2.3 The Financial Marketplace: Securities Markets
1) Which of the following is true about bonds?
A) They are obligations from the investor to the corporation.
B) Their interest rate always varies with the Consumer Price Index.
C) They have a ixed maturity, and they pay an amount equal to the maturity value times
the coupon rate each year.
D) At maturity of the bond, the investor receives the market price of the bond.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
2) Which of the following is true about Preferred Stock?
A) Preferred shareholders always have voting rights.
B) If at a time a dividend is due on preferred stock, if the company does not have the funds
to pay the dividend, the right of the preferred shareholders to collect that dividend lapses.
C) Preferred dividends are not tax deductible to the corporation.
D) Like bonds, preferred stock always has a maturity date at which time the issue price
must be repaid to shareholders.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
3) The market for short-term debt is known as
A) the bond market.
B) the notes market.
C) the capital market.
D) the money market.
Question Status: New question
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
7
4) Characteristics of typical bonds include all of the following EXCEPT
A) the par value.
B) the dividend rate.
C) the coupon rate
D) the maturity date.
Question Status: New question
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
5) Which of the following inancial instruments is not traded in the capital markets?
A) Debt with a maturity of less than one year
B) Bonds
C) Common stock
D) Preferred stock
Question Status: New question
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
6) Which of the following inancial instruments entails the most risk and potentially the
highest returns for investors?
A) Debt with a maturity of less than one year
B) Bonds
C) Common stock
D) Preferred stock
Question Status: New question
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 2: There Is a Risk–Return Tradeof
8
7) Investors in common stock increase their wealth when the
A) the market value of the stock goes up.
B) when the stock pays a dividend.
C) when the stock pays interest on the original investment.
D) both A and B.
Question Status: New question
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 2: There Is a Risk–Return Tradeof
8) A security is a written instrument that represents a inancial claim.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
9) Primary markets are always larger than secondary markets.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
10) ABC Corporation issued and sold 10 shares of stock to Irene Investor, a private
individual. This represents a secondary market transaction.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
11) Colin, a private individual, sold one thousand shares of stock in DEF Corporation to
Colleen, also a private individual. This represents a secondary market transaction.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
9
12) Investors in securities markets do not use a inancial intermediary.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
13) A bond matures in less than 10 years.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
14) Bonds are less risky than are stocks because their return is more predictable.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
15) Owners of common stock are the owners of the irm.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
16) Each year, shareholders receive a dividend equal to the irm’s net earnings divided by
the number of shares of common stock.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
10
17) A stock’s market value is dependent on investors’ expectations of future cash lows to
the irm.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
18) Preferred stock prices are solely dependent on investors’ expectations of future cash
lows to the corporation.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
19) A company has the option to pay bond interest or not.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
20) There are more companies listed on NASDAQ than are listed on the New York Stock
Exchange.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
21) Organized security exchanges do not physically occupy space.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
11
22) Established irms in need of additional capital can raise it in the secondary market.
Question Status: New question
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
23) The primary markets sell only stocks and bonds issued by major corporations while the
secondary markets sell securities issued by newer and smaller companies.
Question Status: New question
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
24) Explain how securities markets provide a link between the corporation and investors.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
25) Describe the tax beneits to a corporation of issuing debt rather than issuing stock.
Question Status: Previous edition
Objective: 2.3 Describe the diferent securities markets for bonds and stocks.
Keywords: inancial markets
Principles: Principle 4: Market Prices Relect Information
12