978-0134083308 Chapter 6 Part 4

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15) Investors seeking current income that tends to increase over time should purchase

A) corporate bonds.

B) income stocks.

C) growth stocks.

D) speculative stocks.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

16) Companies with strong earnings but limited growth opportunities

A) do not generally pay any dividends.

B) are called blue-chip stocks.

C) generally pay high dividends.

D) are speculative stocks.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

17) Characteristics of established growth companies include all of the following EXCEPT

A) high operating margins.

B) steady earnings growth.

C) adequate cash flow to service their debt.

D) high dividend payout ratios.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

18) Stocks whose prices are expected to remain stable, or even prosper, when economic activity

is slowing down are known as

A) defensive stocks.

B) cyclical stocks.

C) growth stocks.

D) speculative stocks.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

19) Which of the following are typical characteristics of small cap stocks?

I. strong balance sheets

II. market cap less than $2 billion

III. potential for high returns along with high risk

IV. potentially dramatic changes in their earnings

A) III and IV only

B) II and III only

C) I, III and IV only

D) II, III and IV only

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Revised

Learning Goal: Learning Goal 6

20) Which of the following are characteristics of blue-chip stocks?

I. solid balance sheets

II. generous dividend yields

III. immunity from bear markets

IV. some growth potential

A) III and IV only

B) II and III only

C) I, II and IV only

D) II, III and IV only

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

21) Stocks related to computers and the Internet are classified as

A) blue-chip stocks.

B) income stocks.

C) cyclical stocks.

D) tech stocks.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

22) Typical characteristics of growth stocks include

A) rapidly growing dividends.

B) high rates of growth in operations and earnings.

C) acquisitions of competing companies.

D) strong performance even in market downturns.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

23) Which of the following best fits the description “speculative stock”?

A) Sirius XM Radio

B) Facebook

C) Amazon

D) Apple

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Revised

Learning Goal: Learning Goal 6

24) Which of the following best fits the description “defensive stock”?

A) Facebook

B) Walmart

C) Samsung

D) Tesla Motors

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Revised

Learning Goal: Learning Goal 6

25) Which of the following best fits the description “blue chip stock”?

A) Facebook

B) Under Armour

C) General Electric

D) Chipotle Mexican Grill

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

26) One characteristic of mid-cap stocks is that they

A) are generally new firms with high growth potential.

B) tend to be highly volatile.

C) are fairly good-sized companies that offer attractive return opportunities.

D) are traded primarily through pink sheet bids.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

27) Which category of stocks represents the highest level of risk?

A) large-cap

B) mid-cap

C) baby blue

D) small-cap

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

28) The U.S. stock market

A) currently represents about 66% of the world’s equity market.

B) consistently outperforms the foreign markets once exchange rates are considered.

C) is decreasing as a percentage of the world’s equity market.

D) lists over 25,000 stocks.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

29) Advantages of using American Depositary Receipts to participate in foreign markets

include

I. lower transaction costs than for direct foreign stock purchases.

II. reduced exposure to foreign exchange risk.

III. dividends are paid in U.S. dollars.

IV. quotations are readily available from U.S. sources such as Yahoo Finance or MSN Money.

A) I and II only

B) I and III only

C) I, II and III only

D) I, III and IV only.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: New Question

Learning Goal: Learning Goal 6

30) ADRs

I. are shares of U.S. companies traded on foreign exchanges.

II. are shares of foreign companies traded on U.S. exchanges.

III. pay dividends in U.S. dollars if they pay dividends.

IV. are subject to exchange rate risk.

A) I and II only

B) II and III only

C) II. III and IV only

D) I, II, III and IV

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

31) Amanda purchased stock in a German firm at a price per share of 35 euros when the U.S.

$/euro exchange rate was $1.20. After six months, Ann sold the stock for 37 euros when the

U.S. $/euro exchange rate was $1.10. The stock does not pay a dividend. What is Ann’s rate of

return on this investment?

A) 3.31%

B) -3.10%

C) 5.7%

D) 9.2%

AACSB: 3 Analytical thinking

Question Status: Revised

Learning Goal: Learning Goal 6

32) Aggressive stock management

A) requires holding speculative stocks for the long term.

B) involves active stock trading in the short-term in the quest for capital gains.

C) concentrates on the long-term growth aspects of a security.

D) concentrates on high dividend yielding stocks.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

33) Which of the following are advantages of the buy and hold strategy?

I. rapid accumulation of wealth

II. low transaction costs

III. capital gains taxed at the long-term rate

IV. portfolio requires less time and energy to manage than for most other strategies

A) I and II only

B) II and III only

C) II, III and IV only

D) I, II, III and IV

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

34) Which one of the following investment strategies would NOT appeal to an investor who is

most concerned with storage of value?

A) buy-and-hold

B) high income

C) quality long-term growth

D) speculation and short-term trading

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

35) The common stock investment strategy that is the most basic strategy and is popular with

conservative, quality-conscious individuals looking for competitive returns over the long run is

the

A) buy-and-hold strategy.

B) current income strategy.

C) growth strategy.

D) speculation and short-term trading strategy.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

36) Aggressive stock management focuses on the pursuit of

A) dividend income.

B) short-term capital gains.

C) long-term capital gains.

D) all of the above.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

37) Which of the following strategies appeal to investors who place primary emphasis on the

storage of value aspects of an investment?

I. buy and hold

II. short-term trading

III. quality long-term growth

IV. consistent dividend record

A) I and IV only

B) I and III only

C) I, II and III only

D) I, III and IV only

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

38) Which strategy applies to investors who fund long-term goals with high-quality stocks

which they retain for the entire investment period?

A) quality long-term growth

B) buy and hold

C) speculation

D) current income

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

39) Income stocks are well suited for retirees because

A) dividend income is tax-free.

B) the capital gains are predictable.

C) dividend yields tend to exceed bond yields.

D) dividends tend to increase over time.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6

40) Explain why every stock portfolio should include some defensive stocks.

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 6