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12. Investing in Stocks and Bonds
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38. A stock generally issued by companies expected to provide an uninterrupted stream of dividends and good, long-term
growth prospects is called a(n):
a. blue-chip stock.
b. growth stock.
c. income stock.
d. defensive stock.
e. cyclical stock.
39. Stocks whose earnings have increased at an above-average level over time are called:
a. cyclical stocks.
b. growth stocks.
c. income stocks.
d. speculative stocks.
e. defensive stocks.
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40. Stocks whose prices tend to increase when the economy is in an expansionary stage and decline during a
contractionary stage are called:
a. cyclical stocks.
b. defensive stocks.
c. speculative stocks.
d. income stocks.
e. tech stocks.
41. A stock’s dividend yield is calculated as the:
a. annual dividend received per share divided by the book value per share of stock.
b. book value per share of stock divided by the annual dividend received per share.
c. annual dividend received per share divided by the market price per share of stock.
d. market price per share of stock divided by the annual dividend received per share.
e. earnings remaining after paying preferred dividends divided by the number of common shares outstanding.
42. To most stockholders, the main advantages of common stock investments are:
a. attractive returns and active trading.
b. guaranteed returns and voting rights.
c. a high interest payment and active trading.
d. high risk and guaranteed returns.
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e. low risk and guaranteed returns.
43. Which of the following statements regarding American Depositary Receipts (ADRs) is true?
a. ADRs are traded only in foreign exchanges.
b. ADRs are denominated in foreign currencies.
c. ADRs represent a stated number of shares in a specific foreign company.
d. The investors in ADRs receive annual interest amounts in dollars.
e. The investors in ADRs receive dividends in foreign currencies.
44. The easiest way to invest in foreign markets is through:
a. the stocks purchased directly from an overseas broker.
b. the stocks purchased directly from a regular broker.
c. the stocks purchased directly over the Internet.
d. international mutual funds.
e. the purchase of Eurobonds.
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45. Suppose the earnings per share of a stock is $2 and the current price/earnings (P/E) ratio is 10. What is the current
price of the stock?
a. $5
b. $8
c. $20
d. $40
e. $35
46. Stock profitability is often measured by:
a. book value.
b. return on equity.
c. market value.
d. net profit margin.
e. beta.
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47. Which of the following accounting measures indicates the amount of stockholder funds used to finance the firm?
a. Book value
b. Actual rate of return
c. Net profit margin
d. Approximate yield
e. Price/earnings ratio
48. The _____ of a stock reflects stockholders’ confidence.
a. par value
b. book value
c. earnings per share
d. price/earnings ratio
e. dividend yield
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49. The advantages of a dividend reinvestment plan (DRP) may include:
a. stock sold at a discount.
b. a guaranteed rate of return.
c. tax advantages.
d. a convertibility option.
e. repayment of the principal.
50. The market price per share of Zinc Corporation is $145, and earnings per share is $20. What is the price/earnings ratio
of Zinc Corporation?
a. 10.25
b. 7.25
c. 2.25
d. 12.36
e. 15.00
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51. Return on equity is calculated by:
a. subtracting liabilities from assets.
b. adding the book value and the market price of a stock.
c. dividing net income by shareholders’ equity.
d. multiplying assets by a selected number.
e. deducting taxes from dividends.
52. The net income of Sunrise Corporation is $5 million, and shareholders’ equity is $50 million. The return on equity is:
a. 5%.
b. 10%.
c. 20%.
d. 15%.
e. 25%.
53. The current net profit of Sigma Inc. is $8 million, the market price of the stock is $65, and sales is $50 million. The
net profit margin of Sigma Inc. is:
a. 10%.
b. 28%.
c. 16%.
d. 8%.
e. 22%.
12. Investing in Stocks and Bonds
12. Investing in Stocks and Bonds
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56. When the market interest rate decreases, the bond:
a. price increases.
b. maturity period decreases.
c. coupon rate decreases.
d. current yield increases.
e. yield to maturity increases.
57. Bonds are issued:
a. by corporations and state, local, and federal governments.
b. only by state and local governments and partnership firms.
c. only by corporations and partnership firms.
d. by Moody’s and Standard & Poor’s.
e. by the Securities Exchange Commission (SEC).
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DATE MODIFIED: 11/27/2018 4:01 PM
58. Bonds issued by political subdivisions of the U.S. government but not obligation of the U.S. Treasury are called:
a. federal bonds.
b. agency bonds.
c. Treasury bonds.
d. municipal bonds.
e. trust bonds.
59. A bond was issued at a par value of $1,000 when the interest rate for similar bonds was 8%. Presently, new bonds
issued with a similar creditworthiness have a 10% interest rate. Which of the following is most likely to be true about the
bond?
a. It is currently selling for a premium.
b. It is currently selling at a discount.
c. It is currently selling at par.
d. It is likely to be retired.
e. The bond’s coupon rate increases.
60. Which of the following types of bonds is unsecured?
a. Mortgage bonds
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b. Equipment trust certificates
c. Debenture bonds
d. Agency bonds
e. Treasury bonds
61. John Smith is in the 28% tax bracket. If he were to purchase a $1,000 municipal bond that has a stated interest rate of
6.9%, the fully taxable equivalent yield would be:
a. 6.900%.
b. 8.261%.
c. 9.583%.
d. 12.105%.
e. 14.625%.
62. A Puppy Pet Services $1,000 bond has a 7.5% coupon rate, matures in 2020, and is currently quoted at $820. The
current yield is:
a. 6.15%.
b. 7.50%.
c. 9.15%.
d. 10.27%.
e. 11.43%.
12. Investing in Stocks and Bonds
12. Investing in Stocks and Bonds
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65. The approximate yield to maturity of a bond is greater than the stated rate of interest when the:
a. bond is purchased at face value.
b. bond is purchased at a discount.
c. bond is purchased at a premium.
d. market rates of interest decline.
e. market rates of interest are constant.
66. _____ dividends are the most common form of dividends.
a. Cash
b. Stock
c. Convertible
d. Reinvestment
e. Discount
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67. In the stock market, the market cap of a large-cap stock is more than:
a. $10 billion.
b. $20 billion.
c. $1 billion.
d. $50 million.
e. $5 million.
68. When a bond is sold between coupon payment dates, the buyer pays the seller for the _____, which is the prorated
share of the upcoming coupon payment.
a. accrued interest
b. prepaid interest
c. bond premium
d. bond discount
e. discount
69. The commonly cited price for a bond in the financial press and on the Internet is usually its _____ bond price.
a. clean
b. dirty
c. premium
d. discount
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e. accrued
