Deck 12: Investing in Stocks and Bonds

Question 1

If the current price of an investment increases,the investment's annual yield will decrease.

Answer 1

True

Question 2

The returns you expect from securities are income and growth.

Answer 2

True

Question 3

In most investments,there is a risk-return tradeoff.

Answer 3

True

Question 4

Event risk occurs when something substantial happens to a company that has an immediate impact on its financial condition.

Question 5

A company with low financial risk has little to no long-term debt.

Question 6

Compound interest is a very important concept when evaluating the return on an investment you plan to hold for a long time.

Question 7

Capital appreciation of an investment is a form of Current Income.

Question 8

Interest rate risk is greater for stocks than for bonds.

Question 9

All securities involve risk of some kind.

Question 10

Changes in the value of securities due to social,political,or economic factors are referred to as market risk.

Question 11

An investment is acceptable if the expected rate of return is greater than the desired rate of return.

Question 12

Recovery of principal and capital gain are elements of total return.

Question 13

Market risk considers the possibility that the firm may fail.

Question 14

Bondholders will receive interest payments after the stockholders receive dividends.

Question 15

Interest rate risk is greater for long-term bonds than for short-term bonds.

Question 16

A lower expected return will mean a higher risk will have to be accepted.

Question 17

Purchasing power risk is of most concern during economic recession.

Question 18

Common stockholders are considered to be the residual owners of the company.

Question 19

The risk free rate of return is often measured by the return on US Treasury Bills.

Question 20

Total investment return can be approximated using the current yield.

Question 21

Earnings per share can be defined as the return earned on behalf of each share of common and preferred stock,calculated by dividing all earnings by the total number of shares outstanding.

Question 22

Stock dividends are taxed at Long Term Capital Gains Rates.

Question 23

Common stocks pay a guaranteed dividend each year.

Question 24

Price fluctuations of defensive stocks follow the fluctuations of the market as a whole.

Question 25

John and Mary Smith own 500 shares of ABE stock.After the company pays a 6 percent stock dividend,John and Mary will own 530 shares of ABE stock.

Question 26

Net Profit margin is a key measure of profitability that relates the net profits of a firm to its sales.

Question 27

Most companies pay their stockholders cash dividends on a semi-annual basis.

Question 28

You received a cash dividend from your stock investment this year.This is taxable income.

Question 29

Stocks with high betas will have larger price gains and losses than those with low betas.

Question 30

Earnings per share (EPS)tell the stockholder the amount of dividend earned.

Question 31

Low price/earnings ratios indicate limited or low investor confidence.

Question 32

If Wristwatch Arm Corporation (WAC)has assets of $10 million,liabilities of $5 million,and preferred stock of $1 million,its book value is $6 million.

Question 33

You received a stock dividend this year instead of cash.This is taxable income.

Question 34

Publicly traded issues are shares only available to qualified investors.

Question 35

Stocks with high betas will have larger price gains but lower price declines than those with low betas.

Question 36

Blue-chip stocks are expected to pay dividends more regularly than growth stocks.

Question 37

A stocks beta is an indication of its relationship to the general market.

Question 38

One would prefer a stock with steadily increasing earnings per share and return on equity.

Question 39

Tech stocks represent stocks in the technology and utility sectors.

Question 40

Dividend reinvestment plans should be avoided because of their relatively high cost.

Question 41

An investor is guaranteed to make a positive return on Treasury notes and bonds.

Question 42

The callable feature of a bond protects the issuer when current rates are falling.

Question 43

Typically the best time to invest in the stock market is when the market is very volatile.

Question 44

Bonds represent a form of corporate debt capital.

Question 45

All treasury bonds issued today are non-callable.

Question 46

Bonds rated AA by S&P and Aa by Moody's would be investment quality.

Question 47

If you buy a zero coupon bond,you will receive no cash from the corporation until the bond matures.

Question 48

Dividend Reinvestment Plans provide shareholders with cash,so that they can invest in similar stocks.

Question 49

TIPS are appropriate investors who are conservative and concerned about inflation.

Question 50

Income stocks are similar to bonds in that they pay annual interest to owners.

Question 51

A callable bond allows the issuer to retire the security prior to maturity.

Question 52

The value of a stock at any time is a function of future returns rather than of past performance.

Question 53

Bonds provide for investment return primarily in the form of growth.

Question 54

You would expect more growth with the preferred stock you own than with the common stock in your portfolio.

Question 55

Bond return can include both interest and capital gains.

Question 56

Municipal bonds can be attractive investments,despite their lower interest rate,since their interest income is exempt from federal income tax.

Question 57

Investors typically welcome their bonds being called because of the generous call premium paid.

Question 58

Bonds can be used conservatively by investors seeking current income and aggressively by investors seeking capital gains.

Question 59

Only the federal government issues zero coupon bonds.

Question 60

Treasury notes,bills,and bonds represent loans to the federal government.

Question 61

Junk bonds have higher risk and similar returns to investment grade bonds.

Question 62

Bond prices are impacted by both the direction and magnitude of interest rate changes.

Question 63

Common stock owners must receive dividends before preferred stockholders.

Question 64

At the time you buy a convertible bond,you will know the number of stock shares for which it can be exchanged.

Question 65

Convertible preferred stock can be exchanged for common stock.

Question 66

Preferred stock can be exchanged for common stock.

Question 67

A premium bond sells at par value.

Question 68

The yields on municipal bonds are usually higher than the returns available from fully taxable issues.

Question 69

A bond with a S&P rating of BBB is considered investment-grade.

Question 70

Which of the following types of risk affect owners of fixed income securities more than owners of equity securities

A) business risk
B) financial risk
C) market risk
D) purchasing power risk
E) none of the above

Question 71

Pulling money out of the market exposes you to the significant risk that you'll miss the months of good returns that could help you recoup prior losses.

Question 72

Security investors incur varying degrees of risk.Business risk is related to

A) price level changes in the economy.
B) investor behavior in the market.
C) the debt-to-equity ratio of the firm.
D) the potential success or failure of the firm.
E) security price fluctuations.

Question 73

In which of the following type of investment is the most liquidity risk?

A) Common stock
B) Corporate bonds
C) Treasury bonds
D) Land
E) Mutual fund shares

Question 74

A beta of more than one would be expected of a speculative stock.

Question 75

Companies with a great deal of long-term debt would rate fairly high in ____ risk.

A) market
B) event
C) business
D) financial
E) liquidity

Question 76

There is an inverse relationship between the bond prices and current interest rates.

Question 77

A bond with a yield to maturity that equaled or exceeded an investor's desired rate of return is considered an attractive investment.

Question 78

The commonly-cited price for a bond is usually its clean bond price.

Question 79

When a bond is sold between coupon payment dates,the buyer pays the seller for the accrued interest.

Question 80

The higher the tax bracket you are in,the more attractive the purchase of municipal bonds becomes.