Question 1

Sylvia Booma has just learned that there are two different ways of investing in the equity market; namely, equity mutual funds and SPVL. She doesn't understand the difference between the two, however. Can you help?

Accepted Answer

The answer of Sylvia Booma has just learned that there...

Question 2

Holders of common stocks:

Accepted Answer

Holders of common stocks have ownership rights and an equity interest in the corporation, which allows them to participate in increased earnings of the corporation. They may not participate in management elections but do retain rights to be paid before general creditors.

Question 3

Which of the following factors are not taken into consideration by bond rating companies when evaluating a bond?

Accepted Answer

Bond rating companies evaluate a bond's credit quality by considering various financial metrics and qualitative factors, including fixed charge coverage, debt-to-equity ratio, liquidity ratio, and the significance of the company within its industry. These factors help assess the issuer's ability to meet its debt obligations.

Question 4

If an investor purchases a no-load fund, she or he:

Accepted Answer

A no-load fund means that there is no commission or sales charge to purchase the fund. However, the fund could still have fees for marketing and distribution expenses, which are known as 12b-1 fees. Therefore, the investor could be subject to these fees even though there is no sales charge or commission. It is not accurate to say that the investor is never subject to a management fee because all funds have an expense ratio that covers management fees and other operating expenses. Finally, it is not necessarily true that no-loads generally pay better rates than load funds. The performance of a fund depends on many factors, including the management style and investment strategy used by the fund manager.

Question 5

Zero-coupon bonds:

Accepted Answer

Zero-coupon bonds do not offer periodic interest payments; instead, they are sold at a discount from their face value and gradually increase in value until they reach their full face value at maturity.

Question 6

Which of the following company stocks typically do not pay dividends so they can maintain or accelerate their growth by reinvesting the earnings in the company?

Accepted Answer

Growth companies often do not pay dividends because they prefer to reinvest their earnings back into the company to fuel further growth, rather than distributing profits to shareholders in the form of dividends.

Question 7

Which of the following are true with respect to federal agency securities?

Accepted Answer

They are fully owned by the US Government and carry a small degree of default risk since their ability to pay is based on the government's power to tax.

Question 8

Which of the following investments are quoted on a discount basis?

Accepted Answer

Treasury bills are typically sold at a discount from their face value and redeemed at full face value upon maturity. This means investors purchase them for less than their par value, or at a discount, and receive the full face value when they mature. The other investment options listed are typically issued and traded at their face value, and do not involve a discount.

Question 9

Which of the following is/are true with respect to Treasury notes and bonds?

Accepted Answer

Treasury notes and bonds in the United States are quoted in terms of their price as a percentage of their face value, and their price fluctuations are represented by 1/32's of a point. This means that for every $1,000 in face value, a 1/32 point move represents a change of $0.3125 in the price of the security.

Question 10

Which of the following is not true with respect to mutual funds?

Accepted Answer

Both statements A and C are true with respect to mutual funds. Mutual funds may either be open-end or close-end, and net asset value is calculated by subtracting all liabilities from the market value of all securities held in the portfolio and multiplying this figure by the outstanding shares. Therefore, E, which indicates that one of these statements is not true, is the correct answer.

Question 11

John Dingle is impressed by the cliché, "Buy real estate, because they don't make any more of that stuff." He wants your advice on this type of investment.

Accepted Answer

The answer of John Dingle is impressed by the cliché,...

Question 12

Which of the following bonds are dependent on the income specifically from the issuing entity or project?

Accepted Answer

Revenue bonds are dependent on the income generated from the specific project or facility that the bond is funding. Municipal bonds can be either general obligation or revenue bonds, but general obligation bonds are backed by the issuer's taxing authority, not just the income from a specific project or facility. Corporate bonds are not issued by a government entity and are not dependent on any particular project or facility for income.

Question 13

Which of the following investments are fixed with respect to the rate of return they pay?

Accepted Answer

All the options listed (Treasury bills/bonds, Certificates of deposit, Savings accounts, Municipal bonds) are considered fixed investments because they offer a predetermined rate of return to the investor.

Question 14

At a recent seminar you stated that the yield on a Xerox corporate bond was 9.2 percent whereas the yield on the Chrysler stock was 3.6 percent. An attendee has concluded from this statement that the Xerox bond is a far better investment than the Chrysler stock. How do you respond to this conclusion?

Accepted Answer

The answer of At a recent seminar you stated that...

Question 15

Which of the following are not true with respect to junk bonds?

Accepted Answer

The answer of Which of the following are not true...

Question 16

Which of the following investments are quoted as a percentage of par?

Accepted Answer

Treasury bonds and Treasury notes are quoted as a percentage of their par (face) value. Treasury bills, on the other hand, are quoted on a discount basis from par.

Question 17

Which of the following is not true with respect to debentures?

Accepted Answer

All the statements provided are true about debentures, including their unsecured nature, junior claim status, and payment order in liquidation.

Question 18

Rick Kilpatrick is thoroughly confused with the tax information he received from his mutual fund investment. What is most puzzling to him is the fact that he is asked to pay taxes on this investment even though he did not "touch" his mutual fund during the year. Can you clarify this situation?

Accepted Answer

The answer of Rick Kilpatrick is thoroughly confused with the...

Question 19

Which of the following are not true with respect to preferred stocks?

Accepted Answer

The board of directors typically does have to approve dividend payments for preferred stocks.

Question 20

Which of the following are reasons for purchasing a mutual fund?

Accepted Answer

Purchasing a mutual fund provides professional management and diversification, which makes it easier for an individual to invest in a variety of stocks or bonds without having to personally manage each investment. Mutual funds also allow for better risk management due to diversification. While some mutual funds may have tax benefits, this is not a primary reason for purchasing them.

Quiz 8: Investment Products and Markets: an Introduction