Business Essentials, 12e (Ebert/Griffin)
Chapter 17 Managing Business Finances
1) What value of a stock is calculated by dividing the firm’s owners’ equity by the total number
of common shares of stock owned by all shareholders?
A) Par value
B) Market value
C) Book value
D) Dividend value
E) Total value
2) What is a stock’s market value?
A) The current price of a share of stock in the stock market
B) The average price of one share of stock over the past year
C) The face value of a share of stock, set by the issuing company’s board of directors
D) The price of the stock plus the previous year’s dividend
E) The monthly average of a stock’s price over a year
3) Which of the following is the name for a portion of the ownership of a corporation?
A) Schedule C
B) Stock
C) Partnership
D) LLC
E) Dividend
4) What is a stock’s book value?
A) The current price of a share of stock in the stock market
B) The average price of one share of stock over the past year
C) The face value of a share of stock, set by the issuing company’s board of directors
D) The value expressed as total stockholders’ equity divided by the total number of shares of
stock issued
E) The value expressed by the number of stock shares issued by the board of directors
5) The time it takes to double an investment can be estimated by using which of the following?
A) Book value
B) The Rule of 72
C) Blue-chips
D) Dividends
E) Market value
6) While it’s invested, money grows by earning interest. What is the cumulative growth from
interest paid over given time periods referred to as?
A) Compound growth
B) Dividend
C) Capital gains
D) Security
E) Diversity
7) Which of the following multiplies the earning capacity on an initial investment as interest
payments accumulate and earn even more interest?
A) Compound growth
B) Rule of 72
C) Time value of money
D) Interest
E) Market value
8) How is the market value of a stock determined?
A) Interest rates
B) The firm’s owners’ equity
C) Number of shares available
D) Profit-seeking potential
E) How much buyers are willing to pay
9) Partial ownership of a firm that is considered to be the strongest and financially sound is done
through what method?
A) Buying of mutual funds
B) Buying of blue-chip stocks
C) Dividend reinvestment
D) Funding of aggressive growth opportunities
E) Buying of load funds
10) Which of the following is considered to be one of the riskiest of all investments?
A) Blue-chip stock
B) Mutual funds
C) No-load funds
D) Common stock
E) Load funds
11) Because of the uncertainties involved in stock prices, investment professionals believe day-
to-day prices to be a generally poor indicator of any stock’s real value.
12) Dividend payments are optional and variable. The corporation’s CEO decides whether and
when a dividend will be paid, as well as the amount that is best for the future of the company’s
employees.
13) Explain the principle of compound growth.
14) Explain the Rule of 72.
15) Differentiate between market value and book value.
16) Which of the following terms refers to a bundling of stocks, bonds, and other securities?
A) Blue-chips
B) Mutual funds
C) Exchanges
D) Commodities
E) Dividends
17) To avoid paying a commission on an investment, what type of fund might an investor
choose?
A) Blue-chip stock
B) Mutual funds
C) No-load funds
D) Common stock
E) Load funds
18) Investments such as money market mutual funds offer what advantage to investors?
A) Conservative capital growth
B) Long-term capital growth
C) Market appreciation
D) Aggressive growth
E) Safety and stability
19) What type of investment would preserve capital investment but seek capital appreciation?
A) Blue-chip stock
B) Balanced funds
C) Aggressive growth funds
D) No-load funds
E) Mutual funds
20) Which type of investment will sacrifice current income potential for long-term returns?
A) Blue-chip stock
B) Balanced funds
C) Aggressive growth funds
D) No-load funds
E) Mutual funds
21) What is the advantage of exchange-traded funds (ETFs) over mutual funds?
A) They can be traded throughout the day like a stock.
B) The cost of the fund management is passed on to the holder.
C) They do not require the services of a broker to complete a transaction.
D) They allow for frequent trading with lower overall transaction fees.
E) They regularly out-perform mutual funds.
22) When an investor wants to enter the market with a minimum amount of investment, what
type of opportunities would offer them ease of entry and low operating expenses?
A) Securities
B) Common stock
C) Blue-chip stock
D) Exchange-traded funds
E) Mutual funds
23) An exchange-traded fund (ETF) is a bundle of stocks (or bonds) that are in an index that
tracks the overall movement of a market.
24) Explain what exchange-traded funds are and how they are tracked.
25) Which is the MOST widely cited U.S. stock market index?
A) Standard & Poor’s Composite Index of 500 Stocks
B) The NYSE index
C) Dow Jones Industrial Average
D) Moody’s Stock List
E) The NASDAQ
26) New stocks and bonds are sold in what market?
A) Private placement market
B) Secondary market
C) Primary securities market
D) Tertiary market
E) Open market
27) Which of the following is the federal government agency that regulates U.S. securities
markets?
A) New York Stock Exchange
B) Federal Reserve
C) Commerce Department
D) Securities and Exchange Commission
E) Treasury Department
28) Which of the following is an organization of individuals coordinated to provide an
institutional setting in which stock can be bought and sold?
A) Stock exchange
B) Brokerage
C) Server
D) Over-the-counter market
E) Mutual fund
29) Which of the following is a basis for a firm to be listed on the New York Stock Exchange?
A) Headquarters in New York
B) Total value of outstanding stock
C) Industry in which the company operates
D) Type of stock
E) Global operations
30) Which of the following receives and executes buy-and-sell orders for other people in return
for commissions?
A) Stock exchanges
B) Stock brokers
C) Investment banks
D) Stock agents
E) Savings banks
31) Which of the following is a summary of price trends in a specific industry and/or the stock
market as a whole?
A) Investment index
B) Average index
C) Market indicator
D) Market index
E) Prospectus
32) Which of the following is a function performed by an investment bank?
A) Handling a client’s portfolio in the secondary market
B) Establishing relationships for a client with a commercial bank
C) Underwriting purchases of stocks and bonds
D) Arranging travel abroad for purchasers of foreign currencies
E) Providing insurance services for clients
33) Which of the following is considered by many to be the BEST single indicator of the U.S.
equities market?
A) NASDAQ Composite
B) Russell 2000
C) Dow Jones Industrial Average
D) Standard & Poor’s 500
E) New York Stock Exchange
34) Which stock exchange has the highest volume of shares traded?
A) American Stock Exchange (ASE)
B) New York Stock Exchange (NYSE)
C) National Association of Securities Dealers Automated Quotation System (NASDAQ)
D) Philadelphia Stock Exchange (PSE)
E) Securities and Exchange Commission (SEC)
35) Which of the following allows after-hours trading and protects traders’ anonymity?
A) National Association of Securities Dealers Automated Quotation (NASDAQ)
B) New York Stock Exchange (NYSE)
C) Electronic Communication Networks (ECNs)
D) Standard & Poor’s 500
E) Mutual funds
36) For investors who do not want investment advice and wish to avoid paying a commission,
what is the best type of broker assistance firm?
A) Mutual fund advisors
B) Investment banks
C) Stock broker
D) Discount broker
E) Full service broker
37) Which of the following is indicative of a bull market?
A) Stock prices that are averaging 20 percent off peak
B) Rising stock prices for 12 months or more
C) Falling stock prices for 6 months or more
D) A spike in the value of the Dow Jones Industrial Average
E) Investors who are motivated to sell stocks based on current value
38) In which type of market would investors be motivated to sell because they feel prices will
fall further?
A) Bear market
B) Blue-chip market
C) Bull market
D) Large cap market
E) Composite market
39) A bear market can be revealed by tracking ________, which is a summary of overall price
trends.
A) the Dow Jones Industrial Average
B) market indexes
C) the value of blue-chip stocks
D) technology-based economies
E) exchange-traded funds
40) Which index focuses specifically on the smallest U.S. companies, based on market
capitalization?
A) S&P 500
B) Dow Jones Industrial Average
C) TradeStation
D) Russell 2000
E) NASDAQ Composite
41) The largest stock exchange in the world is the Tokyo exchange.
42) Unlike the Dow and the S&P 500, all NASDAQ-listed companies are included in the index
for a total of some 3,100 firms.
43) Stocks are known as securities because they represent a secured interest in a company.
44) Mutual funds are traded in securities markets.
45) In a secondary securities market, new stocks and bonds are bought and sold by firms and
governments.
46) An investment bank is a financial institution that specializes in issuing and reselling new
securities.
47) A stock exchange is an organization of individuals coordinated to provide an institutional
auction setting in which stocks can be bought and sold.
48) The New York Stock Exchange, the world’s oldest electronic stock market, has orders
gathered and executed exclusively on a computer network.
49) Stock brokers earn commissions from the individuals and organizations for which they place
orders.
50) The value of the Dow Jones Industrial Average (DJIA) has remained unchanged in recent
years.
51) An investment bank operates in the secondary securities market.
52) When an investment bank engages in underwriting, that investment bank is taking on risk in
the process of launching new securities.
53) Although advising and underwriting may be tasks of an investment bank, distribution of new
securities is NOT one of their services.
54) The Russell 2000 Index focuses primarily on technology companies, small-company stocks,
and has a smaller representation of sectors such as financial, consumer products, and industrials.
55) Describe the services provided by investment banks.
56) Describe the differences between primary and secondary securities markets.
57) More Americans are investing in the stock market through online trading. Explain the value
of online trading.
58) What is the term for buying several different kinds of investments rather than just one?
A) Spreading
B) Shorting
C) Margin buying
D) Diversification
E) Management
59) What is the term for the proportion of funds invested in each of several investment
alternatives?
A) Spreading
B) Shorting
C) Margin buying
D) Asset allocation
E) Diversification
60) Which of the following is figured by dividing the yearly dollar amount of dividend income
by the investment’s current market value?
A) Bond yield
B) Current dividend yield
C) Debenture
D) Trading volume
E) Earnings per share
61) The profit realized when the market value of an investment increases is known as which of
the following?
A) Capital gains
B) Asset allocation
C) Diversification
D) Price appreciation
E) Profiteering
62) What are low grade bonds usually called?
A) Bankruptcy
B) Default bonds
C) Junk bonds
D) Corporate bonds
E) Grade B bonds