1) The intrinsic value of a put is the price of the stock minus the put’s strike price.
2) The market price of preferred stock moves directly with changes in interest rates.
3) The shares of noload mutual funds sell for their net asset value.
4) Arbitrage determines the maximum price of an option.
5) If an American investor buys a Eurobond and the value of the dollar rises, that
individual earns a larger return on the investment.
6) The Securities Investor Protection Corporation (SIPC)
protects individuals from poor investments.
7) If interest rates have fallen, a firm may prefer to
repurchase the bonds on the market instead of calling and redeeming them.
8) Since preferred stock pays a fixed dividend, it is often valued as if it were a bond.
9) The efficient market suggests that, over a period of time, the investor should earn a
return that is consistent with the amount of risk the investor bears.
10) Poor quality municipal bonds pay more interest than poor quality corporate debt.
11) A strong sinking fund makes the bond riskier because it is harder for the firm to
retire the debt.
12) The “collar strategy” is used to lock-in profits from an increase in the price of a
stock.
13) Convertible bonds tend to pay more interest than comparable nonconvertible bonds.
14) A round lot is the general unit for trading in a security.
15) Investors who acquire indexed bonds (TIPS) avoid the risk associated with
inflation.
16) Selling short is selling borrowed securities.
17) When interest rates rise, the price of a put bond will tend to fluctuate more than a
bond without the put option.