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61. In reading the stock market quotes in the newspaper, the column with the heading “Ticker” gives the
a.
number of shares of the stock traded that day.
b.
the full name of the company whose stock is being studied.
c.
stock symbol for the company.
d.
highest price the stock has sold for in the past year.
62. In reading the stock market quotes in the newspaper, the column with the heading “P/E” gives the
a.
number of shares of the stock traded that day.
b.
dividend per share divided by the closing price per share.
c.
stock symbol for the company.
d.
latest closing price per share divided by the latest available earnings per share.
Exhibit 38-2
Stock
High
Low
Close
Net chg.
Dasher
17.25
16.75
17.00
(A)
Dancer
34.85
34.25
(B)
+0.25
Prancer
56.50
55.90
56.00
(C)
Vixen
65.90
(D)
64.75
-0.75
63. Refer to Exhibit 38-2. If the closing price of Dasher’s stock on the previous day was $17.50, what value goes in blank
(A)?
a.
-0.50
b.
+0.50
c.
-0.25
d.
-0.75
e.
There is not enough information given to answer this question.
64. Refer to Exhibit 38-2. If the closing price of Dancer’s stock on the previous day was $34.25, what value goes in blank
(B)?
a.
34.85
b.
34.00
c.
34.75
d.
34.50
e.
There is not enough information given to answer this question.
65. Refer to Exhibit 38-2. If the closing price of Prancer’s stock on the previous day was $55.50, what value goes in
blank (C)?
a.
+0.75
b.
-0.50
c.
+0.50
d.
+0.25
e.
There is not enough information given to answer this question.
66. Refer to Exhibit 38-2. If the closing price of Vixen’s stock on the previous day was $65.50, what value goes in blank
(D)?
a.
64.00
b.
65.15
c.
65.75
d.
65.00
e.
There is not enough information given to answer this question.
67. Which of the following can issue bonds?
a.
the government
b.
corporations
c.
government agencies
d.
all of the above
68. Which of the following statements is false?
a.
The issuer of a bond is a borrower.
b.
The person who buys a bond is a lender.
c.
Interest earned on corporate bonds is exempt from federal income taxes.
d.
The coupon rate on a bond is the percentage of the face value that the bondholder receives annually until the
bond matures.
69. Which of the following is false?
a.
Even if a corporation is not currently issuing bonds, you could still buy a bond directly from the corporation.
b.
Bonds that are rated AAA from Standard and Poor’s have received the highest rating possible.
c.
A bond that is rated in the D category indicates that the bond issuer cannot pay off the bond.
d.
It is possible to buy a bond from someone who purchased and still holds the bond he bought from the
corporation at an earlier date.
70. Jessica paid $7,000 for a bond with a face value of $6,000. She will be paid $400 annually as long as she holds on to
the bond, until the bond’s maturity date. The yield on the bond is
a.
6.67 percent.
b.
5.71 percent.
c.
15.0 percent.
d.
80.0 percent.
71. A person buys a bond with a face value of $10,000 for $9,325. Each year until the maturity date the bond buyer
receives $750 from the issuer of the bond. The yield on the bond is
a.
8.04 percent.
b.
7.5 percent.
c.
10.0 percent.
d.
6.75 percent.
e.
There is not enough information to answer the question.
72. The yield on a bond is the
a.
annual coupon payment divided by the price paid for the bond.
b.
coupon rate divided by the price paid for the bond.
c.
annual coupon payment divided by the face value of the bond.
d.
same as the interest rate on the bond.
e.
a and d
73. Which of the following is false?
a.
For bond buyers, the higher the yield the better it is for them.
b.
For bond buyers, the higher the price of the bond the better it is for them.
c.
For bond buyers, the lower the yield the worse it is for them.
d.
The term yield on a bond is the same as the term interest rate on a bond.
74. Which of the following statements is false?
a.
As the price paid for a bond rises, the yield declines.
b.
If you purchase stock from an individual that currently owns the stock, you are buying it in the secondary
market.
c.
The yield on a bond is another term for the coupon rate on a bond.
d.
A rating of Aaa from Moody’s is the highest bond rating given by that rating agency.
75. Bond prices and bond yields have a(n) ______________ relationship.
a.
direct
b.
inverse
c.
independent
d.
positive
76. Which of the following statements is false?
a.
A corporate bond typically has face value of $1,000.
b.
Corporate bonds typically sell for a price that is equal to the bond’s face value.
c.
The interest that corporate bonds pay is fully taxable.
d.
State and local governments issue municipal bonds.
77. Municipal bonds
a.
are issued by state and local governments.
b.
pay interest that is fully taxable.
c.
are issued by corporations.
d.
are issued by the federal government.
78. Which of the following statements is false?
a.
Another term for a Treasury bill is a T-bill.
b.
Treasury notes mature in 2 to 10 years.
c.
Treasury bonds are considered very safe investments, but Treasury bills are considered to be a more risky
investment.
d.
It is unlikely the federal government will default on its bond obligations.
79. Which of the following statements is true?
a.
Treasury bills mature in 2 to 10 years.
b.
Treasury notes mature in 13 or 26 weeks.
c.
Treasury bills, notes, and bonds are considered to be very safe investments.
d.
Municipal bonds are issued to help the federal government build new projects such as highways and stadiums.
80. You turn to the bond market page of a newspaper and look under the column headed “Bonds” and see that it says,
“Alpha 7 1/2 25” this information indicates that
a.
the coupon rate on this bond is 7.5 percent.
b.
the year this bond matures is 2025.
c.
the current yield on this bond is 7.5 percent.
d.
the current yield on this bond has risen 0.25 percent since the previous trading day.
e.
a and b
81. You turn to the bond market page of a newspaper and look under the column headed “Close” and see that it says, “49
1/2” this indicates that
a.
the closing price for the bond on this particular day is $495.
b.
the closing price for the bond on this particular day is $49.50.
c.
the closing price for the bond was $49.50 higher than on the previous trading day.
d.
the bond will mature on June 30, 2049.
82. You turn to the bond market page of a newspaper and look under the column headed “Net Chg” and see that it says, “-
1/4” this indicates that
a.
the closing price for the bond on this particular day was $2.50 lower than on the previous day.
b.
the closing price for the bond on this particular day is $0.25 lower than on the previous day.
c.
the yield for the bond has fallen by 0.25% compared to the previous day.
d.
the yield for the bond has fallen by 0.25% compared to exactly one year ago.
83. You turn to the Treasury bond market page of a newspaper and look under the column headed “Bid” and see that it
says, “125:8” this indicates that
a.
the price that the buyer is willing to pay for this bond is $125.08.
b.
the price that the buyer is willing to pay for this bond is $1,252.50.
c.
the price that the seller is willing to sell this bond for is $125.80.
d.
the price that the seller is willing to sell this bond for is $125.08.
84. You turn to the Treasury bond market page of a newspaper and look under the column headed “Ask” and see that it
says, “128:16” this indicates that
a.
the price that the buyer is willing to pay for this bond is $128.16.
b.
the price that the buyer is willing to pay for this bond is $1,280.16.
c.
the price that the seller is willing to sell this bond for is $1,285.
d.
the price that the seller is willing to sell this bond for is $128.16.
85. Which of the following statements is false?
a.
The Treasury bond information published under the column heading “Yield” is based on the ask price of the
bond.
b.
The Treasury bond information published under the column heading “Yield” is based on the assumption that
the bond is held to maturity.
c.
The Treasury bond information published under the column heading “Bid” indicates the price a buyer will pay
if he buys the bond.
d.
The Treasury bond information published under the column heading “Bid” is the price a buyer will receive if
she sells the bond.
86. If the coupon payment on a bond is $140 and the coupon rate is 5%, then what is the price value of the bond?
a.
$2,800
b.
$147
c.
$254.40
d.
$5,000
e.
There is not enough information provided to answer this question.
87. If the coupon payment on a bond is $350 and the coupon rate is 7%, then what is the face value of the bond?
a.
$5,000
b.
$374.50
c.
$24.50
d.
$528.57
e.
There is not enough information provided to answer this question.
88. If the coupon payment on a bond is $640 and the coupon rate is 6%, then what is the face value of the bond?
a.
$10,667
b.
$10,000
c.
$1,067
d.
$678.40
e.
There is not enough information provided to answer this question.
89. The federal government began issuing inflation-indexed Treasury bonds in
a.
1913.
b.
1989.
c.
1997.
d.
2001.
90. What is the difference between an inflation-indexed Treasury bond, and a Treasury bond that is not indexed?
a.
An inflation-indexed Treasury bond guarantees a certain real rate of return, while a nonindexed Treasury bond
does not.
b.
A nonindexed Treasury bond guarantees a certain real rate of return, while a nonindexed Treasury bond does
not.
c.
An inflation-indexed Treasury bond can only be purchased directly from the Federal Reserve, while a
nonindexed Treasury can be purchased through a broker.
d.
An inflation-indexed Treasury bond always guarantees the purchaser a 5 percent rate of return, while a
nonindexed Treasury bond does not.
91. With respect to the stock market, the acronym IPO stands for
a.
investment proposal option.
b.
immediate public offering.
c.
internal public offering
d.
initial public offering.
92. A futures contract
a.
gives the owner the right, but not the obligation, to buy shares of a stock at a specified price within the time
limits of the contract.
b.
gives the owner the right, but not the obligation, to sell shares of a stock at a specified price within the time
limits of the contract.
c.
is a contract in which the seller agrees to provide a particular good to the buyer on a specified future date at an
agreed-upon price.
d.
gives the owner the right, but not the obligation, to buy or sell shares of a stock at a specified price within the
time limits of the contract.
93. An option is a contract that always
a.
gives the owner the right, but not the obligation, to buy shares of a stock at a specified price within the time
limits of the contract.
b.
gives the owner the right, but not the obligation, to sell shares of a stock at a specified price within the time
limits of the contract.
c.
states that the seller agrees to provide a particular good to the buyer on a specified future date at an agreed-
upon price.
d.
gives the owner the right, but not the obligation, to buy or sell shares of a stock at a specified price within the
time limits of the contract.
94. A call option is a contract
a.
that gives the owner the right, but not the obligation, to buy shares of a stock at a specified price within the
time limits of the contract.
b.
that gives the owner the right, but not the obligation, to sell shares of a stock at a specified price within the
time limits of the contract.
c.
in which the seller agrees to provide a particular good to the buyer on a specified future date at an agreed-upon
price.
d.
that gives the owner the right, but not the obligation, to buy or sell shares of a stock at a specified price within
the time limits of the contract.
95. A put option is a contract
a.
that gives the owner the right, but not the obligation, to buy shares of a stock at a specified price within the
time limits of the contract.
b.
that gives the owner the right, but not the obligation, to sell shares of a stock at a specified price within the
time limits of the contract.
c.
in which the seller agrees to provide a particular good to the buyer on a specified future date at an agreed-upon
price.
d.
that gives the owner the right, but not the obligation, to buy or sell shares of a stock at a specified price within
the time limits of the contract.
Exhibit 38-3
Stock
P-E
ABC
18
XYZ
55
96. Refer to Exhibit 38-3. Which of the two stocks has a bigger gap between its close price and net earnings per share?
a.
Stock ABC
b.
Stock XYZ
c.
Both stocks have the same gap between its close price and net earnings per share
d.
There is not enough information provided to answer the question.
97. If you thought the share price of a stock was going to rise, would you be more likely to buy a call option or a put
option?
a.
a call option
b.
a put option
c.
a call option and a put option
d.
There is not enough information given to answer this question.
98. If you thought the share price of a stock was going to fall, would you be more likely to buy a call option or a put
option?
a.
a call option
b.
a put option
c.
a call option and a put option
d.
There is not enough information given to answer this question.
99. Which of the following statements is false?
a.
A call option will sell for a fraction of the cost of the stock.
b.
A futures contract can be written for a commodity (such as wheat), or for a currency.
c.
A futures contract gives the owner the right, but not the obligation, to buy or sell a commodity at a specified
price on a given future date.
d.
The specified price at which an option gives the owner the right to buy a stock at is called the stick price.
100. Which of the following companies was part of the original Dow Jones Industrial Average?
a.
Chicago Gas Company
b.
National Lead Company
c.
General Motors Corp.
d.
AT&T Inc.
e.
a and b
101. Which of the following statements is false?
a.
Private equity firms often need to borrow the money needed to buy a public corporation.
b.
Once a private equity firm owns a formerly publicly held corporation, they tend to cut costs and enhance
efficiency.
c.
Critics of private equity firms say that companies that have too much cash and too little debt become targets
for private equity firms to buy.
d.
A private equity firm is a group of investors that takes a privately held corporation and uses an investment
banker to turn it into a publicly held corporation.
102. You turn to the bond market page of a newspaper and look under the column headed “Bonds” and see that it says,
“Gemco 5 3/4 13” this indicates that
a.
the coupon rate on this bond is 5.75 percent.
b.
this bond will mature 13 years from the date that it was first issued.
c.
the current yield on this bond is 5.75 percent.
d.
a and b
e.
all of the above
Exhibit 38-4
Stock
High
Low
Close
Net chg.
Brown, Inc.
55.75
33.65
42.10
(A)
Greenco
78.50
45.75
(B)
-0.75
Black Motors
81.50
65.90
76.00
(C)
103. Refer to Exhibit 38-4. If the closing price of Brown, Inc.’s stock on the previous day was $43.10, what value goes in
blank (A)?
a.
-1.00
b.
+1.00
c.
-0.50
d.
+0.50
e.
There is not enough information given to answer this question.
104. Refer to Exhibit 38-4. If the closing price of Greenco’s stock on the previous day was $48.10, what value goes in
blank (B)?
a.
$47.35
b.
$48.85
c.
$45.85
d.
$47.85
e.
There is not enough information given to answer this question.
105. Refer to Exhibit 38-4. If the closing price of Black Motor’s stock on the previous day was $76.95, what value goes
in blank (C)?
a.
+1.95
b.
-1.95
c.
+0.95
d.
-0.95
e.
There is not enough information given to answer this question.
106. A person buys a newly issued bond that matures in 6 years with a face value of $1,000 and a coupon rate of 5%.
How much money will the bondholder receive in the sixth year?
a.
$1,050.
b.
$1,500.
c.
$1,000.
d.
$50.
e.
$500
107. A person buys a newly issued bond that matures in 10 years with a face value of $10,000 and a coupon rate of 4%.
How much money will the bondholder receive in the tenth year?
a.
$10,040.
b.
$10,400.
c.
$10,000.
d.
$40.
e.
$400.
Essay
108. Explain the differences between a corporate bond, a municipal bond, and a Treasury bond. Which of these would be
the least risky investment, and why?
109. What is the Dow Jones Industrial Average (DJIA)? Give a description of why the DJIA was first created, how it is
computed, and how it has evolved over time.
110. Describe the three main options available to a corporation when it needs to raise money so that it can invest in a new
product or a new manufacturing technique.
