Question 1

Which of the following are characteristics of blue-chip stocks?
I. solid balance sheets
II. generous dividend yields
III. immunity from bear markets
IV. some growth potential

Accepted Answer

Blue-chip stocks are known for their solid balance sheets, generous dividend yields, and some growth potential, but they are not immune to bear markets.

Question 2

An increase in the dollar relative to the euro has a negative effect on the returns of U.S. investors who invest in European firms.

Accepted Answer

When the dollar strengthens relative to the euro, the value of European investments in dollar terms decreases, leading to lower returns for U.S. investors investing in European firms.

Question 3

The total-return approach concentrates solely on capital gains over the long term.

Accepted Answer

The total-return approach focuses on both capital gains and income (such as dividends and interest) to maximize returns over the long term.

Question 4

The U.S. stock market

Accepted Answer

The answer of The U.S. stock market
...

Question 5

Which of the following are typical characteristics of small cap stocks?
I. strong balance sheets
II. market cap less than $2 billion
III. potential for high returns along with high risk
IV. potentially dramatic changes in their earnings

Accepted Answer

Small cap stocks typically have a market cap less than $2 billion, potential for high returns along with high risk, and can experience potentially dramatic changes in their earnings. Strong balance sheets are not a characteristic unique to small cap stocks.

Question 6

Typical characteristics of growth stocks include

Accepted Answer

Growth stocks are primarily characterized by high rates of growth in operations and earnings, which often lead to higher stock prices as investors anticipate future profits. They may not necessarily pay dividends, as profits are often reinvested into the company to fuel further growth. Acquisitions and market performance are not defining characteristics.

Question 7

An increase in the value of the yen relative to the dollar has a positive effect on the returns of U.S. investors who invest in stocks of Japanese firms.

Accepted Answer

When the yen increases in value relative to the dollar, it means that each yen is worth more dollars. Therefore, when U.S. investors convert their investment returns from yen back to dollars, they receive more dollars for each yen, enhancing their returns.

Question 8

Aggressive stock management involves

Accepted Answer

Aggressive stock management often involves frequent trading to capitalize on short-term market movements, which is characteristic of trading in cyclical stocks.

Question 9

Which of the following is most likely to provide a stable cash flow with some inflation protection?

Accepted Answer

Income stocks are known for providing dividends to their shareholders, which can offer a stable cash flow. Additionally, companies that pay dividends often adjust the payout for inflation, providing some level of inflation protection.

Question 10

The most common reason for an investor to adopt the quality long-term growth investment strategy is for long-term accumulation of capital.

Accepted Answer

The quality long-term growth investment strategy focuses on investing in high-quality companies that are expected to grow at an above-average rate for a long period. This approach is typically adopted by investors aiming for the long-term accumulation of capital, as it relies on the compounding of earnings and capital gains over time.

Question 11

The rate of return on ADRs is unaffected by changes in the exchange rates.

Accepted Answer

The rate of return on American Depositary Receipts (ADRs) is affected by changes in exchange rates because the underlying shares are priced in a foreign currency, and any fluctuation in the exchange rate between that currency and the USD will impact the USD value of the ADRs.

Question 12

Over the period 1900 to 2017, U.S. stocks had the highest rate of return of any country.

Accepted Answer

Over the period 1900 to 2017, Australia had the highest rate of return on stocks, not the U.S., according to the Credit Suisse Global Investment Returns Yearbook.

Question 13

American Depositary Receipts (ADRs) are denominated in U.S. dollars and traded on U.S. security exchanges. but track the performance of a foreign corporation.

Accepted Answer

ADRs represent shares in foreign companies but are traded on U.S. exchanges in U.S. dollars, allowing American investors to invest in foreign companies without dealing with foreign currency exchange.

Question 14

Characteristics of established growth companies include all of the following EXCEPT

Accepted Answer

Established growth companies typically reinvest their earnings into the business to fuel further growth rather than paying out high dividends. High dividend payout ratios are more characteristic of mature, income-oriented companies rather than growth-oriented companies.

Question 15

Advantages of using American Depositary Receipts to participate in foreign markets include
I. lower transaction costs than for direct foreign stock purchases.
II. reduced exposure to foreign exchange risk.
III. dividends are paid in U.S. dollars.
IV. quotations are readily available from U.S. sources such as Yahoo Finance or MSN Money.

Accepted Answer

American Depositary Receipts (ADRs) offer several advantages for investors looking to participate in foreign markets, including lower transaction costs compared to direct foreign stock purchases (I), dividends paid in U.S. dollars which simplifies the process for U.S. investors (III), and the ease of finding quotations from U.S. sources like Yahoo Finance or MSN Money (IV). While ADRs might mitigate some aspects of foreign exchange risk due to dividends being paid in U.S. dollars, the underlying shares still carry foreign exchange risk, making II not a direct advantage of ADRs.

Question 16

Companies with strong earnings but limited growth opportunities

Accepted Answer

Companies with strong earnings but limited growth opportunities often return value to shareholders through high dividends, as they have fewer avenues to reinvest their profits for growth.

Question 17

Which one of the following is a characteristic of blue chip stocks?

Accepted Answer

Blue chip stocks are known for their long and stable dividend and earnings records, making them a reliable investment choice for those seeking stability in their portfolio.

Question 18

Speculative investors are likely to

Accepted Answer

Speculative investors often seek higher returns by taking on more risk, which can involve investing in emerging markets, trading more frequently to capitalize on market volatility, and investing in small-cap stocks that have the potential for significant growth but also carry a higher risk.

Question 19

Stocks whose prices are expected to remain stable, or even prosper, when economic activity is slowing down are known as

Accepted Answer

Defensive stocks are those that provide consistent dividends and stable earnings regardless of the state of the overall stock market or economy. They are typically found in sectors like utilities, healthcare, and consumer goods, where demand does not fluctuate significantly with economic cycles.

Question 20

One characteristic of mid-cap stocks is that they

Accepted Answer

Mid-cap stocks represent fairly good-sized companies that are not as large as the giants in the market but are considered to have attractive return opportunities due to their potential for growth and stability compared to smaller companies.

Quiz 6: Common Stocks

Which of the following are characteristics of blue-chip stocks? I. solid balance sheets II. generous dividend yields III. immunity from bear markets IV. some growth potential