Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 19—Understanding Securities and Investments
36. Bonds are never retired, they are just re-issued.
a. True
b. False
Difficulty: 1 Page-Reference: 611
Question ID: 19-2-136 Skill: Knowledge
Objective: 19.3
37. The federal Government of Canada issues bonds (e.g., Canada Savings Bonds), but provinces
are not allowed to do so.
a. True
b. False
Difficulty: 1 Page-Reference: 612
Question ID: 19-2-137 Skill: Knowledge
Objective: 19.3
38. A mutual fund pools investments from individuals and firms to purchase a portfolio of stocks,
bonds, and short-term securities.
a. True
b. False
Difficulty: 1 Page-Reference: 613
Question ID: 19-2-138 Skill: Knowledge
Objective: 19.4
39. Mutual funds vary according to the investment goals emphasized by the fund managers.
a. True
b. False
Difficulty: 1 Page-Reference: 613
Question ID: 19-2-139 Skill: Knowledge
Objective: 19.4
40. A mutual fund that stresses safety would be more likely to invest in blue-chip stocks than a mutual
fund that stresses growth.
a. True
b. False
Difficulty: 1 Page-Reference: 613
Question ID: 19-2-140 Skill: Knowledge
Objective: 19.4
41. Index mutual funds require little human input and reduce management expenses.
a. True
b. False
Difficulty: 1 Page-Reference: 614
Question ID: 19-2-141 Skill: Knowledge
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 19—Understanding Securities and Investments
Objective: 19.4
42. Mutual funds are priced only at the end of each day, but investors can buy ETFs at any time
during the day.
a. True
b. False
Difficulty: 1 Page-Reference: 614
Question ID: 19-2-142 Skill: Knowledge
Objective: 19.4
43. Hedge funds try to give investors a positive return regardless of stock market performance. They
therefore avoid risky practices like short-selling and leveraging.
a. True
b. False
Difficulty: 1 Page-Reference: 614
Question ID: 19-2-143 Skill: Comprehension
Objective: 19.4
44. A futures contract is an agreement to purchase a specified amount of a mutual fund at a given
price on a set date in the future.
a. True
b. False
Difficulty: 2 Page-Reference: 614
Question ID: 19-2-144 Skill: Knowledge
Objective: 19.4
45. On January 3, 2012 the price of gold was $1625 per ounce and futures gold contracts for July
2013 were selling for $1575 per ounce. Suppose that you purchased a 100–ounce gold futures contract in
January 2012 for $157 500 ($1575 × 100). If in March 2013 the July gold futures sold for $1700, you
could sell your contract for a profit of $12 500.
a. True
b. False
Difficulty: 2 Page-Reference: 614–615
Question ID: 19-2-145 Skill: Application
Objective: 19.4
46. Selling prices in the commodities market reflect traders‘ beliefs about the future prices of
commodities such as coffee beans, livestock, and gold.
a. True
b. False
Difficulty: 1 Page-Reference: 614
Question ID: 19-2-146 Skill: Knowledge
Objective: 19.4
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 19—Understanding Securities and Investments
47. Buying securities on margin is risky because margin securities are investments in companies that
are not performing well.
a. True
b. False
Difficulty: 2 Page-Reference: 615
Question ID: 19-2-147 Skill: Knowledge
Objective: 19.4
48. Most commodities investors have no intention of ever taking possession of the commodities in
which they trade.
a. True
b. False
Difficulty: 2 Page-Reference: 614
Question ID: 19-2-148 Skill: Knowledge
Objective: 19.4
49. A corporation bond selling at 155 1/4 would cost a buyer $1552.50.
a. True
b. False
Difficulty: 3 Page-Reference: 618
Question ID: 19-2-149 Skill: Application
Objective: 19.5
50. Bond prices are typically expressed in terms of $10 000 increments.
a. True
b. False
Difficulty: 1 Page-Reference: 618
Question ID: 19-2-150 Skill: Knowledge
Objective: 19.5
51. The market value of a bond depends on its stated interest rate, the going rate of interest, and its
maturity date.
a. True
b. False
Difficulty: 2 Page-Reference: 618
Question ID: 19-2-151 Skill: Comprehension
Objective: 19.5
52. Suppose you bought a $1000 par-value bond in 1999 for $650. Its stated interest rate is 6
percent, and its maturity or redemption date was 2019. Based on your actual investment of $650, your
yield is 7.2 percent.
a. True
b. False
Difficulty: 3 Page-Reference: 618
Question ID: 19-2-152 Skill: Application
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 19—Understanding Securities and Investments
Objective: 19.5
53. Periods of falling stock prices are called bull markets.
a. True
b. False
Difficulty: 1 Page-Reference: 619
Question ID: 19-2-153 Skill: Knowledge
Objective: 19.5
54. Jim has instructed his broker to sell a stock if its price falls to a certain level. Jim has placed a
stop order.
a. True
b. False
Difficulty: 2 Page-Reference: 620
Question ID: 19-2-154 Skill: Comprehension
Objective: 19.5
55. Sally has instructed her broker to buy a certain stock if, and only if, its share price is $70 or less.
Sally has placed a limit buy order.
a. True
b. False
Difficulty: 2 Page-Reference: 620
Question ID: 19-2-155 Skill: Comprehension
Objective: 19.5
56. A market order requests the broker to buy or sell a certain security at the prevailing market price
at the time.
a. True
b. False
Difficulty: 2 Page-Reference: 620
Question ID: 19-2-156 Skill: Knowledge
Objective: 19.5
57. In a short sale of stocks, you can sell stocks that you don’t own.
a. True
b. False
Difficulty: 1 Page-Reference: 622
Question ID: 19-2-157 Skill: Knowledge
Objective: 19.5
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 19—Understanding Securities and Investments
58. Assume that you order your broker to sell short 100 shares of a company whose stock is trading
at $38 per share. If the company’s price later falls to $32 per share and you buy 100 shares, you will
make a $600 profit (before brokers’ commissions).
a. True
b. False
Difficulty: 1 Page-Reference: 622
Question ID: 19-2-158 Skill: Application
Objective: 19.5
59. A prospectus is a statement filed by the issuing company before the issuance of a new security
that contains detailed information about the company and the proposed new issue.
a. True
b. False
Difficulty: 2 Page-Reference: 623
Question ID: 19-2-159 Skill: Knowledge
Objective: 19.6
60. Insider trading is an illegal act in which an individual with special knowledge about a firm trades
on that information for profit.
a. True
b. False
Difficulty: 1 Page-Reference: 623
Question ID: 19-2-160 Skill: Knowledge
Objective: 19.6
1. What is a security?
Difficulty: 2 Page-Reference: 604
Question ID: 19-3-161 Skill: Knowledge
Objective: 19.1
2. Of par value, market value, and book value, which is the most important to investors and why?
Difficulty: 2 Page-Reference: 605
Question ID: 19-3-162 Skill: Comprehension
Objective: 19.2
3. Why would an investor wish to purchase a blue-chip stock?
Difficulty: 2 Page-Reference: 605
Question ID: 19-3-163 Skill: Comprehension
Objective: 19.2
4. What is par value?
Difficulty: 2 Page-Reference: 605
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 19—Understanding Securities and Investments
Question ID: 19-3-164 Skill: Knowledge
Objective: 19.2
5. What is cumulative preferred stock?
Difficulty: 2 Page-Reference: 606
Question ID: 19-3-165 Skill: Knowledge
Objective: 19.2
6. What is a bond?
Difficulty: 2 Page-Reference: 610
Question ID: 19-3-166 Skill: Knowledge
Objective: 19.3
7. What is a debenture?
Difficulty: 2 Page-Reference: 611
Question ID: 19-3-167 Skill: Knowledge
Objective: 19.3
8. What is a mutual fund?
Difficulty: 2 Page-Reference: 613
Question ID: 19-3-168 Skill: Knowledge
Objective: 19.4
9. What is a hedge fund?
Difficulty: 2 Page-Reference: 614
Question ID: 19-3-169 Skill: Knowledge
Objective: 19.4
10. What is a call option?
Difficulty: 2 Page-Reference: 616
Question ID: 19-3-170 Skill: Knowledge
Objective: 19.4
11. What is diversification?
Difficulty: 2 Page-Reference: 616
Question ID: 19-3-171 Skill: Knowledge
Objective: 19.4
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 19—Understanding Securities and Investments
investments will tumble.
12. Differentiate between bull and bear markets.
Difficulty: 2 Page-Reference: 619
Question ID: 19-3-172 Skill: Knowledge
Objective: 19.5
13. Differentiate between odd and round lots.
Difficulty: 2 Page-Reference: 620
Question ID: 19-3-173 Skill: Knowledge
Objective: 19.5
14. What is a short sale?
Difficulty: 2 Page-Reference: 622
Question ID: 19-3-174 Skill: Knowledge
Objective: 19.5
15. What is insider trading?
Difficulty: 2 Page-Reference: 623
Question ID: 19-3-175 Skill: Knowledge
Objective: 19.6
1. Explain the differences between the primary and secondary security markets.
Difficulty: 1 Page-Reference: 604
Question ID: 19-4-176 Skill: Comprehension
Objective: 19.1
2. What is the difference between par value, market value, and book value?
Difficulty: 2 Page-Reference: 605
Question ID: 19-4-177 Skill: Comprehension
Objective: 19.2
3. Discuss the value of common stock and preferred stock to shareholders and describe the
secondary market for each type of security.
Difficulty: 2 Page-Reference: 605–606
Question ID: 19-4-178 Skill: Comprehension
Objective: 19.2
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 19—Understanding Securities and Investments
4. Discuss the investment traits of preferred stock.
Difficulty: 2 Page-Reference: 606
Question ID: 19-4-179 Skill: Knowledge
Objective: 19.2
5. What should an investor consider when selecting an investment broker?
Difficulty: 1 Page-Reference: 607
Question ID: 19-4-180 Skill: Comprehension
Objective: 19.2
6. Identify some of the major stock exchanges in Canada and in the United States.
Difficulty: 2 Page-Reference: 607, 609
Question ID: 19-4-181 Skill: Knowledge
Objective: 19.2
7. Identify the three major types of bonds and identify the biggest advantage of each.
Difficulty: 2 Page-Reference: 610–612
Question ID: 19-4-182 Skill: Comprehension
Objective: 19.3
8. Discuss the methods by which bonds may be retired. Which method offers the greatest security for
investors? Which method does the issuing firm prefer?
Difficulty: 2 Page-Reference: 611–612
Question ID: 19-4-183 Skill: Comprehension
Objective: 19.3
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 19—Understanding Securities and Investments
9. Explain the operation of a mutual fund. What are the advantages to a small investor?
Difficulty: 2 Page-Reference: 613–614
Question ID: 19-4-184 Skill: Comprehension
Objective: 19.4
10. How do the commodity markets work? What are the risks involved when investing in the
commodities market? What are the rewards or potential rewards?
Difficulty: 2 Page-Reference: 614–615
Question ID: 19-4-185 Skill: Comprehension
Objective: 19.4
11. What are stock options? Describe the two types of options available to investors.
Difficulty: 2 Page-Reference: 616
Question ID: 19-4-186 Skill: Knowledge
Objective: 19.4
12. What is a market index? Identify and describe the major market indices in Canada and the United
States.
Difficulty: 2 Page-Reference: 619–620
Question ID: 19-4-187 Skill: Knowledge
Objective: 19.5
13. Identify some of the different types of orders that you can place when you decide to buy or sell a
security.
Difficulty: 2 Page-Reference: 620
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 19—Understanding Securities and Investments
Question ID: 19-4-188 Skill: Knowledge
Objective: 19.5
14. Explain the process by which securities are bought and sold.
Difficulty: 2 Page-Reference: 617–620
Question ID: 19-4-189 Skill: Comprehension
Objective: 19.5
15. What is the purpose of the various provincial securities commissions? What are some of the
difficulties these agencies encounter as they try to protect investors?
Difficulty: 2 Page-Reference: 623
Question ID: 19-4-190 Skill: Comprehension
Objective: 19.6