Question 1

In your portfolio,you own 450 shares of General Electric.The company announces that each share of stock is being divided into three new shares,so you now own 1,350 shares.This is known as a stock ________.

Accepted Answer

E) Stock split is the act of dividing a share into two or more new shares and reducing the market value by the same ratio.

Question 2

Most trading in the bond market occurs over the counter and takes place outside organized exchanges.

Accepted Answer

Most trading in the bond market occurs over the counter and takes place outside organized exchanges.

Question 3

The price at which the stock is actually selling is referred to as its ________ value.

Accepted Answer

E) The market value, or market price, is the price at which a stock is actually selling in the stock market. Market value is forward looking in that it incorporates investor expectations about future earnings.

Question 4

________ refers to shares of ownership without voting rights but with defined dividends.

Accepted Answer

B) Preferred stock refers to shares of ownership without voting rights but with defined dividends. It is a hybrid that combines attributes of common stock and corporate bonds.

Question 5

The annual interest rate that an issuer offers when a bond is first sold is known as the ________.

Accepted Answer

B) When a bond is first sold, the issuer offers a specific annual interest rate, known as the coupon.

Question 6

The loans themselves are not transferred when a credit default swap is performed.

Accepted Answer

The loans themselves are not transferred when a credit default swap is performed.

Question 7

________ stocks tend to fare better when the economy is doing worse and vice versa.

Accepted Answer

E) Defensive stocks are stocks of companies that tend to fare better when the economy is doing worse and vice versa. For example, new car sales decline in a falling economy but car repair businesses usually increase revenue as people try to hang onto their automobiles longer.

Question 8

Jackson Associates is a firm that owns many stationary stores across the United States.The company's stock performance is highly linked to the overall performance of the stock market.The company's stock performs well when the economy and the stock market perform well and vice-versa.Jackson Associates is an example of a(n)________ stock.

Accepted Answer

E) Cyclical stocks are stocks from companies whose earnings tend to track the ups and downs of the economy in a predictable pattern - in other words, their revenue and profits grow as the economy grows and shrink as the economy shrinks. Many of these companies are in basic industries such as housing and transportation.

Question 9

Stop order is an order to sell a stock when its price falls to a particular point.

Accepted Answer

Stop order is an order to sell a stock when its price falls to a particular point.

Question 10

________ value is an estimate of what a company is actually worth,independent of other values.

Accepted Answer

A) Intrinsic value is an estimate of what a company is actually worth, independent of book and market values.

Question 11

Stocks that are purchased primarily for dividend payouts rather than capital gains potential are known as ________ stocks.

Accepted Answer

C) Income stocks refer to stocks that are purchased primarily for dividend payouts rather than capital gains potential. Companies tend to be older, stable firms with fairly predictable profits but lower prospects for growth.

Question 12

Riban Industries is a manufacturer of watches.The company's profits are predictable and the stock yields huge dividends,although the prospects for growth are low.Riban Industries is an example of a(n)________ stock.

Accepted Answer

B) Income stocks refer to stocks that are purchased primarily for dividend payouts rather than capital gains potential. Riban Industries is an example of an income stock.

Question 13

Companies attempt to increase the market valuation of a share by ________.

Accepted Answer

A) If a company's management team believes that the firm's shares are undervalued, it can opt to repurchase some of the shares through a stock buyback. A buyback reduces the number of shares outstanding and increases market valuation.

Question 14

Stocks of major,well-established corporations with demonstrated ability to manage their way through every kind of economic condition are known as ________ stocks.

Accepted Answer

A) Blue chip stocks refer to stocks of major, well-established corporations with demonstrated ability to manage their way through every kind of economic condition. Such stocks are usually considered safe, if not necessarily thrilling, choices.

Question 15

Stocks that sell for less than one dollar per share or stocks that are highly speculative are called ________ stocks.

Accepted Answer

A) Stocks that sell for less than one dollar per share or, more generally, stocks that are highly speculative (risky, but with upside potential, in other words) are called penny stocks. They tend to be from newer companies or established companies whose stock has plummeted for some reason.

Question 16

________ ratio is calculated by dividing the market value per share by the earnings per share.

Accepted Answer

B) Price/earnings ratio is calculated by dividing the market value per share by the earnings per share. The ratio is often used to assess how a stock is priced.

Question 17

Bear market is a market situation in which most stocks are increasing in value.

Accepted Answer

Bear market refers to a market situation in which most stocks are decreasing in value.

Question 18

A stock exchange is an organization that buys and sells securities on behalf of individual and institutional investors.

Accepted Answer

Stock exchanges are organizations that facilitate the buying and selling of stock.

Question 19

Josephine would like to invest part of her Individual Retirement Account (IRA)in the stock market,but she wants to minimize the risk as much as possible.Which of the following is the most suitable investment alternative for Josephine?

Accepted Answer

D) Preferred stock is usually less volatile than common stock, which makes it attractive to risk-averse investors, but it also doesn't appreciate in value to the degree that common stock does. It has the least risk among the given alternatives.

Question 20

The amount of money that the bond buyer is lending to the bond issuer is known as the ________.

Accepted Answer

A) The face value, also called par value or denomination, is the amount of money, or principle, the bond buyer is lending to the bond issuer.

Quiz 19: Financial Markets and Investment Strategies

In your portfolio,you own 450 shares of General Electric.The company announces that each share of stock is being divided into three new shares,so you now own 1,350 shares.This is known as a stock ________.

Most trading in the bond market occurs over the counter and takes place outside organized exchanges.

The price at which the stock is actually selling is referred to as its ________ value.

________ refers to shares of ownership without voting rights but with defined dividends.

The annual interest rate that an issuer offers when a bond is first sold is known as the ________.

The loans themselves are not transferred when a credit default swap is performed.

________ stocks tend to fare better when the economy is doing worse and vice versa.

Stop order is an order to sell a stock when its price falls to a particular point.

________ value is an estimate of what a company is actually worth,independent of other values.

Stocks that are purchased primarily for dividend payouts rather than capital gains potential are known as ________ stocks.

Riban Industries is a manufacturer of watches.The company's profits are predictable and the stock yields huge dividends,although the prospects for growth are low.Riban Industries is an example of a(n) ________ stock.

Companies attempt to increase the market valuation of a share by ________.

Stocks of major,well-established corporations with demonstrated ability to manage their way through every kind of economic condition are known as ________ stocks.

Stocks that sell for less than one dollar per share or stocks that are highly speculative are called ________ stocks.

________ ratio is calculated by dividing the market value per share by the earnings per share.

Bear market is a market situation in which most stocks are increasing in value.

A stock exchange is an organization that buys and sells securities on behalf of individual and institutional investors.

Josephine would like to invest part of her Individual Retirement Account (IRA) in the stock market,but she wants to minimize the risk as much as possible.Which of the following is the most suitable investment alternative for Josephine?

The amount of money that the bond buyer is lending to the bond issuer is known as the ________.