Appendix: Buying Stocks and Bonds
131. If money raised in the issue of new stocks and bonds is used effectively,
a.
the income from them is not subject to double taxation.
b.
a firm need not meet SEC requirements.
c.
the stock is being “watered.”
d.
they generate the means of repayment.
Moderate
United States – Analytic – BB-Legal
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
132. A technique that can be employed to make a portfolio less risky than any of its individual securities is
a.
plowback.
b.
diversification.
c.
programmed trading.
d.
speculation.
Easy
United States – Analytic – BB-Legal
The study of economics, and defi – The study of economics, and definitions of economics
Appendix: Buying Stocks and Bonds
133. When institutional money managers use their computers to decide on large sales or purchases in the stock market,
they are employing
a.
the herd instinct.
b.
the bandwagon effect.
c.
program trading.
d.
stock watering.
c
Easy
United States – Analytic – BB-Legal
The study of economics, and defi – The study of economics, and definitions of economics
Appendix: Buying Stocks and Bonds
134. The value of an investment in an index fund depends on
a.
b.
c.
d.
c
United States – Analytic – BB-Legal
The study of economics, and defi – The study of economics, and definitions of economics
Appendix: Buying Stocks and Bonds
135. In 2013, new bond issues and other forms of debt totaled ____ in corporate financing.
a.
$650 billion
b.
$783 tillion
c.
$1 trillion
d.
−$2 billion
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
136. In 2013, plowback accounted for nearly ____ in corporate financing.
a.
$65 billion
b.
$100 billion
c.
$2 trillion
d.
−$2 billion
United States – Analytic – BB-Legal
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
137. A bond with a high yield
a.
gives investors a high return on their investments.
b.
gives investors a low return on their investments.
c.
sells for a high price.
d.
sells for a low price.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
138. In 2013, new stock sales accounted for ____ in corporate financing because corporations bought back some of their
stock.
a.
$2 billion
b.
–$384 billion
c.
$1 trillion
d.
−$65 billion
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
139. Recently, Chrysler bonds with a face value of 100 closed at 103. The coupon rate was 12.75. The current yield on
these bonds was
a.
103 percent.
b.
3 percent.
c.
12.75 percent.
d.
less than 12.75 percent.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
140. Recently, Dow Chemical 8.5 percent bonds maturing in 2006 closed at $92 with a face value of 100. This means the
Dow bonds
a.
sold for $92 each.
b.
increased in value $92 that day.
c.
sold at 92 percent of par value.
d.
had the year of maturity changed to 1992.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
141. Which of the following serves only the best known and heavily traded securities?
a.
NYSE
b.
multiple regional exchanges
c.
AMEX
d.
NASAQ
a
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
142. Which of the following is a series of rules that stops trading on an exchange for a relatively short period of time?
a.
program trading
b.
market limits
c.
stop orders
d.
circuit breakers
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
143. A corporation is liable to pay to bondholders the
a.
current interest rate in the bond market.
b.
current yield on the particular bond.
c.
coupon rate on the bond.
d.
yield on the bond at maturity.
c
Moderate
The study of economics, and defi – The study of economics, and definitions of economics
Corporations and Their Unique Characteristics
144. Which of the following acts required that financial derivatives be traded in established, regulated markets?
a.
Glass-Steagall Banking Act
b.
Gramm-Leach-Bliley Financial Services Modernization Act
c.
Dodd-Frank Wall Street Reform and Consumer Protection Act
d.
Celler-Kefauver Financial Reform Act
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
145. The most heavily traded American stocks are traded on the
a.
New York Stock Exchange.
b.
American Stock Exchange.
c.
regional stock markets.
d.
“third market.”
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
146. Stock markets deal
a.
almost exclusively in newly issued stocks.
b.
in previously issued stocks.
c.
in both newly issued and previously issued stocks, but they do not deal in bonds.
d.
in large amounts of both newly issued and previously issued stocks and bonds.
United States – BPROG: Analytic
Stock Exchanges and Their Functions
147. New stock issues are typically handled by
a.
commercial banks.
b.
insurance companies.
c.
investment banks.
d.
stock exchanges.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
148. If stock exchanges did not exist,
a.
the risk to the investor of buying stocks would be much greater.
b.
the economy’s resources could be more efficiently allocated among firms.
c.
there would be no organized way for firms to issue stock.
d.
investment banks would no longer play a role in handling stocks.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
149. Securities markets perform a valuable economic function because they provide
a.
an opportunity for investors to make money in a short time.
b.
the principal indicator of the performance of the U.S. economy.
c.
an easy way to transfer corporate securities, thereby reducing risk to investors.
d.
assurance that stock purchasers can get back the purchase price of their stock.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
150. A “specialist” is a
a.
stockholder who finds buyers and sellers for specific stocks, but also operates outside of specific stock
markets.
b.
person who works on the floor of the New York Stock Exchange and specializes in certain stocks.
c.
stockbroker who operates only in a particular regional stock market.
d.
stockbroker who specializes in the “third market.”
Moderate
DISC: The study of economics, an – DISC: The study of economics, and definitions in
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
151. Mortgage loans made to borrowers with a more limited ability to repay are known as
a.
subprime mortgages.
b.
credit default swaps.
c.
leveraged securities.
d.
mortgage backed securities.
a
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Betting on Securities: Risks to the Entire Economy
152. What is true of stock exchanges in the United States?
a.
There are two major stock exchanges in New York, several smaller regional exchanges across the nation, and
over-the-counter trading via NASDAQ.
b.
The New York Stock Exchange is the only stock exchange in the United States.
c.
There are only two stock exchanges, NYSE and AMEX.
d.
There are only three stock exchanges, NYSE, AMEX, and NASDAQ.
a
Easy
DISC: The study of economics, an – DISC: The study of economics, and definitions in
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
153. The federal agency that monitors and regulates the stock market is the
a.
Chicago Mercantile Exchange.
b.
Securities and Exchange Commission.
c.
Department of Justice.
d.
Federal Trade Commission.
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
154. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required these to be traded in established,
regular markets:
a.
equities
b.
derivatives
c.
credit default swaps
d.
both b and c.
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
155. Which of the following was designed to head off panics among market participants and forestall crashes like the ones
in October 1929 and October 1987?
a.
Program trading
b.
Circuit breakers
c.
Derivatives
d.
Volatility index
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
156. Which of the following exchanges handles numerous technology companies including Intel and Microsoft?
a.
NASDAQ
b.
NYSE
c.
AMEX
d.
None of the above handle technology stocks.
a
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
157. “Circuit breaker” rules halt trading when the Dow declines below its previous day’s closing value by a percentage
amount, for:
a.
one hour
b.
two hours
c.
the remainder of the trading day
d.
any of these
Difficult
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
158. Assume Joe invests a total of $10,000 in a company – $5,000 of which is his own money and $5,000 which he
borrowed at a 10% interest rate. If the company’s stock value increases by 20% in one year at which time Joe sells his
shares of the stock, what is Joe’s rate of return on his investment?
a.
10%
b.
15%
c.
20%
d.
30%
Difficult
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Betting on Securities: Risks to the Entire Economy
BLOOMS: Application
159. Assume Joe invests a total of $10,000 in a company – $5,000 of which is his own money and $5,000 which he
borrowed at a 10% interest rate. If the company’s stock value decreases by 5% in one year at which time Joe sells his
shares of the stock, what is Joe’s rate of return on his investment?
a.
−5%
b.
−10%
c.
−20%
d.
−30%
United States – BPROG: Reflective Thinking – BPROG: Analysis
The study of economics, and defi – The study of economics, and definitions of economics
Betting on Securities: Risks to the Entire Economy
BLOOMS: Application
160. Takeover of one firm by another
a.
ties up the nation’s capital wastefully.
b.
uses up the economy’s credit supply.
c.
reduces the value of the acquired firm.
d.
changes ownership of the acquired firm.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Stock Exchanges and Their Functions
161. The actions of speculators in a market tend to shift the ____ when the price of the good is low and thereby ____ the
price.
a.
demand curve out; raise
b.
demand curve in; lower
c.
supply curve out; lower
d.
supply curve in; raise
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Speculation
162. Most economists believe that
a.
speculation on financial markets reduces their efficiency and should either be abolished or heavily regulated.
b.
speculation on financial markets does not need to be regulated because it has been largely eliminated by
regulations on program trading.
c.
speculation socially benefits financial markets but harms nonfinancial markets.
d.
speculation helps both financial and nonfinancial markets function more efficiently.
Difficult
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Speculation
163. Speculators play a role in the economy similar to that played by
a.
farmers.
b.
investment banks.
c.
insurance companies.
d.
stockbrokers.
c
Moderate
DISC: The study of economics, an – DISC: The study of economics, and definitions in
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Speculation
164. Speculation serves the market in which of the following ways?
a.
It helps smooth out price fluctuations.
b.
It raises the price of certain goods.
c.
It manufactures a demand for goods that would not ordinarily be found.
d.
It allows risk takers the ability to make large amounts of economic rent.
a
Moderate
DISC: The study of economics, an – DISC: The study of economics, and definitions in
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
165. The actions of speculators
a.
help smooth out price fluctuations.
b.
serve no useful economic purpose.
c.
make investment much more risky.
d.
cause severe shortages of some commodities.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
166. Speculators make their profits on
a.
price differences in different time periods.
b.
price increases from inflation.
c.
avoiding double taxation of income.
d.
the difference in interest rates on stocks and bonds.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
167. In the fifteenth and sixteenth centuries, most towns prohibited individuals from accumulating stocks of grain. Since
such individuals sold the grain and profited greatly during food shortages, they were considered to be exploiting people in
need. The result of this prohibition was
a.
wilder fluctuation in the price of grain.
b.
more grain shortages.
c.
losses to farmers in a good crop year.
d.
All of the above are correct.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
168. Speculators in the stock market
a.
aggravate instability in the market.
b.
create shortages of certain stocks.
c.
smooth out fluctuations in the market.
d.
reduce the profits of firms that issued the stock.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
169. Over the long run, stock prices have
a.
generally fallen.
b.
generally stayed roughly constant.
c.
generally risen.
d.
shown no identifiable pattern of change.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
170. If the random walk theory is correct, a prudent investor might choose her stock portfolio by
a.
throwing darts at the newspaper’s financial page.
b.
spending money to consult a stock forecaster.
c.
spending time analyzing past stock performance.
d.
not investing in stocks at all, since price behavior is completely erratic.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics