103. (p. 520) The NASDAQ exchange is the oldest and largest securities market in the U.S.
104. (p. 520) Stock exchanges compete with each other for the listing of a corporation’s stock.
105. (p. 520) The Federal Trade Commission (FTC) regulates the U.S. security markets.
106. (p. 520) Before a corporation’s stock can be sold on a major stock exchange, the firm must provide detailed
financial information to the Securities and Exchange Commission.
107. (p. 521) Insider trading involves the sale of stock to employees at discounted prices.
108. (p. 520) The Securities and Exchange Commission requires that all prospective investors receive a copy of a
firm’s prospectus prior to investing.
109. (p. 521) Insider trading refers to someone who benefits unfairly from information about a security not
available to the general public.
110. (p. 521) Insider trading laws prevent employees from buying or selling the securities of their employers.
111. (p. 521, figure 19.4) The American Stock Exchange generally services midsized growth companies.
112. (p. 521) Stock exchanges operate in Poland and Hungary.
113. (p. 521) Many foreign firms are listed on the NYSE.
114. (p. 521) The number of U.S. companies that are listed on foreign stock exchanges is declining.
115. (p. 524, Reaching Beyond Our Borders box) According to the “Reaching Beyond Our Borders” box in Chapter 19, one
way to invest globally is to invest in global companies listed on U.S. stock exchanges.
116. (p. 519-520) Regional stock exchanges often deal in the securities of firms in their own geographic area.
117. (p. 521) U.S. stock exchanges trade stocks of U.S. and foreign corporations.
118. (p. 520) As a firm increases in size and stock value, its stock must be delisted with regional exchanges and
listed with the New York Stock Exchange.
119. (p. 520) The Securities Act of 1933 helps protect investors.
120. (p. 521) In an effort to profit from stock market trading, Chad landed a job with the ABC Corporation. Chad
intends to use his position to obtain privileged information about his new employer that would not be available
to the public. While Chad realizes that he may be benefiting unfairly, this strategy is not illegal.
121. (p. 522, Legal Briefcase box) An executive secretary at a major investment banking firm is asked to copy documents
that detail a major merger about to happen that will keenly benefit the company being taken over. According to
the “Legal Briefcase” box in Chapter 19 it is legal for the secretary to buy stock in the company before the
announcement is made public.
122. (p. 521) Stock exchanges exist all over the world, allowing investors to buy securities in companies almost
anywhere in the world.
123. (p. 522) As a registered representative of a stock brokerage firm, a stockbroker works as an intermediary to
buy and sell securities for clients.
124. (p. 522) All shares of stock traded on the New York Stock Exchange (NYSE) utilize the services of a member
of that exchange.
125. (p. 523) The high start-up costs of web-based businesses cause online brokers to charge higher commissions
than traditional brokerage firms.
126. (p. 523) Online investors expect more expert advice than investors using traditional brokerage firms.
127. (p. 524) Young investors place more importance on low risk investments, while elderly investors prefer
significant growth in the value of their investments.
128. (p. 524) The first step in any investment program is to analyze factors such as desired income, cash
requirements, and the like.
129. (p. 524) In an attempt to lower their investment risk, investors prefer to buy a company’s bond rather than the
stock of the same firm.
131. (p. 523) Although her on-line investing activities cost more than traditional brokerage services, Monica
appreciates the additional advice available to online clients.
132. (p. 525) When choosing between investment options, Kathleen should consider both the liquidity and risk of
the investment.
133. (p. 524) Raul and his grandfather receive individualized investment advice from the same chartered financial
analyst. When comparing their customized investment recommendations, it is likely that Raul’s strategy targets
lower risk investment options than the advice received by his grandfather.
134. (p. 525) For investors who desire the least possible risk, a share of stock in an established corporation
provides the safest investment.
135. (p. 525) The interest earned on municipal bonds is often tax-free.
136. (p. 525) From an investor’s point of view, corporate bonds offer less risk than government bonds.
137. (p. 525-526) Corporate bonds provide investors the option of reselling the bond back to the issuing corporation
at any time during the life of the bond.
138. (p. 525-526) A corporate bond provides the owner with the right to sell the bond to other investors at any time
during the life of the bond.
139. (p. 526) Unlike stocks, bond prices remain stable over the life of the bond.
140. (p. 526) Normally, the higher the risk associated with a bond issue, the higher the interest rate the
organization must offer potential investors.
141. (p. 526) Bonds sold at a discount are sold for more than the bond’s face value.
142. (p. 526) As interest rates increase, bond prices fall.
143. (p. 525) From an investor’s viewpoint, bonds provide a safer investment option than does the stock of the
same corporation.
144. (p. 525) U.S. government bonds provide a lower risk option than corporate bonds.
145. (p. 525) Bonds, like stocks, trade daily on major security exchanges.
146. (p. 526) If an investor owns a bond that pays a higher rate of interest than other bonds of similar risk, the
investor may try to sell that bond for less than the face value.
147. (p. 526) Individual investors must determine for themselves the risk level of corporate bonds.
148. (p. 526) Al prefers corporate bonds as an investment option because bonds guarantee that investors receive
the face value of the bond whenever it is sold.
149. (p. 526) As market interest rates increase, the selling price for existing bonds also increases.
150. (p. 526) Buying a stock makes the investor an owner in the firm.
151. (p. 526) Over the past 50 years, the average annual return on bonds has exceeded the return from stocks.
152. (p. 526) An investor earns a capital gain when they sell a stock for more than they paid for it.
153. (p. 526) The market price and growth potential of a common stock depends heavily on the performance of the
firm in meeting its objectives.
154. (p. 526) A bull market occurs when overall stock prices increase.
155. (p. 526) A bear is an investor that expects stock prices to rise.
156. (p. 526-527) Growth stocks are the stocks of corporations whose earnings are expected to grow faster than the
overall economy.
157. (p. 527) Growth stocks offer investors the attractive combination of low risk and high returns.
158. (p. 527) A blue chip stock represents a highly speculative investment.
159. (p. 527) An income stock offers investors a relatively high dividend yield on their investment.
160. (p. 527) A penny stock generally sells for a low initial price, pays regular dividends and provides consistent
growth in the stock’s value.
161. (p. 527) Penny stocks represent highly speculative investments.
162. (p. 527) An investor placing a limit order with a broker agrees to buy or sell a stock at the best price
available.
163. (p. 527) An investor placing a market order with a broker agrees to buy or sell a stock immediately at the best
price available.
164. (p. 527) A stock split immediately increases the value of an investor’s holdings.
165. (p. 527) The stocks of high quality companies such as Coca-Cola and Microsoft are called blue chip stocks.
166. (p. 527) Corporations and brokers prefer to have stock purchases conducted in round lots.
167. (p. 527) A stock split refers to buying a share of stock at a discounted price if full payment is made at the time
of purchase.
168. (p. 527) A round lot refers to the purchase of 100 shares of stock in the same company in a single transaction.
169. (p. 526) Investing in common stock can give an individual the opportunity to participate in the success or
failure of a corporation.
170. (p. 526) Lamont bought a share of stock in the ABC Corporation for $50. When he sold the stock later that
year, he received $70. The par value of the stock is $5. Lamont’s capital gain is $25.
171. (p. 527) Ima Widow is considering investing in the stock market with insurance money she received upon the
death of her husband. Ima would be well advised to invest in penny stocks.
172. (p. 527) If an individual investor places a buy limit order at $38 and the stock currently sells for $41 per
share, the broker will buy the stock for the investor.
173. (p. 527) Ricardo owns 2 shares of stock in the ABC Corporation that currently sell for $100 per share. ABC
just announced a two-for-one stock split for all current stockholders. Ricardo now owns $400 worth of stock in
the ABC Corporation.
174. (p. 527) Stock splits increase the attractiveness of a company’s stock with the investing public.
175. (p. 527) Ken owns 100 shares in XYZ Company, currently selling for $60 per share. His stock split yesterday
3-for-1. The value of Ken’s stock has tripled.
176. (p. 527-528) A mutual fund pools investors’ money and then buys stocks and bonds in many companies in
accordance with the purpose of the fund.
177. (p. 528) Mutual funds often fail to provide diversification for investors.
178. (p. 529) The risk level associated with most mutual funds is inappropriate for a small, beginning investor.
179. (p. 528) The most recommended index fund offers an investment that covers the entire stock market.
180. (p. 528) One strategy to diversify investments focuses on the securities of small companies that operate in
emerging countries.
181. (p. 528) Most mutual funds provide investors an opportunity to buy shares directly without using a
stockbroker.
182. (p. 528) A no-load mutual fund offers investors a limited number of shares at predetermined prices.
183. (p. 528) A no-load mutual fund charges no commission fees to buy or sell its shares.
184. (p. 530) Diversification involves buying several different investment alternatives to spread the risk of
investing.
185. (p. 530) When comparing the investments of different mutual funds, little variation in the risk level exists.
186. (p. 530) Investors using a portfolio strategy will diversify their investments in order to lower their overall risk
level.
187. (p. 530) While some mutual funds offer low-risk, conservative investments, other funds specialize in
high-risk industries.
188. (p. 528) To purchase a share of stock in a mutual fund requires investors to pay a commission or a fee.
189. (p. 528) Mutual funds offer small investors an opportunity to diversify their investments.
190. (p. 530) The phrase “putting all of your eggs in one basket” represents the logic behind the diversification
strategy of investing.
191. (p. 528) The degree of risk in mutual fund investments remains nearly the same from one fund to the next.
192. (p. 530) Nadine’s financial advisor recommended that she invest 10% of her money in growth stocks, 30% in
government bonds, 20% in income stocks, and 40% in an index mutual fund. This investment strategy
represents the allocation or portfolio strategy.
193. (p. 529, Dealing with Change box) According to one of the “Dealing with Change” boxes in Chapter 19, diamonds
are ETFs that track the Dow stocks.
194. (p. 530) Buying stock on margin involves the purchase of stocks with a portion of the funds borrowed from
the brokerage firm.
195. (p. 530) Buying stock on margin lowers the overall risk for the investor.
196. (p. 530) A margin call requires an investor to repay money borrowed from the broker used to purchase the
stock.
197. (p. 530) Junk bonds represent a high-risk, low-interest investment.
198. (p. 530) Bonds rated BB or lower have a higher than average risk of default.