63) When do investors expect a higher rate of return on their investments?
A) When there is greater uncertainty
B) When the investment requires less upfront capital
C) When the investment is stable
D) When there is a short time commitment
E) When the investment is for a larger share of the offering
64) What is the increase in the dollar value of an investment known as?
A) Dividend payout
B) Total return
C) Interest yield
D) Capital gain
E) Price appreciation
65) Why should an investor consider diversification and asset allocation?
A) To offset capital gains
B) To achieve desired risk-return balance
C) To increase total returns
D) To achieve higher dividend yields
E) To improve price-appreciation values
66) What is the proportion of investments in each investment alternative referred to as?
A) Portfolio
B) Dividend yield
C) Asset allocation
D) Risk-reward relationship
E) Diversification
67) What type of investment offers low returns, but is insured by the U.S. government?
A) Common stock
B) Mutual funds
C) Exchange-traded funds
D) Treasury bills
E) Securities
68) Aggressive growth funds are designed for investors who can accept the risk of loss inherent
in common stock investing with severe price fluctuations, but also the potential for superior
returns over time.
69) An investment’s current dividend yield plus its capital gain rate is known as its total return.
70) A portfolio represents the proportion of funds invested in each of the investment alternatives.
71) Explain how dividend yield and interest dividend yield are computed.
72) What is the formula for measuring a firm’s working capital?
A) Current assets = working capital /current liabilities
B) Working capital = current assets – current liabilities
C) Current liabilities = current assets + working capital
D) Working capital = current assets × current liabilities
E) Current liabilities = current assets / working capital
73) Which of the following is a formal pledge (an IOU) obligating the issuer to pay interest
periodically and repay the principal at maturity (a preset future date) to the lender?
A) Commercial bank loan
B) Corporate bond
C) Mutual fund
D) Bond indenture
E) Prospectus
74) What type of loan is guaranteed by collateral?
A) Unsecured loan
B) Venture capital loan
C) Angel investor loan
D) Secured loan
E) Corporate bond
75) What is the advantage to a small business when planning for shortfalls in cash flow?
A) Financial resources can be saved in a savings account until needed.
B) Banks are more likely to offer loans if they know when the money will be needed.
C) Loans can be obtained in advance and minimize their costs.
D) Lower interest loans can be sought for the needed time frame.
E) Small businesses will appear more professional, resulting in favorable banking relationships.
76) What can an angel investor offer to small businesses when the small business doesn’t have
enough history to get a loan from a commercial bank?
A) A credit history
B) Venture capital
C) Stock options
D) Financial oversight
E) Bonds
77) How are federal and state projects, such as roads and schools, typically financed?
A) Municipal bonds
B) Common stock
C) Angel investors
D) Corporate bonds
E) TARP loans
78) What is the legal document that identifies a borrower’s obligation and the financial returns to
lenders when issuing corporate bonds?
A) Bondholder’s claim
B) Risk claim analysis
C) Initial public offering
D) Mortgage-backed security
E) Bond indenture
79) What is the result of a borrower who fails to make payments to the lender when due?
A) Bankruptcy
B) Default
C) Risk ratings
D) Bondholder’s claim
E) Bond indenture
80) According to rating services such as Moody’s, what type of rating would a bond have if it
was one of the safest investments possible, but produced lower returns?
A) AAA
B) BBB
C) Caa
D) CCC
E) D
81) What type of loan allows a borrower to maintain a compensating balance at the bank instead
of putting up collateral?
A) Unsecured loan
B) Venture capital loan
C) Angel investor loan
D) Secured loan
E) Corporate bond
82) How can an investor request the courts to enforce a bond’s terms of payment?
A) File for bankruptcy
B) Ask for an improved risk rating on the bond
C) File a bondholders’ claim
D) Have the bond converted to stock
E) Have the bond converted to a mortgage-backed security
83) When can a bondholder file a bondholders’ claim?
A) When purchasing an initial issue of the bond
B) When buying a bond from a brokerage service
C) When the borrower is filing for bankruptcy
D) When selling a bond before maturity
E) When the borrower fails to make a payment that is due
84) When a new bond is issued, when does the bond’s par value have to be repaid?
A) When the company files for bankruptcy
B) Before the company goes into default
C) On the maturity date
D) On the issue date
E) When the company makes enough profit to cover the value of the bond
85) How is the risk involved in purchasing bonds affected by the bond’s maturity date?
A) The sooner the maturity date, the greater the rate of return is on the bond.
B) The further the maturity date, the less likely a bondholders’ claim will be filed.
C) The sooner the maturity date, the lower the initial offering price of the bond.
D) The further the maturity date, the greater the chance for unforeseen circumstances that affect
the bond.
E) The sooner the maturity date, the greater the chance for significant market changes that affect
the bond.
86) How does an issuer of mortgage-backed security pay off debt obligations?
A) Through the sale of mortgages to consumers
B) Through an increase in interest rates on mortgages
C) Through the assets of the lending institutions
D) Through the closing of a mortgage loan
E) Through the influx of cash from mortgage payments
87) What is a mortgage-backed security?
A) A bundled group of home mortgages
B) A bundled group of investments with AAA credit-ratings
C) A bundled group of bonds
D) A bundled group of stocks
E) A bundled group of loans made to risk assessment firms
88) Municipal bonds may be issued by federal, state, or local governments.
89) A bond is said to be in default if the borrower fails to make payment when due to lenders.
90) Bankruptcy is the court-granted permission not to pay some or all debts.
91) When are corporate bonds attractive to a firm?
92) Explain the difference between angel investors and venture capital.
93) When giving an unsecured loan, what might a bank require?
94) What is an angel investor?
95) What do angel investors receive in return for their investment?
96) What is the term for a division of stock that gives stockholders a greater number of shares
but does not change each individual’s proportionate share of ownership?
A) Stock dividend
B) Stock split
C) Stock yield
D) Stock warrant
E) Stock exchange
97) What is the first sale of a company’s stock to the general public called?
A) IPO
B) Common offering
C) Par value
D) Venture capital
E) Portfolio
98) When issuing shares of stock, what is being given to stock holders in exchange for their
investment in the organization?
A) Dividends
B) Voting rights
C) Increased par value
D) Tax advantages
E) Long-term growth on investments
99) When is a company susceptible to a hostile takeover?
A) When a bull market is in effect
B) When stock prices are high, but assets are decreasing
C) When stocks are low priced, but assets have high value
D) When the international market is in recession
E) When angel investors demand repayment of their venture capital
100) When a security bought through an IPO is resold, where does the gain or loss go?
A) The investor who bought the security
B) The bank that financed the IPO
C) Stakeholders with vested interests in the company
D) The investor who sold the security
E) The company
101) Which of the following allows a company to generate long-term funding from within the
organization?
A) Long-term loans
B) Equity financing
C) Debt financing
D) Market capitalization
E) Stock splits
102) What can a company do to attract investors when the value of their stock becomes too high?
A) Use the increased value for equity financing
B) Institute a market cap
C) Increase earnings per share
D) Buy back some shares
E) Issue a stock split
103) What is determined when the value of outstanding shares is multiplied by the number of
outstanding shares?
A) Market capitalization
B) Stock split value
C) Earnings per dollar of investment
D) Dividend value
E) Earnings per share
104) When a firm needs a large amount of capital for an extended period of time, what type of
financing, even with stiff annual or semi-annual interest payments, might be best?
A) Retained earnings
B) Corporate bonds
C) Common stock
D) Stock split
E) IPO
105) The use of special knowledge about a firm, which results in an unfair advantage or
generates profit or other types of gain, is known as what?
A) Equity financing
B) Market capitalization
C) Insider trading
D) Prospectus information
E) FINRA violation
106) How does a corporate raider attempt to take control of a company and its assets?
A) Buying shares of stock on the open market
B) Joining the Board of Directors
C) Attend the annual shareholders’ meeting to solicit support
D) Increase the value of shares on the market prompting a large sell off
E) Buying stock in competitor’s companies
107) What is the outcome when a corporate raider takes over an organization?
A) The value of assets decreases.
B) Assets are sold off at a profit.
C) The value of the stock increases.
D) The company can be reorganized into a stronger, more productive organization.
E) A hostile takeover is avoided.
108) Before the Securities and Exchange Commission allows a firm to issue a public offering of
new securities, what must be filed?
A) Incidents of insider trading
B) A prospectus
C) The firm’s history of reinvesting retained earning
D) A statement of equity financing to be used
E) The firm’s corporate bond rating
109) Where can an investor learn information about a firm’s proposed security offering and the
issuing company?
A) The Russell 2000 Index
B) The annual report
C) The prospectus
D) The SEC
E) The retained earnings statement
110) Before a firm can offer an IPO, they must file a document with the SEC that explains the
offering and the company. This document is called a(n)
A) Rule of 72 report.
B) prospectus.
C) FINRA confirmation.
D) blue-chip evaluation.
E) IPO launch form.
111) Initial public offerings (IPOs) are the first sale of a company’s stock to the general public
and are a major source of funds that fuel continued growth for many firms.
112) The investment industry categorizes firms according to size of capitalization.
113) In case of financial distress, the firm would pay its stockholders before paying its
bondholders.
114) Discuss how a stock split works if a company has 100,000 common shares outstanding that
are trading at $100 per share.
115) Explain the difference between debt financing and equity financing.
116) Which of the following is the enforcement agency that oversees a market’s activities and the
way securities are issued within that market?
A) SEC
B) FINRA
C) Galleon group
D) Prospectus
E) Attorney general
117) Some employees have special knowledge about a future event an organization will
experience that will affect the value of stock. Using this knowledge to buy or sell stock before
the major event is called
A) prospectus violations.
B) market capitalization.
C) insider trading.
D) retaining earnings.
E) underwriting.
118) Established in 2003, this group protects U.S. investors by overseeing brokerage firms and
securities representatives.
A) The attorney general’s office
B) The SEC
C) The Galleon group
D) FINRA
E) The prospectus evaluation committee