Question 1

A middleman,or agent,who helps investors trade financial instruments such as stocks,bonds,and derivatives is called a(n)

Accepted Answer

A broker is a middleman or agent who helps investors trade financial instruments such as stocks, bonds, and derivatives. An analyst evaluates securities and makes investment recommendations, an investment banker helps companies raise capital by underwriting and issuing securities, and a speculator makes risky investments in the hopes of making large profits. Therefore, B is the best choice for this question.

Question 2

A firm that offers clients only the basic services associated with trading securities is called a(n)

Accepted Answer

A discount brokerage firm offers clients only the basic services associated with trading securities, such as executing buy and sell orders, at a reduced commission rate compared to full-service brokerage firms. Investment bankers provide services such as underwriting securities issuances, advising on mergers and acquisitions, and raising capital. Financial intermediaries facilitate transactions between parties in the financial markets, such as banks, mutual funds, and insurance companies. Full-service brokerage firms offer a range of services beyond basic trading, such as financial planning, research, and advice.

Question 3

All of the following are reasons to monitor your investment portfolio except to

Accepted Answer

Capturing additional transaction costs is not a valid reason to monitor your investment portfolio, as it would result in unnecessary expenses. The other options (A, B, and C) are legitimate reasons to monitor your portfolio.

Question 4

The ____ index measures the aggregate return for the 30 largest industrial firms in the United States.

Accepted Answer

The Dow Jones Industrial Average (DJIA), also known as the Dow 30, is a stock market index that measures the aggregate return for the 30 largest industrial companies in the United States. The other options listed measure different groups of stocks or a wider range of companies.

Question 5

Which of the following is not a common reason given for investing?

Accepted Answer

Eliminating slack from the current budget is not typically a common reason for investing. The other options listed are more commonly cited reasons for investing.

Question 6

The costs associated with trading securities,which include the costs of time,effort,and phone calls,as well as brokered commissions are called

Accepted Answer

Transaction costs refer to the expenses incurred in buying or selling securities, including commissions paid to brokers, phone calls, and other related expenses. The other options are not relevant to the costs associated with trading securities.

Question 7

An order that gives instructions to cancel the order if the price conditions are not met by the end of the trading day is called a ____ order.

Accepted Answer

A Day order is an order type that automatically gets canceled at the end of the trading day if the specified price condition is not met. It is used when a trader wants to execute a trade at a specific price or better during the day's trading session. A Market order is an order to buy or sell a security immediately at the best available current price, a Stop order is an order to buy or sell a security once the price of the security reaches a certain level, a Limit order is an order to buy or sell a security at a specific price or better, and a Fill or Kill order is an order to execute a trade immediately and completely or not at all. None of these options fit the description given in the question.

Question 8

All of the following are basic categories of financial assets except

Accepted Answer

Deeds (titles) represent ownership of real estate, which is not considered a financial asset. Therefore, C is the correct answer. A, B, and D are all basic categories of financial assets.

Question 9

When one investor borrows stock from another investor and then immediately sells it in the market,but with a promise to replace the stock at some later date,he or she has executed a transaction that is called ____.

Accepted Answer

The described transaction is known as short selling, where an investor borrows stock, sells it in the market, and promises to replace it later. This is often done in anticipation of the stock's price going down, allowing the investor to buy the replacement shares at a lower price and pocketing the difference as profit. Margin trading (A) is a broader term that refers to borrowing funds to buy securities, including short selling. Hypothecation (C) refers to the pledging of securities as collateral for a loan. "Going long" (D) means buying securities with the expectation that their price will rise. "Irregular transaction" (E) is not a commonly used term in finance.

Question 10

Income securities are used primarily to

Accepted Answer

Income securities are investments that are designed to provide a steady stream of income to the investor. They are commonly used for purposes of supplementing current income. Retirement planning and tax sheltering can be additional benefits of investing in income securities, but they are not the primary purpose. Deferring interest income to a later date is not a common strategy for investing in income securities.

Question 11

The proportion of funds invested in various categories of assets,such as money market instruments,long-term debt,stocks,and real estate is referred to as

Accepted Answer

The proportion of funds invested in different asset categories is called asset allocation. This is a critical decision for investors as it determines the risk and return potential of their portfolio. Therefore, it is important to allocate assets based on one's investment goals, risk tolerance, and time horizon.

Question 12

An investor's ability and willingness to accept risk is termed:

Accepted Answer

Risk tolerance level is a measure of an investor's ability and willingness to accept risk. It refers to how much risk an investor is comfortable taking on in pursuit of a particular return goal. Risk aversion and risk-seeking are opposite ends of the spectrum, representing how much an investor avoids risk or actively seeks it out. The risk-free rate of return is the rate of return available on an investment with zero risk, such as a US Treasury bond.

Question 13

An order that gives instructions to cancel the order if the price conditions are not met when the order reaches the market is called a ____ order.

Accepted Answer

A "Fill or Kill" (FOK) order is an instruction given to a broker to execute a transaction immediately and in its entirety at a specified price, or not execute it at all. This type of order is used to ensure that the entire order is filled at the desired price conditions, or else it is cancelled, hence it matches the description given.

Question 14

People who view investments as instruments that produce growth over a long period of time are referred to as

Accepted Answer

Investors are individuals who invest money in various assets with the expectation of generating a long-term profit. They typically take a strategic approach to investing and focus on investing in assets that have the potential to grow over time, such as stocks or real estate. Speculators are individuals who make short-term bets on assets with the hope of making a quick profit, while brokers facilitate buying and selling of assets for clients and analysts provide market research and investment advice.

Question 15

A brokerage firm that offers a variety of services to its clients,including research information about stocks and bonds,monthly publications that contain investment recommendations,and investment advisory services is called a(n)

Accepted Answer

A full-service brokerage firm offers a wide range of services including research information, investment recommendations, and advisory services. The other options do not fit the description of a firm that offers such comprehensive services.

Question 16

An order that specifies the price at which a market order is initiated is called a ____ order.

Accepted Answer

A stop order specifies the price at which a market order is initiated once the stop price is reached.

Question 17

An order to execute a trade at the best price available as soon as the transaction reaches the market is called a ____ order.

Accepted Answer

A market order is an instruction to buy or sell a security at the current market price. It is executed immediately and filled at the best available price in the market. This type of order is useful when speed and execution are the priority, rather than the price at which the trade is executed.

Question 18

Individuals who try to make a quick profit based on short-term market adjustments are referred to as

Accepted Answer

Speculators are individuals who try to make a quick profit based on short-term market adjustments by buying and selling securities or commodities. They do not base their decisions on long-term investing strategies and are often considered more high-risk than traditional investors.

Question 19

The total return earned from the time an investment is purchased until it is liquidated is called a(n)____.

Accepted Answer

The holding period return is the total return earned from the time an investment is purchased until it is liquidated. The other options refer to specific components of investment return, such as the coupon rate, dividend yield rate, current yield, and ask yield.

Question 20

Organizations that help investors trade securities created by corporations and the government are called

Accepted Answer

Brokerage firms are specifically designed to help investors trade securities created by corporations and the government, whereas financial intermediaries, banks, and Federal Reserve Boards have broader functions related to finance and monetary policy. Therefore, brokerage firms are the best choice.

Quiz 16: Investment and Securities