Question 1

Lupe's stockbroker called to inform Lupe of a margin call that requires that she pay $1,000.This indicates that the value of Lupe's stock has:

Accepted Answer

A margin call means that Lupe's stocks have decreased in value and she needs to pay more money to make up for the loss in value.

Question 2

Before the announcement of a three-for-one stock split,the selling price for a share of stock in Olympia Oil Refineries was $150 per share.Immediately after the stock split,the probable price per share is:

Accepted Answer

After the three-for-one stock split, each shareholder will receive three shares for every one share they previously owned. Therefore, the number of shares will triple while the value of each share will be divided by three.

So, each share will have a value of $150/3 = $50 after the stock split. Thus, the probable price per share after the stock split is $50.

Question 3

Dan wanted to start investing some of his monthly earnings in stocks.He planned to diversify his holdings between blue chips,growth,and income type stocks.After consulting with a financial planner,he now understands the difference between these three types.The difference is:

Accepted Answer

Blue chips are shares of established companies with strong earnings and a history of dividend payments, growth stocks are shares of fast-growing new companies that seldom pay dividends, and income stocks are those that pay steady dividends, often in utility companies. This is the most accurate description of the three types of stocks.

Question 4

When market interest rates increase,the selling price of existing bonds will:

Accepted Answer

When market interest rates increase, the yields on new bonds increase, making them more attractive to investors. As a result, existing bonds with lower yields become less attractive and their selling price decreases to compensate for the lower yield.

Question 5

Demonte owns 600 shares in the Kentucky Bluegrass Corporation and he just received notice that the firm declared a three-for-one stock split.After the split,Demonte will own _______ shares in the firm.

Accepted Answer

A three-for-one stock split means that for every one share owned, three new shares will be issued. Therefore, Demonte's 600 shares will become 1800 shares after the split.

Question 6

Laura read about Living Longer Biotechnology,Inc.and wants to buy 100 common shares at $45 per share.Unfortunately,she only has $3000 available to invest.One risky strategy Laura could consider is:

Accepted Answer

Buying on margin involves borrowing money from a broker to purchase stocks. This allows the investor to potentially purchase more shares than they could with their available funds. However, this strategy is risky because if the value of the stocks decreases, the investor may be required to deposit additional funds to cover the margin or sell their stocks at a loss. Therefore, while it is a risky strategy, it is the only option given that may allow Laura to purchase 100 common shares at $45 per share with only $3000 available to invest. However, it is recommended that Laura thoroughly understand the risks and obligations associated with buying on margin before pursuing this strategy.

Question 7

Bonds that pay very high interest rates and typically have a higher risk of default are known as:

Accepted Answer

Junk bonds are typically issued by companies with poor credit ratings or high levels of debt, making them a higher risk investment. In order to compensate for this risk, they offer higher interest rates than other types of bonds, but there is a greater likelihood that the issuer will default on the bond payments.

Question 8

Bonds offering a higher interest rate than other bonds of similar risk,will likely sell at a:

Accepted Answer

The answer of Bonds offering a higher interest rate than...

Question 9

Last week,Danielle purchased 200 shares of High Tech Heaven,Inc on margin for $50 per share.This week,the price of High Tech Heaven's shares dropped by $10 per share due to a poor profit outlook.Danielle should anticipate:

Accepted Answer

Since Danielle purchased the shares on margin, the broker would have loaned her the money to buy the shares. If the value of the shares drops, the value of her collateral (the shares) also drops. If the value of the collateral drops too low, the broker will issue a margin call, requiring her to either deposit more cash or sell some of the shares to cover the loan. Therefore, she should anticipate a margin call from her broker.

Question 10

Bondholders can sell their bonds:

Accepted Answer

Bondholders can sell their bonds on the secondary market prior to the maturity date. This is possible because bonds are tradable securities, and the secondary market provides liquidity to investors who want to sell their bonds before the maturity date. Option B is not always applicable as not all bonds are issued with a callable option. Option C is also not applicable as bondholders do not have the right to convert their bonds into common stock, only the issuing company does. Option D is not true as bondholders do not need the written permission of other stakeholders to sell their bonds on the secondary market.

Question 11

A recent publication referred to a series of bonds as "the 6s of 25".

Accepted Answer

The answer of A recent publication referred to a series...

Question 12

Idle Time Gaming announced a 2 for 1 common stock split for investors on record.Which of the following will occur?

Accepted Answer

A 2 for 1 stock split means that each shareholder will receive 2 shares for every 1 share they currently hold. This will double the number of outstanding shares while halving the value of each share. Therefore, each share will be worth half of its previous value, but the total value of the company remains the same.

Question 13

Bond prices in the newspaper or online are quoted as a percentage of their face value of $1000.If the bond price is 103.25,this bond's value =

Accepted Answer

Bond prices are quoted as a percentage of their face value of $1000. 103.25% of $1000 is $1032.50. Therefore, the bond's value is $1,032.50.

Question 14

The higher the risk associated with a bond issue,the ________ the interest rate the organization must offer investors.

Accepted Answer

When there is higher risk associated with a bond issue, investors will demand a higher return on their investment. Therefore, the organization must offer a higher interest rate to attract investors.

Question 15

Elaine plans to purchase 100 shares of Michigan International stock at $44 per share.The current margin rate is 40%.The maximum amount that Elaine could borrow from her broker is:

Accepted Answer

First, we need to calculate the cost of 100 shares at $44 per share: 
100 x $44 = $4,400

Next, we need to calculate the amount of Elaine's own money that she needs to put down as margin: 
$4,400 x 0.40 (margin rate) = $1,760

Finally, we can calculate the maximum amount she can borrow from her broker: 
$4,400 - $1,760 = $2,640

Therefore, the answer is C.

Question 16

Which of the following organizations provides an assessment of the relative level of risk of a particular firm's bond issue?

Accepted Answer

Standard & Poor's provides credit ratings for bond issuers, which assess the level of risk associated with a particular firm's bond issue. The Securities and Exchange Commission is a regulatory agency and does not provide credit ratings. E*trade is an online brokerage firm, and The Wall Street Journal is a financial news publication, neither of which provide credit ratings for bond issuers.

Question 17

Prior to declaring a 4-for-1 stock split,Carbello Enterprises' stock sold for $44 a share.Immediately after the stock split,the value of a share of Carbello's stock should be ________ per share.

Accepted Answer

The answer of Prior to declaring a 4-for-1 stock split,Carbello...

Question 18

High-risk,high-interest bonds are called:

Accepted Answer

High-risk, high-interest bonds are commonly referred to as junk bonds. These types of bonds have a higher likelihood of default and therefore offer higher yields to compensate investors for the added risk.

Question 19

Which of the following offers low risk,guaranteed income,backed by the full faith and credit of the federal government?

Accepted Answer

U.S government bonds offer low risk and guaranteed income backed by the full faith and credit of the federal government. Municipal bonds may have some risk depending on the municipality's financial stability. U.S government preferred stocks and common stock in the U.S postal service do not offer guaranteed income and can have higher risk.

Question 20

Bonds sold at a _______,sell for less than face value.

Accepted Answer

Bonds sold at a discount means they are sold for less than face value.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities