11
23) Current price information is found in which of the following?
I. Dow Theory Letters
II. Yahoo!Finance
III. CNBC TV website
IV. Hulbert Financial Digest
A) II and III only
B) I, II and III only
C) II, III and IV only
D) I, II, III and IV
managers
AACSB: 6 Diverse and multicultural work environments.
Question Status: Previous Edition
Learning Goal: Learning Goal 2
24) MSN Money, Yahoo! Finance, and the Motley Fool are all classified as
A) subscription services.
B) comparative data sources.
C) financial portals.
D) institutional news sites.
managers
AACSB: 6 Diverse and multicultural work environments.
Question Status: Revised
Learning Goal: Learning Goal 2
25) Which one of the following services provides bond ratings?
A) Standard & Poor’s
B) Yahoo Finance
C) Value Line
D) Bureau of the Public Debt Online
managers
AACSB: 6 Diverse and multicultural work environments.
Question Status: New Question
Learning Goal: Learning Goal 2
12
Copyright © 2017 Pearson Education, Inc.
3.3 Learning Goal 3
1) An index measures the current value of a group of stocks in relation to a base value
established previously.
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 3
2) All the Standard & Poor’s indexes are based on the total market values of the companies
rather than on the price of a single share.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
3) Both the Dow Jones Industrial Average and the Standard & Poor’s 500 Index are constructed
to reflect the value of shares in large, mid-size and smaller companies.
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 3
4) Standard & Poor’s and Mergent both publish extensive data on bonds.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
13
5) In addition to the Dow Jones Industrial Average, the Standard & Poors 500 and NASDAQ
indexes are widely quoted measures of market performance.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
6) The Value Line Index is a value weighted index based on a small sample of the 1700 stocks
covered by the Value Line investment reports.
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 3
7) Stock market averages and indexes are commonly used to measure the
A) specific behavior of companies.
B) general behavior of stock prices.
C) specific behavior of alternative investments.
D) specific behavior of the economy.
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 3
8) Stock market averages reflect the arithmetic average price behavior of a group of stocks
A) at a given point in time.
B) relative to a base value set at an earlier point in time.
C) relative to other indexes.
D) relative to a base price of 100.
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 3
14
9) Averages and indexes differ from one another in that an index
A) is the arithmetic average price behavior of a group of stocks at a given point in time.
B) measures the current price behavior of a group of stocks in relation to a base value set at an
earlier point in time.
C) is of value in-and-of itself, whereas an average must be compared to a historical figure to
have any meaning.
D) always moves up before a corresponding average moves up, and always moves down before
a corresponding average moves down.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
10) The Dow Jones Industrial Average (DJIA) consists of 30 stocks whose price behavior
A) typically has little correlation with the rest of the stock market.
B) broadly reflects the overall price behavior of the stock market.
C) reflects the changes in value of manufacturing stocks only.
D) leads the movements in the general economy by one to two weeks.
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 3
11) Both General Electric and Goldman Sachs are part of the Dow-Jones Industrial Average. If
on a given day Goldman Sachs closes at $175 and General Electric at $25
A) the difference in price will not affect the Average.
B) the Average will include 7 shares of General Electric for each share of Goldman Sachs.
C) the effect of each stock on the Average cannot be determined without knowing the number
of shares outstanding for each company.
D) the effect of changes in the price of Goldman Sachs shares will have 7 times the effect on
the Average as changes in the price of General Electric.
managers
AACSB: 3 Analytical thinking
Question Status: New Question
Learning Goal: Learning Goal 3
15
12) The Dow Jones Industrial Average (DJIA) is based on the prices of
A) 30 stocks.
B) 100 stocks.
C) 500 stocks.
D) 200 stocks.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
13) Which of the following statements about the Dow Jones Industrial Average are correct?
I. Higher-priced stocks tend to affect the average more than lower-priced stocks.
II. A one-point change in the DJIA correlates to a $1 change in average share value.
III. Changes in the DJIA are made to reflect company mergers and acquisitions.
IV. The DJIA divisor was determined when the average was created and remains constant.
A) I and III only
B) II and IV only
C) I, III and IV only
D) I, II, III and IV
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 3
14) Which one of the following statements is correct?
A) The S&P 500 Index is based on 500 large companies that trade on U.S. exchanges.
B) Because of mergers and bankruptcies, the S&P 500 Index no longer contains 500 stocks.
C) The S&P 500 Index is carefully constructed to reflect the values of large, medium and small
capitalization companies.
D) The S&P 500 is based on the 500 largest U.S. companies as measured by market value.
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 3
16
15) Assume that the S&P 500 composite stock index closes at 2,000. This means that
A) the average stock in the index is selling for $20.00.
B) an investor would have to pay $2,000 to purchase one share of each of the stocks
represented in the index.
C) The average value of a company reflected in the Index has doubled from when the Index
was at 1000.
D) the share prices of the stocks in the index have risen 20 times since the 1941-1943 base
period.
managers
AACSB: 3 Analytical thinking
Question Status: Revised
Learning Goal: Learning Goal 3
16) Over-the-counter market activity is reflected in the
A) Standard & Poor’s composite index.
B) NASDAQ index.
C) AMEX composite index.
D) financials index.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
17) The value of a Standard & Poor’s Index is computed by
A) dividing the sum of the closing share prices by an adjusted divisor.
B) dividing the sum of the closing share prices by a divisor and then multiplying the quotient
by 100.
C) dividing the sum of the current market value of all the stocks in the index by a divisor
adjusted for changes in the companies composing the Index.
D) dividing the sum of the current market value of all the stocks in the index by a divisor that
adjusts for stock splits and scales the Index figure to a manageable size.
managers
AACSB: 3 Analytical thinking
Question Status: Revised
Learning Goal: Learning Goal 3
17
18) EAFE stands for
A) Europe, Asia, Far East.
B) Europe, Australia, Far East.
C) England, America, Far East.
D) England, America, France, European Community.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
19) Which one of the following statements is true concerning bonds?
A) A bond yield represents only the interest earned on a bond.
B) Bond yield data is more useful to an investor when compared over time.
C) A bond’s yield remains constant even when a bond is sold prior to maturity.
D) Bonds with similar characteristics generally have widely disparate bond yields.
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 3
20) Which of the following indexes would best reflect the performance of a large, diversified
portfolio with equal amounts of money invested in each company.
A) the S&P 500 Index
B) the Russell 3000
C) the NASDAQ 100
D) the Value Line Composite Index
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 3
18
21) Which one of the following indexes reflects a large sample of small, medium sized and
large companies?
A) NYSE composite
B) DJIA
C) Russell 3000
D) Value Line composite
managers
AACSB: 3 Analytical thinking
Question Status: Revised
Learning Goal: Learning Goal 3
22) Which one of the following is a measure of the performance of small companies?
A) Russell 2000
B) Russell 1000
C) Russell 3000
D) Value Line 1700
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 3
23) The Dow Jones Corporate Bond Indexes is based
A) the yield to maturity of bonds in the index.
B) annual rates of return and assume the bonds were purchased one year ago and sold today.
C) the interest rates offered on a sample of newly issued bonds.
D) the closing prices of bonds in the index.
managers
AACSB: 3 Analytical thinking
Question Status: New Question
Learning Goal: Learning Goal 3
19
24) The Dow Jones Industrial Average and the Standard & Poor’s Industrial Index have a
number of similarities and differences. Discuss at least two major similarities and major
differences between these two market indicators.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
25) Why are market averages and indexes useful to investors?
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
20
3.4 Learning Goal 4
1) The basic function of stockbrokers is to execute client orders at the best possible price.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
2) Shares of stock owned by an individual but held in a brokerage firm’s name for ease of
trading are said to be held in street name.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
3) Trading stocks is much faster and less complicated if an individual investor has possession
of the actual stock certificates.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
4) Regulation FD requires that brokerage firms disclose material information such as earnings
forecasts with all clients simultaneously.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 4