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Chapter 11—Investment Planning
73. Investment vehicles include
a.
common stock.
b.
bonds.
c.
preferred and convertible securities.
d.
real estate.
e.
all of these.
74. You have been offered an opportunity to buy shares of a diversified collection of securities. You will be investing in
a.
bonds.
b.
common stock.
c.
mutual funds.
d.
real estate.
e.
stock opt ions.
75. Securities markets include
a.
capital and money markets.
b.
primary and secondary markets.
c.
stock exchanges.
d.
all of these.
e.
none of these.
Chapter 11—Investment Planning
76. Securities sold in the primary markets are usually handled by a(n)
a.
commercial bank.
b.
brokerage.
c.
investment banking firm.
d.
dealer.
e.
none of these.
77. Which of the following is an order to sell a stock when the market price drops to or below a specified level?
a.
Market order
b.
Limit order
c.
Stop-loss order
d.
Fill or kill order
e.
Day order
78. The SEC requires corporations to issue ____ describing the firm and the security issue it wishes to sell.
a.
an advertisement
b.
a prospectus
c.
an underwriting journal
d.
a dealer newsletter
e.
none of these
Chapter 11—Investment Planning
79. Which of the following is a true statement about the Dow Jones Industrial Average?
a.
It is based on 30 industrial stocks.
b.
It is based on 50 transportation stocks.
c.
It is a composite index for the 500 largest industrial publicly traded companies.
d.
It is based on 100 utilities stocks.
e.
It contains 50 blue chip stocks.
80. If a company's common stock is traded on an exchange, the company is said to be
a.
an exchange member.
b.
seated on the exchange.
c.
marketed on the exchange.
d.
listed on the exchange.
e.
licensed by the exchange.
81. The ____ is not an organized security exchange.
a.
New York Stock Exchange
b.
American Stock Exchange
c.
Midwest Stock Exchange
d.
Pacific Stock Exchange
e.
OTC Exchange
Chapter 11—Investment Planning
82. Unlisted securities are traded on the
a.
SEC market.
b.
SIPC.
c.
OTC market.
d.
AMEX.
e.
NYSE.
83. The federal government regulates securities markets through the
a.
Department of Commerce.
b.
Federal Reserve System.
c.
National Association of Securities Dealers.
d.
Securities and Exchange Commission.
e.
Federal Securities Agency.
84. A bull market is characterized by
a.
investor optimism.
b.
governmental stimulus.
c.
economic slowdown.
d.
falling stock prices.
e.
investor pessimism.
Chapter 11—Investment Planning
85. Stockbrokers are also known as
a.
traders.
b.
account executives.
c.
broker-dealers.
d.
financial consultants.
e.
both b and d.
86. ____ is not a normal brokerage service.
a.
Providing investment information
b.
Buying and selling securities
c.
Managing your portfolio
d.
Storing security certificates
e.
Providing market quotations
87. The SIPC provides protection to the investor from
a.
declining security prices.
b.
low or missing dividend payments.
c.
brokerage firm failure.
d.
using margin requirements.
e.
none of these.
Chapter 11—Investment Planning
88. When you buy 300 shares of a company you have purchased
a.
an odd lot.
b.
a round lot.
c.
both an odd lot and a round lot.
d.
a combined lot.
e.
none of these.
89. Discount brokers will
a.
execute orders.
b.
give advice.
c.
watch portfolios.
d.
do all of these.
e.
do none of these.
90. A market order would be transacted at the
a.
lowest price of the day.
b.
highest price of the day.
c.
best price when the order is entered.
d.
limit price.
e.
none of these.
Chapter 11—Investment Planning
91. An immediate order to buy or sell common stock at the best price is a
a.
stop order.
b.
market order.
c.
limit order.
d.
stop-loss order.
e.
discount order.
92. Instructing your broker to buy a stock at a specified or lower price is a
a.
limit order.
b.
market order.
c.
margin order.
d.
regular order.
e.
stop order.
93. Buying on margin is buying
a.
at the lowest price.
b.
at the market price.
c.
with a mix of your own and borrowed funds.
d.
by trading currently owned stock.
e.
with a short sale process.
Chapter 11—Investment Planning
94. The margin requirement on the purchase of common stock is currently set at
a.
30%.
b.
40%.
c.
50%.
d.
60%.
e.
70%.
95. Minimum margin requirements that brokers must observe are set by the
a.
brokerage firm.
b.
corporation issuing stock.
c.
Securities and Exchange Commission.
d.
Securities Investor Protection Corporation.
e.
Federal Reserve Board.
96. Which of the following is characteristic of a limit order?
a.
The order that provides the quickest way to have an order filled.
b.
Buy orders are filled at the lowest available price.
c.
Stock is purchased at the current market price.
d.
The order is executed as soon as the specified price is reached.
e.
Securities are always bought on margin.
Chapter 11—Investment Planning
97. In investment terminology, selling stock that you have borrowed is known as a
a.
margin sale.
b.
short sale.
c.
limit sale.
d.
stop-loss sale.
e.
none of these.
98. Selling equities you don't own and buying them back to cover the sale is
a.
short selling in anticipation of a bear market in that security
b.
going long.
c.
discounting the market averages.
d.
a very safe investment activity.
e.
considered wise in a bull market.
99. The most widely followed stock average is the
a.
Dow Jones Industrial Average.
b.
Standard & Poor's Index.
c.
New York Stock Exchange Index.
d.
American Stock Exchange Index.
e.
Wall Street Journal Index.
Chapter 11—Investment Planning
100. The ____ Index reflects the total market value of over 98% of all publicly traded stock in the United States.
a.
Dow Jones Industrial Average
b.
S&P 500
c.
NASDAQ
d.
Dow Jones Wilshire 5000
e.
New York Stock Exchange
101. The smallest round lot of stocks quoted at 23.25 would cost you (ignoring commissions)
a.
$23.25.
b.
$232.50.
c.
$2,325.00.
d.
$23,250.00.
e.
none of these.
102. A collection of investments is called
a.
a letter of exposure.
b.
a diversification.
c.
a grouping.
d.
an envelope.
e.
a portfolio.
Chapter 11—Investment Planning
103. A diversified securities portfolio is characterized by
a.
dissimilar risk and return characteristics of the securities.
b.
concentrating on a single industry.
c.
minimal loss potential.
d.
stable earnings.
e.
formula timing.
104. ____ is a portfolio characteristic which leads to reduced risk with good return.
a.
Maturity
b.
Price-earnings ratio
c.
Diversification
d.
Stratification
e.
Duration
105. An essential ingredient of an effective investment strategy is
a.
enough money to diversify.
b.
a good broker.
c.
blue-chip stock selections.
d.
high-income securities.
e.
a bull market.
Chapter 11—Investment Planning
106. An unmarried investor with few responsibilities should be able to accept ____ better than two people who are
married with young children.
a.
return
b.
risk
c.
maturity
d.
diversification
e.
balance
107. Portfolio management involves making decisions in order to
a.
buy low and sell high.
b.
maximize risk and return.
c.
accept risk.
d.
own stocks in bear markets.
e.
meet your investment needs and objectives.
108. In addition to a description of any investments owned, the worksheet listing your investment holdings should include
a.
the type of investment.
b.
the original amount of the investment.
c.
the cumulative return.
d.
the latest market value.
e.
all of the above.
Chapter 11—Investment Planning
109. Assume that the price of ABC common stock fell in a short period of time from $105 to $84. Which of the following
investors probably made the most money?
a.
Abe took a long position in 1,000 shares of ABC.
b.
Bert took a short position in 1,000 shares of ABC.
c.
Carrie kept her money in CDs at the bank.
d.
Darren shorted 2,000 shares of ABC using a margin loan.
e.
Earl used a margin loan to finance a 2000-share long position in ABC.
110. Which of the following terms best describes a day trader?
a.
Speculator
b.
Long-term investor
c.
Money market maker
d.
Buy-and-hold mentality
e.
Illegal gambler
111. A stock portfolio containing 80% common stocks is most likely to be appropriate for a
a.
retired couple who needs a high return.
b.
divorced middle-aged mother who needs a high return.
c.
blue-collar, two-income family with five kids.
d.
young newlywed couple putting money aside for retirement.
e.
A portfolio with 80% in common stocks is not suitable for anyone under any circumstances.
Chapter 11—Investment Planning
112. Which of the following was not an intention of The Dodd–Frank Wall Street Reform and Consumer Protection Act
of 2010?
a.
improve accountability
b.
discontinue the “too big to fail” approach
c.
improve transparency
d.
protect consumers from exploitation
e.
Recapitalize banks
113. [Speculating | Investing] is considered to be a long-term activity.
114. [Investing | Speculating] is viewed as a short-term activity that involves the buying and selling of securities in which
future value and expected return are highly uncertain.
115. Before you start investing, you should plan to have a minimum of [$500 | $5,000] available.
