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Chapter 11—Investment Planning
116. An investment offering a stable current income would likely be more desirable for [a young couple | a retired
couple].
117. Ownership in a corporation would be represented by [stock | bonds].
118. The owner of a bond would expect to receive [steady | variable] annual income.
119. [Common stocks | Bonds] have no maturity date.
Chapter 11—Investment Planning
120. A fixed dividend would be received with [common | preferred] stock.
121. A convertible bond would let the investor exchange it for [preferred | common] stock.
122. Short-term securities are traded in the [money | capital] market.
123. The issuer of the security would get no money from a trade in the [primary | secondary] market.
124. The [primary | secondary] market is where new securities are sold to the public.
Chapter 11—Investment Planning
125. A(n) [underwriting | prospectus] is a document made available to prospective security buyers that describes the firm
and a new security issue.
126. The [broker | dealer] market is made up of both the NASDAQ market and the OTC market.
127. Listed securities would be purchased from [a securities exchange | the over-the-counter market].
128. The [bid | ask] price for a stock sold on the OTC market represents the price you would receive when you sold the
stock.
Chapter 11—Investment Planning
129. The majority of the securities laws were enacted [before | after] 1930.
130. The Securities and Exchange Commission was established as a result of the [Securities Act of 1933 | Securities
Exchange Act of 1934].
131. A [bull | bear] market is characterized by falling stock prices.
132. A [bull | bear] market is characterized by rising stock prices.
Chapter 11—Investment Planning
133. A deep discount broker will execute orders and [pick the stocks for you to buy | offer little to no other services].
134. The Securities Investors Protection Corporation would make payment to you if [the corporation in which you bought
stock | the brokerage firm holding your stock] went bankrupt.
135. If a brokerage agreement contains a binding arbitration clause, you [can | cannot] go to court to appeal your
malpractice case against the broker.
136. Fifty shares of stock would constitute [an odd lot | a round lot].
137. Two hundred shares of stock would constitute [an odd lot | a round lot].
Chapter 11—Investment Planning
138. In general, brokerage fees on a round lot of common stock will amount to about [1%| 10%] of the transaction value.
139. Brokerage commissions on bond transactions are likely to be a [flat fee per transaction | fee per number of bonds
involved in transactions].
140. An order to buy or sell a security at the best price available at the time the order is received is a [market | limit] order.
141. If you want to set a specific price in your order, you will use a [market | limit] order.
Chapter 11—Investment Planning
142. You are going to buy stock on margin. You will be required to put up a minimum of [50 | 60] percent of the money
needed to make the purchase.
143. Margin requirements are set by the [SEC | Federal Reserve].
144. Using margin will magnify [only gains | only losses].
145. You are selling short; you anticipate the price of the stock will [rise | fall].
146. The maximum amount of money you could lose in a short sale is [known | unknown] at the time of the transaction.
Chapter 11—Investment Planning
147. Publicly traded corporations [are required to | may choose to] provide annual reports to their stockholders.
148. The Dow Jones Industrial Average is based on [all stocks traded on the NYSE | 30 large stocks].
149. The [DJIA | S&P Index] is based on 500 different stocks.
150. Day trading is [illegal | risky].
Chapter 11—Investment Planning
151. The collection of investments you select to meet your investment goals is called your [portfolio | allocation].
152. The axiom that explains diversification is [Don't cry over spilt milk | Don't put all of your eggs in one basket].
153. Diversification should [reduce the possibility of losing all your money | have little impact on the risk of losing
money].
154. Asset allocation is another term for [selecting the stocks you want to buy | dividing your portfolio among different
types of securities].
155. Investments with high current income typically have [high | low] potential capital appreciation.
Chapter 11—Investment Planning
156. The single most important reason for investing is for [home purchase down payment | retirement].
157. The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 included provisions to improve
[accountability | sustainability].
158. In terms of market capitalization, [Apple | IBM] is the largest company in the world.
159. Retirees often choose investments offering [stable current income | high appreciation value].
160. Exchange traded funds face the risk of [market fluctuations | default].
Chapter 11—Investment Planning
161. Monte wants to save for his daughter's college education. He would like to have $85,000 in 15 years. If Monte can
earn an average of 8.5% on this fund, how much would he need to deposit in the account today to meet his goal?
If Monte has no money to set aside now but wants to save at the end of each month for this goal, how much would he
need to add to the account each month?
162. Abe owns 1,000 shares of Amazon, which he purchased for $12 per share 3 months ago. Abe just checked the price
of Amazon and found that it is selling for $19 per share. He is so excited about his gain that he has booked a $6,000, 20-
day trip to Hawaii for he and his wife. He wants to be sure that the trip will be paid for entirely from gains in his Amazon
shares because his wife has been nagging him about his frequent stock trading habit and he feels that this trip will
demonstrate to her once and for all that he has the skills, acumen, and instincts to get rich trading stocks. He feels strongly
that the price of Amazon stock will go through the roof in the intermediate term but is concerned about short-term
volatility. Abe's plan is to sell the shares only if the value of his shares either declines below $18,000 or if the value
climbs to $30,000. He would like to submit his stock orders right now, because for the next three weeks it is very
important to his marriage that he not trade or even follow the market (maybe just a peek at CNBC while his wife is in the
shower). What set of stock orders would accomplish his pathetic goals?
163. You have just bought (on 50% margin) 100 shares of IBM Corp. common stock for $108 per share. One year from
now you expect to sell the stock for $140. The interest charge will be 9%. What return do you expect to earn on your
investment? (Show all work. Ignore commissions.)
Chapter 11—Investment Planning
164. You have inherited $250,000. You have decided that since you don't need the money currently, you should invest for
the long-term. After seeking advice, you decide on an asset allocation plan that puts 10% in short-term securities, 75% in
equities, and 15% in bond funds. How much money would you put in each category? (Show all work. Ignore
commissions.)
165. You have just bought 100 shares of ABC Corporation common stock at 70.50. The commission is calculated as 1.5%
of the total value of the transaction plus $30. What commission will you be charged and how much must you pay the
broker for the entire transaction? (Show all work.)
Chapter 11—Investment Planning
