True / False
1. The issuer of a bond is a lender.
a.
True
b.
False
2. When an investor buys shares of stock, those stocks must be held for a specified period of time before they can be sold.
a.
True
b.
False
False
1
Easy
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
3. Unlike the New York Stock Exchange, NASDAQ is an electronic stock market with trades executed through a
sophisticated computer and telecommunications network.
a.
True
b.
False
True
1
Moderate
United States – BUSPROG: Analytic
Bloom’s: Application
4. The three major components of a bond are the bond price, maturity date, and coupon rate.
a.
True
b.
False
False
1
Moderate
United States – BUSPROG: Analytic
failure, and externalities
False
1
Easy
United States – BUSPROG: Analytic
Bloom’s: Application
5. Another term for a stockbroker is an account representative.
a.
True
b.
False
6. The Wilshire 5000 stock index is made up of the stocks of 5,000 of the largest U.S. companies.
a.
True
b.
False
False
1
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Markets, market failure, a – DISC: Markets, market
failure, and externalities
Bloom’s: Application
7. The longer you hold stocks in the stock market, the more likely you will earn a positive return, ceteris paribus.
a.
True
b.
False
True
1
Easy
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
8. A stock with a price-earnings ratio of 11.2 means that the stock is selling for a closing share price that is 11.2 times its
latest available net earnings per share.
a.
True
b.
False
True
1
Moderate
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
9. If the stock market quote in the newspaper reads 752 in the column headed “Vol 00s”, it means that 752 shares of this
stock were traded on this particular day.
True
1
Easy
United States – BUSPROG: Analytic
Bloom’s: Application
a.
True
b.
False
10. A low price-earnings ratio usually indicates that people believe that this corporation will have lower than average
growth in earnings.
a.
True
b.
False
True
1
Moderate
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
11. A stock is purchased either for the expected gain in the price of the stock, for the dividends that the stock may pay, or
both.
a.
True
b.
False
True
1
Easy
United States – BUSPROG: Analytic
Bloom’s: Application
12. Bonds that are rated in the D category are of higher quality than bonds that are rated in the A category.
a.
True
b.
False
False
1
Moderate
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
13. If you are buying a bond that is newly issued by the corporation, you are buying it in the primary market.
a.
True
False
1
Moderate
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
b.
False
14. If the bid value of a Treasury bond is listed as “112:16”, it means that the buyer is willing to pay $1,125 for the bond.
a.
True
b.
False
True
1
Challenging
Bloom’s: Application
15. Applied to any investment, the phrase “there’s no such thing as a free lunch” means that higher returns come with
lower risks, and lower returns come with higher risks.
a.
True
b.
False
False
1
Moderate
failure, and externalities
16. Treasury bonds are so safe (risk-free) that they often pay relatively low returns.
a.
True
b.
False
True
1
Easy
Bloom’s: Application
17. A futures contract is a contract in which the seller agrees to provide a given good to the buyer on a predetermined
future date at an agreed-upon price.
a.
True
b.
False
True
1
Easy
failure, and externalities
18. Another term for stocks is equity.
a.
True
b.
False
True
1
Easy
United States – BUSPROG: Analytic
Bloom’s: Application
19. The term after the bell means after the closing of the stock market.
a.
True
b.
False
True
1
Moderate
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
20. The interest paid on corporate bonds is not subject to federal taxes.
a.
True
b.
False
False
1
Moderate
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
New
21. A bear market is one in which prices are expected to rise.
a.
True
b.
False
True
1
Easy
United States – BUSPROG: Analytic
Bloom’s: Application
22. A private equity firm is a group of investors that buys up the publicly traded stock of a large corporation and then
takes the corporation private.
a.
True
b.
False
True
1
Moderate
United States – BUSPROG: Analytic
Bloom’s: Application
Economics 24/7
New
23. Those who think that a popular investment is necessarily a good investment often find themselves earning low returns.
a.
True
b.
False
True
1
Moderate
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
Economics 24/7
New
24. The typical face value of a corporate bond is $1,000.
a.
True
b.
False
True
1
Easy
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
Multiple Choice
Moderate
United States – BUSPROG: Analytic
Bloom’s: Application
New
25. Which of the following statements is true?
a.
A person who buys a bond always pays the face value for the bond.
b.
If a corporation issues a bond and Dennis buys it, Dennis becomes one of the owners of the corporation.
c.
A stockholder of Firm X is one of the owners of Firm X.
d.
The owner of the bond receives periodic payments equal to its coupon rate times the price he paid for the
bond.
26. An IOU that promises to pay a certain amount at maturity, and also to pay periodic fixed amounts until that date, is
called a(n)
a.
stock.
b.
equity.
c.
bond.
d.
futures contract.
1
Easy
United States – BUSPROG: Analytic
Bloom’s: Application
27. The major components of a bond include all of the following except its
a.
maturity date.
b.
face value.
c.
price.
d.
coupon rate.
1
Easy
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Markets, market failure, a – DISC: Markets, market
Bloom’s: Application
28. The face value of a bond is
a.
b.
c.
d.
d
1
Moderate
United States – BUSPROG: Analytic
Bloom’s: Application
29. A bond is
a.
a claim on the assets of a corporation such that the purchaser has an ownership right in the corporation.
b.
anything of value to which the firm has a legal claim.
c.
a means of assuring that the business firm will pay its debts or fulfill other legal obligations.
d.
a promise to pay for the use of someone else’s money.
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
30. When a person buys a bond of the XYZ Corporation, he or she can expect to
a.
pay the corporation a certain amount of money each quarter of the year.
b.
receive the face value of the bond each year and the face value of the bond when the bond matures.
c.
receive the coupon rate times the face value of the bond each year and the face value of the bond when the
bond matures.
d.
receive the face value of the bond each year in perpetuity.
United States – BUSPROG: Analytic
Bloom’s: Application
Exhibit 38-1
Bond
Face
Value
of Bond
Price of
the Bond
Annual
Coupon
Payment
A
$1,000
$800
$60
B
$1,000
$950
$150
C
$1,000
$1,100
$40
D
$1,000
$1,100
$70
E
$1,000
$1,000
$50
31. Refer to Exhibit 38-1. The coupon rate for bond A is
a.
6.0 percent.
b.
10.0 percent.
c.
7.5 percent.
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
d.
0.075 percent.
32. Refer to Exhibit 38-1. The yield on bond A is approximately
a.
7.5 percent.
b.
0.06 percent.
c.
6.0 percent.
d.
0.075 percent.
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
33. Refer to Exhibit 38-1. The yield on bond B is approximately
a.
9.5 percent.
b.
15.8 percent.
c.
0.15 percent.
d.
17 percent.
United States – BUSPROG: Analytic
failure, and externalities
34. Refer to Exhibit 38-1. The yield on bond C is approximately
a.
11.0 percent.
b.
4.8 percent.
c.
3.6 percent.
d.
100 percent.
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
35. Refer to Exhibit 38-1. The coupon rate for bond B is
a.
0.09 percent.
b.
16.7 percent.
c.
9.5 percent.
d.
11 percent.
United States – BUSPROG: Analytic
Bloom’s: Application
36. Refer to Exhibit 38-1. The coupon rate for bond C is
a.
0.25 percent.
b.
11 percent.
c.
3.6 percent.
d.
100 percent.
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
37. Refer to Exhibit 38-1. The coupon rate for bond D is
a.
11 percent.
b.
6.4 percent.
c.
3 percent.
d.
0.07 percent.
United States – BUSPROG: Analytic
Bloom’s: Application
United States – BUSPROG: Analytic
Bloom’s: Application
38. Refer to Exhibit 38-1. The coupon rate for bond E is
a.
37.5 percent.
b.
0.38 percent.
c.
0.45 percent.
d.
9.0 percent.
e.
none of the above
39. Refer to Exhibit 38-1. The yield on bond D is approximately
a.
11 percent.
b.
3 percent.
c.
6.4 percent.
d.
0.064 percent
United States – BUSPROG: Analytic
Bloom’s: Application
40. Refer to Exhibit 38-1. The yield on bond E is approximately
a.
37.5 percent.
b.
0.38 percent.
c.
0.45 percent.
d.
5.0 percent.
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
41. Refer to Exhibit 38-1. For which bond is the yield and the coupon rate the same?
a.
Bond A
b.
Bond B
United States – BUSPROG: Analytic
Bloom’s: Application
c.
Bond C
d.
Bond D
e.
Bond E
42. The coupon rate is equal to the annual coupon payment
a.
divided by the face value of the bond.
b.
divided by the price paid for the bond.
c.
multiplied by the price paid for the bond.
d.
divided by the current market value of the bond.
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
43. When you buy a corporate bond, you are
a.
borrowing funds from the corporation.
b.
lending funds to the corporation.
c.
selling an ownership right in the corporation.
d.
acquiring an ownership right in the corporation.
e.
b and d
United States – BUSPROG: Analytic
Bloom’s: Application
44. When you purchase a share of stock, you are
a.
borrowing funds from the corporation.
b.
lending funds to the corporation.
c.
selling an ownership right in the corporation.
d.
acquiring an ownership right in the corporation.
e.
b and d
United States – BUSPROG: Analytic
Bloom’s: Application
45. A bond is
a.
a claim on the assets of the corporation that gives the purchaser an ownership right in the corporation.
b.
the share of profits distributed to bondholders.
c.
a promise to pay for the use of someone else’s money.
d.
a promise of ownership of the government.
e.
c and d
United States – BUSPROG: Analytic
Bloom’s: Application
46. A share of stock is
a.
a claim on the assets of the corporation that gives the purchaser an ownership right in the corporation.
b.
the share of profits distributed to stockholders.
c.
a promise to pay for the use of someone else’s money.
d.
a promise to loan money to someone.
e.
a and b
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
47. The coupon rate is the percentage of
a.
profits distributed to bondholders.
b.
profits distributed to stockholders.
c.
the face value of the bond that is paid out regularly to the bondholder.
d.
the assets of the corporation that is paid out regularly to each stockholder.
United States – BUSPROG: Analytic
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
48. Jessica paid $2,300 for a bond with a face value of $2,000. She will be paid $300 annually as long as she holds on to
the bond, until the bond’s maturity date. The coupon rate of the bond is
a.
15.0 percent.
b.
7.5 percent.
c.
13.0 percent.
d.
80.0 percent.
United States – BUSPROG: Analytic
Bloom’s: Application
49. 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 a coupon payment of
$650 from the issuer of the bond. The coupon rate on the bond is
a.
9.11 percent.
b.
6.5 percent.
c.
7.0 percent.
d.
6.75 percent.
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
50. A bond purchaser bought a bond from which she receives $800 a year from the issuer. If the face value of the bond is
__________ then the coupon rate is __________.
a.
$10,000; 10 percent
b.
$8,000; 8 percent
c.
$10,000; 8 percent
d.
$8,000; 12 percent
e.
none of the above
United States – BUSPROG: Analytic
Bloom’s: Application
Bloom’s: Application
51. The beginnings of the New York Stock Exchange can be traced back to a small group of men who bought and sold
stock in New York in
a.
1792.
b.
1866.
c.
1892.
d.
1929.
52. The acronym NASDAQ (one of the stock exchanges) stands for
a.
National Academy of Stock Dealers Automated Quotations
b.
New American Securities Dealers Automated Quotations
c.
National Association of Securities Dealers Automated Quotations
d.
North American Stock Dealers Automated Quotations
1
Moderate
United States – BUSPROG: Analytic
Bloom’s: Application
53. The original Dow Jones Industrial Average (DJIA) contained ____________ stocks, while the DJIA now consists of
____________ stocks.
a.
10; 500
b.
11; 30
c.
15; 50
d.
20; 60
b
1
Moderate
United States – BUSPROG: Analytic
Bloom’s: Application
54. Today, the Dow Jones Industrial Average
a.
consists of 30 stocks.
b.
is a set group of stocks that remains constant over time.
c.
contains stocks that are widely held by institutional investors and individuals.
d.
contains both stocks and bonds of large American companies.
1
Easy
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
e.
a and c
55. Which of the following statements is false?
a.
The list of stocks that are included in the Dow Jones Industrial Average changes from time to time, and is
determined by the editors of the Wall Street Journal.
b.
The Dow Jones Industrial Average first appeared on the scene in 1896.
c.
When the Dow Jones Industrial Average was first computed, prudent investors bought bonds, not stocks.
d.
The Dow Jones Industrial Average is computed by summing the prices of the thirty stocks included in the
average and dividing by 30.
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Markets, market failure, a – DISC: Markets, market
failure, and externalities
Bloom’s: Application
56. Which of the following statements is false?
a.
The Wilshire 5000 is a stock index that consists of the stocks of about 6,500 firms.
b.
Instead of buying a mutual fund that consists of various stocks picked by a fund manager you can buy a
mutual fund that consists of the stocks that make up a particular stock index.
c.
The term Sypders stands for “Standard & Poors Direct Receipts.”
d.
When an investor buys Spyders they are said to “buy the market.”
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Markets, market failure, a – DISC: Markets, market
failure, and externalities
Bloom’s: Application
57. Which of the following statements is false?
a.
The Dow Jones Industrial Average went down by 40 percent during the decade of the 1930s.
b.
Based on data from the period between 1926 and 2004, the probability of having a positive return on an
investment in the stocks contained in the Dow Jones Industrial Average would have been 97.1 percent if the
stocks had been held for 10 years.
c.
When reading the stock market page of a newspaper, if the column marked “Div.” is blank, it means that the
company does not currently pay out dividends.
d.
A stock that yields 4 percent is better than a stock that yields 5 percent, all else being the same.
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Markets, market failure, a – DISC: Markets, market
failure, and externalities
Bloom’s: Application
58. The yield of a stock is the
a.
dividend divided by the closing price per share.
b.
dividend divided by the average daily price of the stock.
c.
closing price divided by the 52-week low price.
d.
dividend divided by the opening price per share.
1
Moderate
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application
59. Suppose that the annual dividend per share of stock is $1.40 and the closing price of the stock is $22.00, the yield on
the stock would be approximately
a.
6.36%
b.
15.71%
c.
21.60%
d.
9.70%
1
Moderate
United States – BUSPROG: Analytic
Bloom’s: Application
New
60. Suppose that the annual dividend per share of stock is $5.40 and the closing price of the stock is $72.50, the yield of
the stock would be
a.
13.43%
b.
7.45%
c.
23.62%
d.
8.38%
b
1
Moderate
United States – BUSPROG: Analytic
failure, and externalities
1
Moderate
United States – BUSPROG: Analytic
failure, and externalities
Bloom’s: Application