Question 1

Which category of stocks represents the highest level of risk?

Accepted Answer

Small-cap stocks are generally known to carry the highest level of risk due to their smaller market capitalization, lower liquidity, and higher volatility. They represent smaller, less-established companies with less predictable earnings and are generally considered more speculative investments.

Question 2

Aggressive stock management

Accepted Answer

Aggressive stock management involves active trading in the short-term to maximize capital gains. This strategy is riskier than other approaches, as it requires a deep understanding of market trends and an ability to react quickly to changes in market conditions. Aggressive stock management is not focused on long-term growth or dividends but rather on generating returns through quick, high-risk trades.

Question 3

Which of the following factors should be considered when investing in foreign stocks?
I.exchange rates
II.differing accounting standards
III.tax systems
IV.ADRs

Accepted Answer

The answer of Which of the following factors should be...

Question 4

Typical characteristics of growth stocks include

Accepted Answer

The typical characteristic of growth stocks is high rates of growth in operations and earnings. Rapidly growing dividends or acquisitions of competing companies may not necessarily be present in growth stocks. While growth stocks may outperform the market in general, they may not necessarily have strong performance in market downturns.

Question 5

The common stock investment strategy that is the most basic strategy and is popular with conservative, quality-conscious individuals looking for competitive returns over the long run is the

Accepted Answer

The buy-and-hold strategy involves buying stocks and holding them over a long period of time, typically years or even decades. This strategy is favored by conservative, quality-conscious investors who are looking for competitive returns over the long run. It is a patient investment strategy that requires discipline and a long-term perspective. By holding stocks for the long term, investors can ride out short-term market fluctuations and benefit from the long-term growth potential of the stock market.

Question 6

Which strategy applies to investors who fund long-term goals with high-quality stocks which they retain for the entire investment period?

Accepted Answer

The strategy of buying and holding high-quality stocks for the entire investment period is known as the "buy and hold" strategy. This strategy is suitable for investors who have long-term goals and are willing to hold onto their investments through market fluctuations to reap the benefits of compounding returns over time. This approach requires patience, discipline, and a long-term investment horizon. Therefore, Choice B is the best option for this scenario.

Question 7

Which one of the following investment strategies would NOT appeal to an investor who is most concerned with storage of value?

Accepted Answer

Speculation and short-term trading involve taking on higher risk for potential profits, which may not align with the goal of storage of value. The other strategies (buy-and-hold, high income, quality long-term growth) are typically more focused on preserving or increasing the value of the investment over time.

Question 8

One characteristic of mid-cap stocks is that they

Accepted Answer

Mid-cap stocks are medium-sized companies with a market capitalization between $2 billion and $10 billion. They offer attractive return opportunities as they have already demonstrated some stability and room for growth. They are less volatile than small-cap stocks and may have a more established track record than new firms, making them a less risky investment option. Mid-cap stocks are typically traded on major exchanges, not through pink sheet bids.

Question 9

Investors who are willing to trade in and out of stocks seeking quick profits would be particularly interested in

Accepted Answer

The answer of Investors who are willing to trade in...

Question 10

A&B Research Corp.specializes in the development of new products.These products oftentimes are complete failures in the marketplace.However, if a product is successful, it is normally a phenomenal success.The stock of A&B Research is classified as a

Accepted Answer

A&B Research Corp specializes in developing new products which are risky and have a high chance of failure. Therefore, their stock is classified as a speculative stock, which is a high-risk investment that can potentially provide high returns.

Question 11

Which of the following strategies appeal to investors who place primary emphasis on the storage of value aspects of an investment?
I.buy and hold
II.short-term trading
III.quality long-term growth
IV.consistent dividend record

Accepted Answer

Investors who prioritize storage of value aspects of an investment generally prefer buy and hold strategy, quality long-term growth, and consistent dividend record. Short-term trading is not an ideal strategy for long-term storage of value. Therefore, options I, III, and IV are the best choices for such investors.

Question 12

The U.S.stock market

Accepted Answer

While the U.S. stock market is still one of the largest in the world, its percentage of the global equity market has been decreasing in recent years. As of 2021, it represents around 45-50% of the world's equity market.

Question 13

Explain why every stock portfolio should include some defensive stocks.

Accepted Answer

The answer of Explain why every stock portfolio should include...

Question 14

Income stocks are well suited for retirees because

Accepted Answer

The answer of Income stocks are well suited for retirees...

Question 15

ADRs

Accepted Answer

ADRs pay dividends in U.S. dollars, which is a benefit for U.S. investors who don't have to worry about currency exchange rates. Option A is incorrect because ADRs represent ownership in foreign stocks, not domestic ones. Option C is also incorrect because ADRs can receive company dividends in their local currency, which is then converted to U.S. dollars for distribution to shareholders. Option D is incorrect because ADRs are subject to taxes in both the U.S. and the foreign country the company is based in.

Question 16

Amanda purchased stock in a German firm at a price per share of 35 euros when the US $/euro exchange rate was $1.40.After six months, Ann sold the stock for 37 euros when the US $/euro exchange rate was $1.45.The stock does not pay a dividend.What is Ann's rate of return on this investment?

Accepted Answer

Ann's rate of return is calculated by considering both the change in stock price and the change in exchange rate. The initial investment in USD is 35 euros * $1.40 = $49. The selling price in USD is 37 euros * $1.45 = $53.65. The rate of return is (($53.65 - $49) / $49) * 100% = 9.5%.

Quiz 6: Common Stocks