Chapter 19 6 As a widow, Gladys lives on the dividends from the stock investments of her late husband. Newly married Grace and Will are trying to build a nest egg to buy their first home

407. (p. 530) The interest rate on bonds rated BB or lower is ___________ that of most other bonds.

A. the same as

408. (p. 530) Buying stock on margin allows an investor to borrow funds and buy shares of a stock that hopefully

then appreciates. This __________ the potential return to the investor and ________________ the risk.

D. decreases; decreases

409. (p. 531) Soybean farmers must wait several months before harvesting their crop. To establish a fixed selling

price now, these farmers might sell their crop in:

A. the stock market.

410. (p. 530) Elaine plans to purchase 100 shares of Michigan International stock at $44 per share. The current

margin rate is 40%. The maximum amount that Elaine could borrow from her broker is:

A. $1,100.

411. (p. 531) Commodities trading provides an important risk-management tool for:

D. public institutions.

412. (p. 531) Nancy is a buyer for Sargent Mills, a large producer of breakfast cereals. In an attempt to fix a price

for the corn, rice, and wheat used in her company’s products she could:

D. buy these commodities in the bond market for delivery at harvest.

413. (p. 531) The good folks at Triple Cross Cattle Ranch worry that the price of corn feed might rise significantly.

To fix this cost, they buy corn on the futures market. Triple Cross uses the _________ to limit their risk and

D. dealer’s account

414. (p. 531) As a widow, Gladys lives on the dividends from the stock investments of her late husband. Newly

married Grace and Will are trying to build a nest egg to buy their first home. Lee hopes that by speculating in

the market he can parlay his substantial portfolio into a sizable fortune. Miguel conservatively invests each

month into a mutual fund to provide for his young daughter’s college education. Which of these individuals

would be the most appropriate candidate for buying on margin?

A. Gladys

415. (p. 530) Lupe’s stockbroker called to inform Lupe of a margin call that requires that she pay $1,000. This

indicates that the value of Lupe’s stock has:

C. increased.

D. changed causing the Federal Reserve to increase the margin rate.

416. (p. 530) Ed received a hot stock tip about Wisconsin Paper Products and now wants to buy 100 shares at $45

per share. Unfortunately, he only has $3000 available to him. One strategy Ed could use is to:

D. leverage his future professional earnings.

417. (p. 532) Every time someone sells a stock believing that the price will soon decrease, someone else buys the

security:

D. trying to decrease the price.

418. (p. 532) Bonds prices are quoted:

D. by the year of their face value.

419. (p. 532) U.S. stock exchanges quote stock prices in:

D. average points.

420. (p. 532) Prior to 2000, stocks were quoted in:

D. average points.

421. (p. 534) The price/earnings ratio represents a:

A. bond’s selling price divided by last year’s interest payment.

422. (p. 534) In the reporting of mutual fund quotations, the abbreviation “NAV” stands for:

D. not available value.

423. (p. 535) The market barometer used to measure the direction of the stock market is the:

A. Value Line Composite.

424. (p. 535) The Dow Jones Industrial Average represents the average cost of ________ industrial stocks.

D. all the

425. (p. 536) The largest one-day drop in the history of the Dow Jones Industrial Average occurred in:

D. 1978.

426. (p. 536) Reviewing the stock market performance between 2000 and 2002 reveals a:

427. (p. 536) ________ involve(s) computer instructions that automatically sell stocks whose value has dropped by

a predetermined amount.

D. Circuit-breakers

428. (p. 536) To reduce market volatility, ________ require that a key computer is turned off so that program

trading must be done ‘by hand’ rather than automatically by computer.

D. nutmeg halts

429. (p. 536) The Securities and Exchange Commission developed ________ to halt trading in the stock market for

a short time when the market has experienced a dramatic decease in prices.

A. program trading

430. (p. 537) The dramatic decrease in stock market prices during the 2000 to 2002 time period occurred in part

because:

D. the SEC imposed new program trading curbs.

431. (p. 533, figure 19.8) Which of the following is included in the Wall Street Journal stock quotations?

D. the firm’s current market share

432. (p. 535) One criticism of the Dow Jones Industrial Average suggests that it:

A. magnifies the fluctuations in the stock market.

433. (p. 535) Daily reporting of the Dow Jones Industrial Average serves to:

D. disclose the average price of a share of stock on the major exchanges.

434. (p. 533, figure 19.8) If a stock’s closing price for the day is 32.47, the stock’s price in U.S. dollars would be:

C. in between a low of $32 and a high of $47.

D. $3,247.

435. (p. 533, figure 19.8) If the number “234” appeared in the “Vol” column of today’s stock quotes in the Wall Street

Journal, the number of shares of stock traded today was:

A. 234.

436. (p. 534) For a mutual fund, the NAV is ________ the selling price per share of stock in the fund.

D. not related to

437. (p. 533, figure 19.7) The Wall Street Journal shows the following information for an AT&T bond: “ATT 8

7/8,10″. The maturity date for these bonds would be:

A. 8 years from the date of sale.

438. (p. 536-537) The purpose of the SEC’s circuit breakers rule is to:

D. prevent individuals from profiting from information not available to the general public.

439. (p. 535) In reviewing the firms whose stocks comprise the Dow Jones Industrial Average, we discover:

A. the same 30 stocks have always been used.

440. Bonds represent a major source of long-term financing. What is a bond? Explain the major elements that

must be in a bond issue.

441. Explain the major advantages and disadvantages of issuing stock as a source of long-term financing.

442. Discuss the role of investment bankers in the securities markets.

443. Explain the differences between preferred stock and common stock.

444. What is a stock exchange and what are the major U.S. exchanges? Who is responsible for regulating the

exchanges?

445. The risk/return trade-off is inherent in any investment strategy. What are the five key criteria investors

should consider when selecting investment options?

446. Explain the three types of relatively risky investment options.

447. (p. 515) Penny considered the possibility of issuing a corporate bond to secure financing. However, a

financial advisor predicted the company would have to put up some collateral to get prospective bondholders to

invest their money. This financial advisor suggests they would need to offer investors:

A. debenture bonds.

448. (p. 515) If bonds are issued, Penny would like the option of paying them off early if the company should

continue its current growth rates. The bond issue should have a:

D. collateral agreement.

449. (p. 520) Pirate Recording has been a privately held company throughout its history. However, the firm is now

considering a stock offering. Before the company can sell stock on the open market it will need to register with

the:

A. Internal Revenue Service.

450. (p. 526-527) If stock is issued in Pirate Recording, the company could offer substantial returns to investors

willing to take the risk. However, the prospects for dividend payments to the stockholders seem dim for the near

future. The firm’s stock would most likely be classified as a(n):

A. blue chip stock.

451. (p. 519) Penny feels if the firm offers stock to investors, the company’s stock should be traded on the nation’s

largest floor-based stock exchange. She would seek to have its stock traded on the:

D. NASDAQ market.

c19 Summary