108. With everything else constant, investors prefer a bond issued with a sinking fund
compared to a bond without a sinking fund.
109. A bond sold with a sinking fund provision requires the firm to allow a stockholder to
exchange his/her bond for a specified number of shares of common stock.
110. A company often exercises the call provision of a bond if it’s available when prevailing
interest rates fall below the interest rate currently being paid to bondholders.
111. Taking into account the risk/return trade-off, it would stand to reason that a secured
bond holds a lower interest rate than an unsecured bond.
112. A sinking fund provision decreases the risk of repayment in the minds of the investors.
113. After retirement, Hector began a search for a low–risk investment. He should consider
buying a secured bond of a major corporation.
114. The U.S. government just announced an increase in the interest rate paid on U.S.
government bonds. This will likely cause a decrease in the interest rates paid on corporate
bonds.
115. Tyler is looking for an investment that will pay a little better than what he can get from a
government bond. You suggest that he consider a new issue of debenture bonds by Very
Vegetarian that pay 8.5% annually. You explain that Very Vegetarian has operated for a long time,
and the debenture feature makes these bonds more secure than others.
116. Investors and corporations are on the opposite sides of the interest rate risk scenario. If
interest rates go up to 7%, the bondholder holding a bond with a 6% interest rate knows that he
could do better. If he is forced to sell his bond on the secondary market before it matures, he will
receive less than the face value.
117. As a registered representative of a stock brokerage firm, a stockbroker works as an
intermediary to buy and sell securities for clients.
118. The high start-up costs of web-based businesses cause online brokers to charge higher
commissions than traditional brokerage firms.
119. Online investors expect more expert advice than investors using traditional brokerage
firms.
120. Young investors place more importance on low-risk investments, while elderly investors
prefer significant growth in the value of their investments.
121. Diversification means buying several different types of investments with the funds you
have available for investment.
122. For starters, investors should consider the return on investment, the liquidity and
riskiness of an investment.
123. A well-diversified portfolio would consist of a variety of investments and even cash for
emergencies. The important thing is that the choice of investments spreads the risk. Some
investments may perform very well in any one year while others may lag. Those performing well
will balance out those that are underperforming.
124. The advantage of using an online broker is that these services usually provide you with a
wealth of information and help you allocate your assets. Sometimes they even help you create an
investment plan for life.
125. In the
Reaching Beyond Our Borders
box, one of the global investment suggestions given
was to invest in global stocks listed on U.S. exchanges.
126. In the
Reaching Beyond Our Borders
box, one of the global investment suggestions given
was to invest in stocks from countries with a history of currency problems or political instability.
127. Monica met with a financial planner last week and he urged her to consider only
government bonds and mutual funds in her portfolio. Since she is in her 20s, Monica believes she
can tolerate a little more risk. You suggest that it is a better plan to follow the advice of the
financial planner, rather than research her choices on her own.
128. Raul and his grandfather receive individualized investment advice from the same
chartered financial analyst. When comparing their customized investment recommendations, it is
likely that Raul’s strategy targets lower-risk investment options than the advice received by his
grandfather.
129. Having just returned from the war in Afghanistan, David has $25,000 in his savings
account. His girlfriend suggests that he talk with an investment advisor and let his money “make
more money.” David has his eye on a new Ford truck, but realistically he knows that his old Jeep
Cherokee will probably last another four years, at which time he will definitely need this money
as a down payment on the purchase of something new. He knows he may have other needs as
well. David should buy high-growth stock with his funds because even though they are risky, they
also have the greatest potential of bringing in a better return on his investment.
130. Buying a stock makes the investor an owner in the firm.
131. Investors earn a capital gain when they sell a stock for more than they paid for it.
132. The market price and growth potential of a common stock depends heavily on the
performance of the firm in meeting its objectives.
133. A bull market occurs when overall stock prices increase.
134. A bear is an investor that expects stock prices to rise.
135. Growth stocks are the stocks of corporations whose earnings are expected to grow faster
than the overall economy.
136. Growth stocks offer investors the attractive combination of low risk and high returns.
137. A blue chip stock represents a highly speculative stock investment.
138. An income stock offers investors a relatively high dividend yield on their investment.
139. A penny stock generally sells for a low initial price, pays regular dividends and provides
consistent growth in the stock’s value.
140. Penny stocks represent a high-risk stock investment.
141. When you place a limit order, it means you are willing to buy or sell the stock at the best
price available.
142. An investor placing a market order with a broker agrees to buy or sell a stock immediately
at the best price available.
143. If a company announces a stock split, the investor may receive two or more shares of the
company stock, for every one share that he/she holds.
144. When brokers talk about trading
round lots
, they are referring to 50 shares of stock.
145. A stock split immediately increases the value of an investor’s holdings.
146. The stocks of high-quality companies such as Coca-Cola and Microsoft are called blue
chip stocks.
147. Buying stock on margin lowers the overall risk for the investor.
148. A margin call requires an investor to repay money borrowed from the broker used to
purchase the stock.
149. Buying on margin means you are borrowing part of the value of the stock purchase from
the brokerage firm.
150. Buying on margin is a relatively risk-free way of investing in the stock market.
151. Corporations and brokers prefer to have stock purchases conducted in round lots of 100
shares.
152. A stock split refers to buying a share of stock at a discounted price if full payment is
made at the time of purchase.
153. A round lot refers to the purchase of 100 shares of stock in the same company in a single
transaction.
154. Investing in common stock can give an individual the opportunity to participate in the
success or failure of a corporation.
155. If you are willing to hold on to your growth stock long enough, at least five years or more,
you will realize capital gains.