Business Finance Unit 2 Test

P/B

a popular way to find low-priced stocks to invest in

P/S

a useful valuation method for a company making heavy capital

P/E

an important ratio that is stated at shareholder meetings

An investor buys shares of ABC stock that is slowly increasing in price, and at the same time selling shares of XYZ stock because it is slowly decreasing in price. It sounds as though he is _____.

arbitraging

A customer pays a purchase price of $1,375 for a bond. This purchase price could also be referred to as _____. (Select all that apply.)

bond discount bond premium

Carlos has 1,500 shares in a mutual fund. His friend Hank wants to get involved with the same fund, but is told he cannot. That is because the mutual fund is most likely a _____.

closed-end fund

Michael Milken was a notable bond dealer because he _____. (Select all that apply.)

defaulted on junk bonds worth millions of dollars served jail time for defaulting on bonds

Max has these bonds in his portfolio: an energy bond rated AA, a utility bond rated BB, a technology bond rated D, and a technology bond rated A. Max's portfolio can be said to be a _____.

diversified portfolio

Nishelle has three high-risk tech stocks in her portfolio, and feels great about the possibilities of these companies doing well in the market. She added to her portfolio earlier this week, though—and bought shares in a reliable bank stock and also in an established food company stock. It sounds as though Nishelle is trying to _____. (Select all that apply.)

diversify her portfolio lessen non-systemic risk

Feng is a serious private investor who studies financial statements, reads economic news, and stays on top of national and international business affairs. The efficient market hypothesis states that an individual such as Feng can eventually outperform the market.

false

For a small investor, a primary investment is best because it is a stock others have not bought yet, and there will be plenty of investment information available.

false

In the event of a downturn in finances for a company, stockholders get paid, then bond holders.

false

Strong-form market efficiency is not practical for most of the securities in the United States.

false

The possible risk a client takes on when purchasing an investment cannot be easily measured.

false

There are many stock markets around the world but all are regulated by the Securities and Exchange Commission.

false

investment advisor

has passed either the Series 62 or 72, and has an exemplary record as a stockbroker

commodities broker

has passed the Series 3 exam; works with the futures market

stockbroker

has passed the Series 7 exam; works on a commission basis

securities investment analyst

has passed the Series 86 exam; has significant experience working with math models and doing forecasting

An investor is holding a junk bond. His friend is holding a bond not labeled as "junk." That means the junk bond _____. (Select all that apply.)

is riskier of the two will pay more at maturity than the other bond

Commercial paper investments are ___. (Select all that apply.)

less than one year a money market product

Prior to the housing market collapse of 2007, "declared income" was acceptable for a loan application. This was done specifically so that _____. (Select all that apply.)

loan processing could go much quicker loan officers could write more loans

An example of a systemic risk in the market is a _____. (Select all that apply.)

market collapse nuclear reactor accident 10% unemployment rate

An investor is looking at two securities to figure out which is the best deal for him. As he compares the bonds, he will be most interested in the _____.

net present value

The ABC Cleaning Company is assessing the value of its tangible and intangible assets. Its intangible assets would most likely include their _____. (Select all that apply.)

non-competition agreement with two former ABC Cleaning executives service contracts Internet domain name

The most popular method of bond valuation is the _____.

present value method

This ratio is calculated by using a stock's share price and dividing it by book value. It is a good valuation tool for capital-heavy asset companies, including manufacturing or shipping industries. The ratio is the _____.

price-to-book-value ratio

Montell values his option contract using the Black-Scholes model. Based on this valuation, he does not exercise the contract right now. If he wants to do it next week, he should _____.

recalculate the formula

P/CF

reflects what an investor could view as money available to improve the capital value of the enterprise or provide a dividend payout to the shareholders

Lloyd is a private investor who studies the online financial information about a company, its annual report, and an assortment of market research journals, and also consults with his broker before buying any stock. It sounds as though Lloyd is operating under _____.

strong form market efficiency

An investor has a 10-year municipal bond. It is most likely he will see some cash from this investment when _____. (Select all that apply.)

the bond reaches maturity he cashes in coupons

Present value equals future value divided by 1 plus the rate of return times _____.

the number of years

Critical components an analyst would need to know to make decisions about futures products is/are _____. (Select all that apply.)

time price in the future risk-free rate of return

Examples of cash equivalents are _____. (Select all that apply.)

treasury bills commercial paper marketable securities

A futures contract is a contract where the buyer is obligated to purchase the asset if it is at a particular price on a specified date.

true

A bond is actually a(n) _____. (Select all that apply.)

type of security debt instrument investment

The capital asset pricing model is a _____.

way to determine rate of return

A friend has $10,000 she wants to invest in the stock market. She asks for your advice about what to read so she can get an idea of good investments. Name at least three market news journals, news agencies, or rating companies she would be wise to be acquainted with.

writing question

Explain how a seller will make money and a buyer will lose money on some futures contracts.

writing question

Explain the basic differences between a futures contract and an options contract.

writing question

Identify at least three key aspects of securities regulation.

writing question

Name three types of money market investment mentioned in Section 3 and define what type of depositor or investor is best suited to use it. [150 minimum word count]

writing question

Why is an annual report important to a potential investor? [150 minimum word count]

writing question