Chapter 19 – Using Securities Markets for Financing and Investing Opportunities
314. Investors buying bonds and corporations issuing bonds (both) accept investment
risk. Which of the following statements is most correct when it comes to the
investment that one or the other party accepts?
A. If investor Joe is holding a bond that pays 5% and market interest rates on
similar bonds go down, Joe must hold the bond until maturity because if he were to
sell it today, he would have to sell it at a discount.
B. If investor Joe is holding a bond that pays 5% and market interest rates on
similar bonds go down, Joe’s bond is now worth more than its face value, and if he
needed to sell it on the secondary market, he could probably sell it at a premium.
C. If investor Joe is holding a bond that pays 5% and interest rates on similar
bonds go up, Joe stands to gain more than the face value of the bond if he were to
sell it on the secondary market today.
D. If XYZ Corporation wants to issue bonds to pay for an expansion project, and
analysts predict that interest rates are projected to climb over the next few years, it
is to the corporation’s advantage to wait until next year to issue the bonds.
Feedback: Investors and corporations are on the opposite side of the interest rate risk
scenario. If corporations issued a bond carrying an interest rate of 7%, and interest
rates go down, they are paying more in interest rates than they would be if they waited
for interest rates to drop. Investors are thrilled because they made a good investment.
Other investors who invest in a similar investment will make less.
315. A ________ is a registered representative acting as an intermediary to buy and sell
securities for clients.
A. certified stock underwriter
B. stockbroker
C. securities banker
D. trading accountant
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322. When an investor purchases a security, the investor does so with the expectation
of:
A. maintaining his or her capital position.
B. minimizing risk.
C. making a profit.
D. providing commissions.
Feedback: Key investment decisions often center on personal objectives such as growth
and/or income.
323. On-line trading services target those investors who:
A. require the research and advice of a licensed stockbroker.
B. are interested in purchasing government bonds.
C. are willing to do their own research.
D. trade the securities of foreign firms.
Feedback: Customers interested in online trading services are primarily investors
willing to do their own research and make their own investment decisions without the
assistance of a broker.
324.
Chapter 19 – Using Securities Markets for Financing and Investing Opportunities
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Which of the following measures how quickly an investor has access to his/her
invested funds, if they are needed?
A. risk
B. tax consequences
C. yield
D. liquidity
Feedback: Liquidity measures how quickly you can get back your invested funds if you
want them or need them.
325. Diversification means:
A. allocating all your investment funds into one type of investment.
B. buying investments on margin.
C. being knowledgeable about the various types of investment opportunities.
D. allocating your investment funds to several types of investments.
Feedback: Diversification is buying several types of investments to spread the risk of
investing.
326.
Chapter 19 – Using Securities Markets for Financing and Investing Opportunities
The risk/return tradeoff investors assume means:
A. the less you risk, the more you stand to gain.
B. the same as diversification of your portfolio.
C. you will assume added risk, if you believe you can get a greater return.
D. the goal is to never risk liquidity – your investments should always be liquid and
of short duration.
Feedback: Investors are willing to take added risk, if they believe they can achieve a
greater return.
327. Regis and Kelly plan to invest in corporate securities. While Regis plans to retire
next year on his 65th birthday, Kelly is celebrating her first job after college and her
22nd birthday. Which of the two investors would be well advised to choose a more
conservative investment strategy?
A. Regis
B. Kelly
C. A conservative investment strategy is always the best strategy.
D. It depends on whether they want to invest in stocks or bonds.
Feedback: The younger person can afford to invest in higher risk options because they
have the time to wait for a security that may hit a slump to rise again. The older person
does not have the luxury so would look for a more conservative, safer investment.
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328. Alejandro relies on his stockbroker to execute his buy and sell orders for shares of
stock in different companies. He has found that the process of buying or selling a
share of stock on a major stock exchange normally takes:
A. weeks.
B. seconds.
C. days.
D. months.
Feedback: Large brokerage houses can actually confirm your transaction within seconds
of your placing the order.
329.
Chapter 19 – Using Securities Markets for Financing and Investing Opportunities
Having just returned from serving with the U.S. Marines in Afghanistan,
Alejandro has managed to save most of his earnings. He has enrolled in the local
community college and he is living in his parent’s lower level while he assimilates
back into U.S. life. As his business major friend, he has come to you for advice. He
would like to see his $40,000 savings grow, yet he knows that he will need it in about
five years when he and his girlfriend are out of school and make plans to get
married. He also worries that his car may break down and he will need to invest in
another used car. Which of the following would you suggest for Alejandro?
A. In order for Alejandro to see growth, he will need to place the entire $40,000 in
one stock offering. You suggest a biotech stock that promises growth.
B. Alejandro is still young. He needs to consider high growth, higher risk stocks
and corporate bonds. He is young enough to recoup his investment if it should
experience a loss.
C. Alejandro should determine what types of companies he is passionate about.
Does he like socially conscious companies; does he want to show his appreciation to
the defense industry for weaponry that brought him back safely? He should lead
with his heart, but should be warned that some of those companies will produce
better yields than others.
D. Since liquidity is a concern, Alejandro would do best to diversify into four to
eight different investments, and keep a reasonable amount in cash (a savings
account) for emergencies.
Feedback: Diversification spreads out the risk. Alejandro will decrease the chance (risk)
of losing everything on one investment.
330. An investor who purchases stock in a company becomes a(n):
A. creditor.
B. owner.
C. blue chip master.
D. speculator.
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331. The market price of a share of common stock depends heavily on:
A. the number of stocks traded on the New York Stock Exchange.
B. the default rate on U.S. government bonds.
C. the overall performance of the company.
D. the relative value of the U.S. dollar compared to the euro.
332. When an investor sells a security for more than the purchase price, the investor
earns a(n):
A. dividend payment.
B. appreciated interest receipt.
C. corporate benefit.
D. capital gain.
333. The term ________ refers to investors who anticipate increases in stock prices.
A. bears
B. bulls
C. dogs
D. lions
334.
Chapter 19 – Using Securities Markets for Financing and Investing Opportunities
When stock prices decline steadily, investors refer to the market as a ________
market.
A. bear
B. bull
C. dog
D. lion
335. Stocks of corporations with earnings expected to increase faster than other stocks
are called ________ stocks.
A. penny
B. growth
C. preferred
D. blue sky
336. Some analysts refer to ___________ stocks as issues that sell for less than $2
(others say: for less than $5).
A. dollar
B. growth
C. penny
D. discount
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346. If an investor’s strategy is: “buy low, and sell high.” We could conclude that his
optimism regarding future stock price increases indicates that he is:
A. bullish.
B. bearish.
C. only marginally confident about the stock market.
D. lionish.
Feedback: Bullish investors believe that stock prices are going to rise. They buy stock in
anticipation of the increase.
347. In the securities markets, capital gains take place when:
A. the value of the Dow Jones Industrial Average appreciates.
B. a security sells for more than the original purchase price.
C. additional investors buy stock in an existing corporation.
D. stockholders profit from the firm’s use of leverage.
Feedback: A capital gain is the positive difference between the price at which you bought
a stock and what you sell it for.
348.
Chapter 19 – Using Securities Markets for Financing and Investing Opportunities
________ stocks represent investments in emerging fields that have the potential
to realize better than average increases in the stock’s prices.
A. Blue chip
B. Penny
C. Growth
D. Income
Feedback: Growth stocks are stocks of corporations whose earnings are expected to
grow faster than other stocks in that industry or the overall economy. While often
considered risky, such stocks offer investors the potential for high returns.
349. Which of the following is not an odd lot of stock?
A. 10 shares
B. 20 shares
C. 3000 shares
D. 78 shares
Feedback: An odd lot denotes any trade of less than 100 shares.
