide the best reduction of risk.

Question 14

According to the random walk theory,which of the following is true?

Accepted Answer

The answer of According to the random walk theory,which of...

Question 15

Which of the following types of mutual funds best describes one in which an "expert" seeks to pick the stock holdings in a way that maximizes the rate of return?

Accepted Answer

A managed equity mutual fund is one in which a professional fund manager or "expert" selects and manages the stocks held by the fund in an effort to maximize returns. Indexed equity mutual funds, on the other hand, seek to track a specific index or benchmark and do not rely on active management. Supervised and marked equity mutual funds are not commonly recognized terms in the industry.

Question 16

The variation in the rate of return one can expect from ownership of stocks will generally be smaller if

Accepted Answer

Holding a diverse set of stocks over a lengthy period of time such as 30 or 40 years will generally result in a smaller variation in the rate of return one can expect. This is because holding a diverse set of stocks can help to mitigate the risk of any one stock or sector underperforming, and holding them over a lengthy period of time allows for potential market fluctuations to even out. Holding all funds in a specific sector, a single stock, or for a relatively short period of time can increase the risks associated with investing.

Question 17

(I)The market for new issues of stock is called the primary market.
(II)The New York Stock Exchange is an example of a secondary market in which previously issued shares are traded between investors.

Accepted Answer

The statement in option I is true, as new issues of stock are indeed sold in the primary market. The statement in option II is also true, as the New York Stock Exchange is an example of a secondary market where previously issued shares of stock are traded between investors. Therefore, both statements are correct, making option C the correct answer.

Question 18

Investment in a broad portfolio of stocks is most attractive for

Accepted Answer

Investment in a broad portfolio of stocks is attractive for long-term investors as it allows for diversification and the potential for growth over time. Short-term investors may not have enough time to ride out fluctuations in the market, investors seeking a steady rate of return may prefer less risky investments, and investors who will need the funds for other purposes in about 10 years may want to consider a mix of stocks and bonds to balance growth and stability.

Question 19

Historically,when a diverse set of stocks are held over a lengthy time period,stocks have yielded a ____ rate of return and the variation in the rate of return has been ____.(Fill in the blanks. )

Accepted Answer

The answer of Historically,when a diverse set of stocks are...

Question 20

The present value of $1 million to be received in the future will

Accepted Answer

The answer of The present value of $1 million to...

Quiz 31: The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

A lower interest rate will increase the present value of future income and thereby

The current market value of a stock option contract to purchase 1,000 shares of IBM stock at a price of $100 that can be exercised five years from now would

Buying shares of corporate stock tends to be more risky when

If an investor's primary stock holding is currently Exxon Mobil,the purchase of which of the following stocks would provide the investor with the largest reduction in risk?

Which of the following is true?

Which of the following is true?

An indexed equity mutual fund

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings,the purchase of which of the following stocks would provide you with the greatest reduction in risk?

Investors can make their investments in corporate stocks less risky by

Which of the following represents a method for a firm to obtain funds for growth and product development?

Which of the following is true?

Which of the following has enhanced the ability of investors,without any special business skills,to benefit from the ownership of corporate America?

Which of the following would reduce the risk of an investment in the stock market?

According to the random walk theory,which of the following is true?

Which of the following types of mutual funds best describes one in which an "expert" seeks to pick the stock holdings in a way that maximizes the rate of return?

The variation in the rate of return one can expect from ownership of stocks will generally be smaller if

(I) The market for new issues of stock is called the primary market. (II) The New York Stock Exchange is an example of a secondary market in which previously issued shares are traded between investors.

Investment in a broad portfolio of stocks is most attractive for

Historically,when a diverse set of stocks are held over a lengthy time period,stocks have yielded a rate of return and the variation in the rate of return has been .(Fill in the blanks. )

The present value of $1 million to be received in the future will