Question 1

The Dow Jones Industrial Average utilizes the prices of the same 30 companies' stocks each year to ensure consistency.

Accepted Answer

The answer of The Dow Jones Industrial Average utilizes the...

Question 2

The Dow Jones Industrial Average provides us with a sense of direction (up or down)of the overall stock market.

Accepted Answer

The Dow Jones Industrial Average is made up of 30 large, publicly traded companies and is often used as a benchmark for the overall performance of the stock market in the United States. Therefore, the direction of the Dow can give us an indication of whether the market is trending up or down.

Question 3

Every time someone sells a stock believing the price has reached its maximum,someone else buys it believing the price will go still higher.

Accepted Answer

This statement is true because the price of a stock is determined by supply and demand. When someone sells a stock, they are offering to sell at a certain price, and someone else buying believes that the stock is worth that price or even more. Therefore, every time someone sells a stock, someone else is buying it with the belief that the price will continue to rise.

Question 4

Trading curbs motivate traders to utilize their computerized programs to reduce market volatility.

Accepted Answer

The answer of Trading curbs motivate traders to utilize their...

Question 5

Changes in investor trust and confidence strongly influence stock market prices.

Accepted Answer

Investor trust and confidence are important factors that affect the demand for stocks, which can impact their prices. When investors have high levels of trust and confidence in the market, they are more likely to buy stocks, thereby driving up demand and prices. Conversely, when investor trust and confidence are low, people are more likely to sell their stocks, which can decrease demand and cause prices to fall.

Question 6

Many stock market analysts suggest that program trading was a big cause of the stock market crash of 1987.

Accepted Answer

Many studies and analyses have shown that program trading, specifically the use of computer algorithms to execute large trades, played a significant role in the stock market crash of 1987.

Question 7

From a risk standpoint,stocks are considered the riskiest investments,followed by mutual funds,preferred stock,and ETFs.Bonds represent a lower risk investment.

Accepted Answer

Stocks are generally considered riskier than other investment options such as mutual funds, preferred stock, and ETFs. Bonds are often considered a lower risk investment option.

Question 8

According to the Thinking Green box,titled,"Invest with Integrity",socially responsible investment funds (SRIs)managed to prosper and grow through the recession and credit crisis of 2008.

Accepted Answer

The Thinking Green box states that socially responsible investment funds (SRIs) managed to prosper and grow through the recession and credit crisis of 2008.

Question 9

One of the criticisms of the Dow Jones Industrial Average is that it does not include enough stocks to provide a good representation of the entire stock market.

Accepted Answer

The Dow Jones Industrial Average only includes 30 large companies, which limits its ability to provide a comprehensive view of the entire stock market.

Question 10

The Dow Jones Industrial Average reflects the average of the eleven largest corporations traded on the New York Stock Exchange as originally selected by Charles Dow.

Accepted Answer

The Dow Jones Industrial Average reflects the average of the thirty largest corporations traded on the New York Stock Exchange, not eleven. The index was created by Charles Dow, but the original selection of companies has evolved over time.

Question 11

Last year Alexis landed her first professional job after graduating from college.She also started her first investment account.Having met with several brokers before choosing someone to work with,Alexis wanted to make certain that her investment choices would provide for long-term growth,yet satisfy her concern for diversification.The person who won her business prepared an asset allocation plan that would start her account by investing in several index funds.Her adviser has offered her a sound way to combine the concern for diversification since index funds are a sensible way for Alexis to start.

Accepted Answer

The passage states that index funds are a sensible way for Alexis to start her investment account in order to provide for long-term growth and diversification. Therefore, the statement is true.

Question 12

Many stock analysts believe that program trading decreases the volatility of stock market prices.

Accepted Answer

The answer of Many stock analysts believe that program trading...

Question 13

The NASDAQ reports its own average that investors follow to observe trends in the market.

Accepted Answer

This is correct. The NASDAQ reports its own average, called the NASDAQ Composite Index, which measures the performance of over 3,000 companies that are traded on the NASDAQ stock exchange. This index is closely monitored by investors as a barometer of the tech-heavy market trends.

Question 14

Program trading refers to computer trading software that automatically sells stocks when their price dips to a predetermined level.

Accepted Answer

Program trading is indeed computer trading software that can be programmed to automatically execute trades based on predetermined criteria such as price movements. It can involve selling stocks when their price dips to a certain level, among other strategies.

Question 15

"Black Tuesday" refers to the stock market crash that occurred in October 1987.

Accepted Answer

"Black Tuesday" refers to the stock market crash that occurred on October 29, 1929, not in 1987.

Question 16

As the largest economy in the world,the U.S.stock market is insulated from the effects of political events in the rest of the world.

Accepted Answer

The U.S. stock market is not completely insulated from the effects of political events in the rest of the world. Global events can impact the economy and subsequently affect the stock market.

Question 17

The largest one-day drop in the stock market occurred in 1987 - a 22% drop.

Accepted Answer

The largest one-day drop in the stock market occurred on October 19, 1987, with a 22.6% decline in the Dow Jones Industrial Average.

Question 18

Rob Laws worked for several years for an aerospace manufacturer.For years he had purchased stock through his company's 401-K retirement fund.Now,upon retirement he was ready to transfer his retirement account to a financial services company and diversify the "nest egg" that currently totaled about $600,000 into more conservative investments.As a long time advocate of all things "green",he cautiously scrutinized every mutual fund that his broker suggested to make certain that it did not contain companies that left too large a carbon footprint.According to the Thinking Green box in Chapter 19,Rob is like a growing number of investors who may prefer SRIs (Socially Responsible Investments).

Accepted Answer

The passage states that Rob is a long time advocate of all things "green" and he is scrutinizing every mutual fund suggested by his broker to make sure that it does not contain companies that leave too large a carbon footprint. This behavior indicates that he may prefer SRIs (Socially Responsible Investments).

Question 19

The Dow Jones Industrial Average reflects the daily average price of all the stocks traded on the New York Stock Exchange.

Accepted Answer

The Dow Jones Industrial Average reflects the daily average price of 30 large, publicly owned companies traded on the New York Stock Exchange and the Nasdaq. It does not include all the stocks traded on the New York Stock Exchange.

Question 20

Stock market "circuit breakers" stop stock trading for a short time when the stock market experiences a significant drop in stock values.

Accepted Answer

Circuit breakers are meant to halt trading temporarily in case of sharp market declines to allow investors to reassess their positions and prevent panic-selling.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities