Deck 15: Investing in Stocks

Question 1

NASDAQ has less stringent listing requirements than the organized exchanges and tends to attract newer, high-tech companies.

Answer 1

True

Question 2

Floor traders on the NYSE are willing to trade stocks for others and earn a commission for doing so.

Answer 2

True

Question 3

The ________ is not a physical location, but rather an electronic communications network to buy and sell stocks.

A) NYSE
B) NYSE MKT LLC
C) NASDAQ
D) Securities and Exchange Commission (SEC)

Answer 3

NASDAQ

Question 4

Some traders, called specialists, help to make a market in stocks by taking the same position as those who want to buy or sell the stock.

Question 5

A stock dividend is distributed to the company's

A) individual creditors.
B) bank lenders.
C) suppliers.
D) stockholders.

Question 6

OTCQX Best Market is a key part of the ________ where dealers conduct stock trades over a computer network.

A) Intercontinental Exchange
B) over-the-counter (OTC) market
C) NYSE MKT LLC
D) mortgage market

Question 7

A ________ executes trades to fulfill orders placed by other investors.

A) day trader
B) stock trader
C) floor trader
D) specialist

Question 8

People who execute stock trades for others at the NYSE are called

A) day traders.
B) floor traders.
C) stock traders.
D) commission traders.

Question 9

The stock exchange with the most stringent listing requirements is the

A) NASDAQ.
B) NYSE MKT LLC.
C) NYSE.
D) Securities and Exchange Commission (SEC).

Question 10

A ________ trader helps create a market in one or more stocks by taking an opposite position to the orders placed by clients.

A) day
B) stock
C) floor
D) specialist

Question 11

Long established, "blue chip" companies list their shares on the

A) NYSE MKT LLC.
B) Over the Counter market.
C) NYSE.
D) NASDAQ.

Question 12

The stock exchange that is the largest in terms of listed companies' market capitalization is the

A) NYSE.
B) NYSE MKT LLC.
C) NASDAQ.
D) Securities and Exchange Commission (SEC).

Question 13

In the U.S., IPO shares are generally listed on the ________ because the listing requirements are ________.

A) NASDAQ; less stringent
B) NYSE MKT LLC; less stringent
C) NYSE; more stringent
D) Amex; flexible

Question 14

The largest stock exchange in terms of listed stock value in the United States is the ________.

Question 15

Use the following two columns of items to answer the matching questions below:
NYSE

A)the oldest and most popular organized stock exchange
B)a computerized network for buying and selling stocks

Question 16

Use the following two columns of items to answer the matching questions below:
NASDAQ

A)the oldest and most popular organized stock exchange
B)a computerized network for buying and selling stocks

Question 17

Most newly public companies list their IPO shares on the

A) NYSE MKT LLC.
B) NASDAQ.
C) NYSE.
D) Over the Counter market.

Question 18

The NYSE MKT LLC (formerly called the American Stock Exchange) is the largest of the physical stock exchanges.

Question 19

Computer systems that match up purchases and sales of stocks even at night when the other exchanges are closed are

A) the NASDAQ.
B) the over-the-counter (OTC) markets.
C) electronic communication networks.
D) the regional stock exchanges.

Question 20

Trades on the over-the-counter market are executed by

A) market makers.
B) day traders.
C) floor traders.
D) specialists.

Question 21

If you don't need advice or other services offered, you are better off using a discount broker or Internet broker rather than a full-service broker.

Question 22

How many shares of Drizel were traded the previous day?

A) 454,900
B) 487,800
C) 873,200
D) 8,732

Question 23

Companies A and B are both in the same industry and generally compete against each other in the marketplace. Stock A has a P/E ratio of 15 while Stock B's P/E is 21. Which of the following is not true about the relative positioning of Stock A and Stock B?

A) Stock B has lower perceived risk.
B) Investors are willing to pay a higher price for shares in Company B.
C) Company A's business performance is probably not as strong as Company B's performance.
D) All of the statements are correct.

Question 24

A PE of 10 means that the firm's stock price is ten times the firm's

A) earnings per share.
B) book value.
C) net income.
D) dividends.

Question 25

What was the closing price per share for Drizel on the day before the trading shown on this listing?

A) $45.49
B) $45.69
C) $45.29
D) $48.78

Question 26

Which of the following stocks performed the best today relative to its closing price on the previous day?

A) Acarz
B) Bixto
C) Drizel
D) Mavit

Question 27

The daily stock quotations found in financial newspapers will not tell you the annual dividends paid per share of stock.

Question 28

The daily stock quotations found in financial newspapers will tell you the closing price per share of stock for the previous day's trading, the range of prices the stock traded at the previous day, and a range of trading prices for the last year.

Question 29

A discount brokerage firm executes transactions and provides investment advice at a price less than that of full-service brokers.

Question 30

Some investors use ________ as a simple measure of the firm's risk.

A) a stock's dividend yield
B) a stock's trading volume
C) a stock's price range
D) a stock's closing price

Question 31

What is the highest price paid for a share of Acarz stock in the last 52 weeks?

A) $8.22
B) $11.14
C) $12.00
D) $10.00

Question 32

Which of the following is not a good source of current stock quotations?

A) Newspapers, such as The Wall Street Journal
B) Magazines that focus on success stories of new businesses
C) Financial news television networks, such as CNBC
D) Web sites such as Yahoo Finance or Bloomberg

Question 33

A company's earnings are $3 per share, its dividend is $2 per share, and its stock price is $30 per share. Its PE ratio is

A) 15.
B) 10.
C) 1.5.
D) 33.

Question 34

If a stock is near its 52-week low, that means the stock

A) is trading at its lowest volume for past year.
B) has a stock price that is near the lowest for the past year.
C) is reflecting very low sales for the company that issued the stock.
D) is a high-risk investment.

Question 35

Stocks that are subject to more uncertainty tend to have a

A) wider range in prices over time.
B) narrower range in prices over time.
C) higher closing price.
D) higher annual dividend.

Question 36

The most up-to-date quotes of stock prices may be found in The Wall Street Journal.

Question 37

If you had 100 shares of Acarz, how much would you expect to receive in dividends annually?

A) $100
B) $10
C) $1,114
D) $1,000

Question 38

The yield represents which of the following?

A) Earnings per share
B) Dividend payment
C) Annual return from dividends
D) Market price

Question 39

Approximately how much did Bixto Company earn per share of common stock during the last year?

A) $1.00
B) $15.00
C) $.44
D) $7.22

Question 40

Company X pays out 100% of its earnings in the form of annual dividends. Last year, the company paid $5.25 in dividends for the year. If the stock price is $105 per share, what is the "trailing" P/E?

A) 15.0
B) 10.0
C) 17.5
D) 20.0

Question 41

A market order is normally executed much more quickly than a limit order.

Question 42

When you place an order to buy or sell stock, you must specify all of the following, except

A) the commission you are willing to pay.
B) whether the order is a market order or a limit order.
C) the ticker symbol.
D) whether you are buying or selling.

Question 43

A ________ symbol is used to identify a stock for trading purposes.

A) company
B) ticker
C) graphic
D) numeric

Question 44

If you want recommendations you can

A) trade with an online broker.
B) open an account at a full-service brokerage firm.
C) visit the SEC Web site.
D) contact a discount broker.

Question 45

Limit orders can only be placed for a short period of time, usually a week or less.

Question 46

Unlike discount brokers, full-service brokers

A) give stock advice to their clients.
B) execute stock trades quickly.
C) charge competitive rates.
D) seldom meet with clients.

Question 47

You can currently borrow up to 75% of stock transactions under today's margin rules.

Question 48

A stop order is a special form of limit order; it is an order to execute a transaction when the stock price reaches a specified level.

Question 49

With an online brokerage firm, you have all of the following, except

A) money market fund for uninvested cash.
B) a personal sales representative to answer your questions.
C) quick and convenient trades.
D) very low-cost trades.

Question 50

To start an online brokerage account, you need to do all of the following, except

A) follow instructions to set up an account.
B) mail or deposit cash in an account.
C) go to the Web site.
D) deposit a minimum number of shares already owned.

Question 51

A round lot of stock is any multiple of ________ shares.

A) 10
B) 100
C) $100 worth of
D) $1,000 worth of

Question 52

In getting recommendations from brokers and analysts, you need to be careful that frequent suggestions to buy or sell are not being made in order to generate revenues for these traders.

Question 53

Online trading of stocks is not only less expensive than using traditional brokers, but is usually more convenient too.

Question 54

The purchase of less than 100 shares of stock is an odd lot.

Question 55

Stocks are usually bought or sold in round lots, which are multiples of $100.

Question 56

Fees charged by brokerage firms

A) are set by the NYSE.
B) are set by the Federal Reserve.
C) are set by the National Association of Securities Dealers.
D) vary according to the services offered.

Question 57

A margin call is a request from a brokerage firm for the investor to increase the cash in the account in order to bring the margin back up to the minimum level.

Question 58

If you are a day trader you would probably utilize a(n)

A) discount brokerage firm.
B) full-service brokerage firm.
C) online brokerage service.
D) commercial bank trust department.

Question 59

When you buy a stock on margin, your gain is magnified if the stock goes up in value.

Question 60

Some stockbrokers or analysts encourage frequent buying and selling of your securities which may cause you to

A) increase your profit margin.
B) pay less commissions.
C) incur additional tax liabilities.
D) reduce your risk of loss.

Question 61

You bought IBM stock at $70 per share. It is now $120 a share. You think it could go higher but you are nervous that it could go down and you would lose your gains. To protect your gains but still give yourself the chance to make future profits you could place a

A) market order.
B) sell stop order at $100 a share.
C) buy stop order at $100 a share.
D) sell stop order at $150 a share.

Question 62

A stock that you purchased at a price of $22 per share has risen to $46 per share. You wish to avoid losing all of your profit while still allowing an opportunity for additional gains; therefore, you should put in a sell stop order at a price of

A) $22 per share.
B) $40 per share.
C) $47 per share.
D) $53 per share.

Question 63

You made a $10,000 stock purchase on margin (50%). You put $5,000 into your account initially to cover the purchase. Your stock has declined in value to $7,000 and you receive a margin call. How much cash must you put into your account as a result of the margin call?

A) $1,500
B) $3,000
C) $5,000
D) None-you already have $5,000 in your account.

Question 64

A brokerage firm that executes your transactions without offering investment advice is a(n) ________.

Question 65

Use the following two columns of items to answer the matching questions below:
market order

A)purchasing stock with funds borrowed from a brokerage firm
B)an order to buy or sell at the prevailing market price
C)an order to sell a stock when the price falls to a specified level
D)a brokerage firm that provides advice plus transaction services
E)a brokerage firm that executes transactions without giving advice

Question 66

The purchase of 48 shares of stock is considered a(n) ________ transaction.

Question 67

How much cash would you need to purchase 500 shares of stock at $21 per share plus brokerage commissions of $125, if you purchase on margin and the margin requirement is 50%?

A) $10,625
B) $5,375
C) $10,500
D) $5,250

Question 68

If you purchase stock ________ you are doing so with a portion of the funds borrowed from your broker.

Question 69

Use the following two columns of items to answer the matching questions below:
discount brokerage firm

A)purchasing stock with funds borrowed from a brokerage firm
B)an order to buy or sell at the prevailing market price
C)an order to sell a stock when the price falls to a specified level
D)a brokerage firm that provides advice plus transaction services
E)a brokerage firm that executes transactions without giving advice

Question 70

Use the following two columns of items to answer the matching questions below:
full-service broker

A)purchasing stock with funds borrowed from a brokerage firm
B)an order to buy or sell at the prevailing market price
C)an order to sell a stock when the price falls to a specified level
D)a brokerage firm that provides advice plus transaction services
E)a brokerage firm that executes transactions without giving advice

Question 71

You purchase 300 shares of stock on margin at a price of $42 per share plus $150 in brokerage commissions at a time when the margin requirement is 50%. How much additional cash would you need to deposit with your broker if the price of the stock dropped to $37 per share?

A) $825
B) $750
C) $1,650
D) $5,550

Question 72

A ________ order is an order to execute a transaction to buy or sell a stock only if the price is within the range specified.

A) limit
B) stock
C) market
D) written

Question 73

A ________ order is an order to execute a transaction to buy or sell a stock at its prevailing price.

A) limit
B) stock
C) market
D) written

Question 74

Use the following two columns of items to answer the matching questions below:
sell stop order

A)purchasing stock with funds borrowed from a brokerage firm
B)an order to buy or sell at the prevailing market price
C)an order to sell a stock when the price falls to a specified level
D)a brokerage firm that provides advice plus transaction services
E)a brokerage firm that executes transactions without giving advice

Question 75

The Federal Reserve currently limits the margin rate, the amount that can be borrowed from the brokerage firm to

A) 40%.
B) 50%.
C) 60%.
D) 75%.

Question 76

A ________ is an order for a brokerage firm to sell a stock when the price falls to a specified level.

A) stop order
B) buy stop order
C) sell stop order
D) go order

Question 77

All of the following are odd lots, except

A) 99 shares.
B) 189 shares.
C) 200 shares.
D) 970 shares.

Question 78

Which of the following is the most risky?

A) Buying stocks online
B) Buying on margin
C) Buying from a broker
D) Buying a bond

Question 79

A ________ is an order for a brokerage firm to buy a stock when the price rises to a specified level.

A) stop order
B) buy stop order
C) sell stop order
D) go order

Question 80

T is the ________ for American Telephone and Telegraph Company (AT&T Inc.).