Fundamentals of Investing, 11e (Gitman/Joehnk/Smart)
Chapter 3 Investment Information and Securities Transactions
1) Most brokers charge higher commissions for on-line trades than for telephone transactions.
2) You can utilize the Internet to develop financial plans and goals, analyze and select individual
investments and organize your portfolio.
3) An individual can sort stocks by dividend rates, growth rates, and price/earnings ratios using
screening tools on the Internet.
4) Investing online is usually less expensive than traditional methods.
5) The Internet provides
I. educational sites for financial investing.
II. the ability to trade securities on-line.
III. current information on stocks and bonds.
IV. analysts reports on individual stocks.
A) II and III only
B) III and IV only
C) I, II and III only
D) I, II, III and IV
6) Individuals can use the Internet to
I. analyze individual securities.
II. search for stocks that meet specific investment criteria.
III. organize their financial information.
IV. track the performance of their portfolio.
A) I and IV only
B) II and III only
C) I, III and IV only
D) I, II, III and IV
7) Information that can be found on the internet at no cost includes
I. P/E ratios.
II. recent news about a company.
III. financial statements.
IV. future earnings and stock prices.
A) I and IV only
B) II and III only
C) I, II and III only
D) I, II, III and IV
8) Which one of the following can be considered a negative aspect of on-line investing?
A) On-line trading is fast and efficient.
B) On-line investors tend to trade more frequently.
C) On-line trading is available to the average investor.
D) On-line investors pay lower costs per trade than investors using a broker.
9) What is the advantage of charting the price of a security over a period of time?
3.2 Learning Goal 2
1) Analytical information would include such information as estimates of growth in sales and
future earnings.
2) Reviewing industry and company information may provide guidance on the future outlook of
a particular firm.
3) Descriptive information might include estimates of future demand for a company’s products
and future stock prices.
4) Current price information on shares of a company’s stock is often accompanied by statistics on
the recent price behavior of that stock.
5) Investors who are aware of current economic, political, and market events tend to make better
investment decisions.
6) Chemical Week and the Oil and Gas Journal are considered to be general business periodicals.
7) Investors can usually find the financial statement of a firm on the firm’s website.
8) A “pump and dump” scheme involves buying shares of stock, hyping that stock via the
Internet and then quickly selling the shares at a profit.
9) Charting is the technique of
A) plotting the performance of a security over time.
B) sorting through databases of securities to select one based on certain parameters.
C) monitoring a stock based on the underlying economic conditions.
D) determining the amount of money that must be saved based on a given financial goal.
10) Which one of the following is considered a financial rather than a general newspaper?
A) The New York Times
B) USA Today
C) The Wall Street Journal
D) The Washingtom Post
11) Which one of the following is NOT published by the US Government?
A) Federal Reserve Bulletin
B) Survey of Current Business
C) Kiplinger Washington Letter
D) Economic Report of the President
12) Regulation FD requires simultaneous disclosure of critical information simultaneously to
investment professionals and the general public with the exception of
A) newspapers in the state where the firm is incorporated.
B) hedge funds.
C) securities rating service such as Moody’s Investor Services and Standard & Poor’s.
D) the company’s investment bankers.
13) Which one of the following web sites should you utilize to review the financial information
in a company’s 10-K report?
A) freeedgar.com
B) valueline.com
C) wsj.com
D) finance.yahoo.com
14) Which of the following is published yearly by publicly-held corporations and provided free
to their stockholders and other investors?
A) brokerage reports
B) annual reports
C) back-office reports
D) red herrings
15) The published analysis and recommendations of an individual brokerage firm is called a
A) prospectus.
B) comparative data source.
C) back-office research report.
D) broker‘s subscription report.
16) Assume you wanted to find yesterday’s closing stock price for the XYZ Corporation. You
would be most likely to find this information in
A) Kiplinger’s Personal Finance Magazine.
B) The Investor‘s Resource Manual.
C) The Granville Market Letter.
D) The Wall Street Journal.
17) Which one of the following statements about back-office research reports is FALSE?
A) They frequently include buy or sell recommendations.
B) They include analyses of current and future prospects for the securities markets.
C) They look at specific companies as well as industries.
D) They are only available to high-profile clients who maintain large accounts with the
brokerage firm.
18) The Value Line Investment Survey includes which of the following reports?
I. Selection and Opinion
II. The Outlook
III. Ratings and Reports
IV. Summary and Index
A) I and II only
B) I, II and IV only
C) I, III, and IV only
D) II, III and IV only
19) Subscription letters are
A) sometimes geared to specific industries and companies.
B) available free on the Internet.
C) published on an annual basis.
D) descriptive in nature but do not offer investment advice.
20) Which of the following sites is especially valuable for information concerning international
investments?
A) http://yahoo.finance.com
B) www.adr.com
C) www.moody’s.com
D) www.bondsonline.com
21) Current price information is found in which of the following?
I. Dow Theory Letters
II. CNN Headline News
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
22) America Online, Yahoo! Finance and the Motley Fool are all classified as
A) subscription services.
B) comparative data sources.
C) financial portals.
D) institutional news sites.
23) Which one of the following web sites does NOT offer bond ratings?
A) Standard & Poor’s
B) Fitch
C) Mergent’s Manuals
D) Financial Times
1) An index measures the current value of a group of stocks in relation to a base value
established previously.
2) The Standard & Poor’s indexes are all based on market values which consider the number of
shares outstanding.
3) Both the Dow Jones Industrial Average and the Standard and Poors 500 Index are constructed
to reflect the value of shares in large, mid-size and smaller companies.
4) Standard and Poors and Mergent both publish extensive data on bonds.
5) In addition to the Dow Jones Industrial Average, there are Dow Jones Averages for Africa, the
Americas, Asia, and Europe.
6) 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.
7) 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.
8) 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.
9) 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.
10) 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
11) Which one of the following statements is correct?
A) The DJIA is comprised of 50 stocks.
B) The Dow Jones 65 Stocks Composite Average is comprised solely of technology stocks.
C) The Dow Jones U.S. Total Market Index is a market-weighted index.
D) The Dow Jones Transportation Average is based solely on freight line stocks.
12) Assume that the S&P 500 composite stock index is 995.50. This means that
A) the average stock in the index is selling for $99.55.
B) an investor would have to pay $995.50 to purchase one share of each of the stocks represented
in the index.
C) the market values of the stocks in the index increased by a factor of 99.55 since the 1941–
1943 base period.
D) the share prices of the stocks in the index have risen 995.50 times since 1941.
13) 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.
14) 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 the market value
of the stocks in the base period and then multiplying the quotient by 100.
D) dividing the sum of the current market value of all the stocks in the index by the market value
of the stocks in the base period and then multiplying the quotient by 10.
15) EAFE stands for
A) Europe, Asia, Far East.
B) Europe, Australia, Far East.
C) England, America, Far East.
D) England, America, France, European Community.
16) 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.
17) 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 Dow Jones Industrial Average
B) The Russell 3000
C) The NASDAQ 100
D) The Value Line Composite Index
18) Which one of the following indexes is the most comprehensive measure of financial market
performance?
A) NYSE composite
B) DJIA
C) Wilshire 5000
D) Value Line composite
19) 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
20) Bond yields are
A) quoted as the average monthly rate of return and assume the bond is purchased today at the
quoted price and held for twelve months.
B) quoted as annual rates of return and assume the bond is purchased today at the stated price
and sold one year from today.
C) stated as a percentage of the maturity value and assume the bond is held to maturity.
D) stated as an annual rate of return and assume the bond is purchased today and held until
maturity.
21) 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.
22) What does it mean to say a bond has a yield to maturity of 6%?
1) The basic function of stockbrokers is to execute client orders at the best possible price.
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.
3) Trading stocks is much faster and less complicated if an individual investor has possession of
the actual stock certificates.
4) Brokerage firms are not allowed to make specific buy or sell recommendations to their clients.
5) Earnings on securities held in street name by the brokerage are not reported to the Internal
Revenue Service.
6) Which one of the following statements about stockbrokers is correct?
A) Stockbrokers act as dealers in the securities they trade.
B) Stockbrokers must be licensed by the Securities and Exchange Commission.
C) Stockbrokers are regulated by financial consultants.
D) Stockbrokers execute trades on the floor of the New York Stock Exchange on behalf of
account executives.