Exam 4 Finance 3325

If you bought stock using dollar cost averaging as listed here, what was your average cost? June 15 $ 50 1.75 shares July 15 $ 50 1.65 shares August 15 $ 50 2.00 shares

$27.78 Average cost = (Total investment cost)/(Total number of shares purchased) = ($50 × 3)/(1.75 + 1.65 + 2.0) = $150/5.4 shares = $27.78/share.

Using the information given here, what are the earnings per share for DEF Company? Number of shares outstanding = 60,000 Price per share = $30 Book value per share = $10 Earnings = $180,000

$3.00 Earnings per share = Earnings/Number of shares outstanding = $180,000/60,000 = $3.00.

Assume that you purchase a $1,000 bond issued by Kohls that pays 8% interest each year, paid every 6 months. What is the amount of each interest payment?

$40.00 Face value × Interest rate = $1,000 × 0.08 = $80 annual interest/2 = $40 × two installments.

Evan had three accounts as listed below. In 2017, how much was his total insurance coverage by the FDIC? Bank A: $150,000 Bank B: $50,000 Bank C: $350,000

$450,000 In 2017, the maximum coverage was $250,000 per insured institution. Therefore, Evan received full coverage for Banks A and B and coverage up to $250,000 at Bank C. His total coverage was $150,000 + $50,000 + $250,000 = $450,000.

Brenda lost her debit card. When she realized it was gone, her account had $173 in unauthorized charges. She notified her financial institution within two days. How much is she potentially liable for?

$50.

Book value equals

(Assets − Liabilities)/Number of shares outstanding.

Given the information shown here for NMOP Inc., calculate the dividend yield. Annual dividend = $4.00 Number of shares outstanding = 40,000 Current market price per share = $40.00 Book value per share = $8.00

10% Dividend yield = Annual dividend/Current price per share = $4.00/40.00 = .10 = 10%.

A _____________ is an employer-sponsored retirement account, and participating in one is one of the easiest ways to begin an investment program.

401(k) account

Nicholas earned 8% in his savings account. If he is in the 28% tax bracket, what is his after-tax savings rate of return?

5.76% After-tax rate = Return × (1 − Tax rate) = 8% × (1 − 0.28) = 8% × 0.72 = 0.0576 = 5.76%

Earnings per share equals the

Total number of shares of preferred stock divided by earnings. Total number of shares of common stock divided by earnings. Total earnings divided by number of shares of preferred stock. Total earnings divided by number of shares of common and preferred stock. ***None of these. EPS equals earnings divided by number of shares of common stock outstanding.

This calculation includes the yearly dividends in dollars plus the increase in the original purchase price of the investment.

Total return

A U.S. government security issued in $100 units with maturities of more than 1 year but not more than 10 years is called a

Treasury note.

Bonds of a single issue that mature on different dates are called ____________ bonds.

serial

A legal agreement that provides for the management and control of assets by one party for the benefit of another is known as

A trust.

All of the following can be factors that influence business failure risk except

All of the these can affect business failure risk.

This calculation uses the current price per share and the annual amount of money paid to investors from the company.

Dividend yield

A distribution of money, stock, or other property that is paid to the stockholders of a company is called a

Dividend.

A fancy way of saying you need to diversify your investments is

Don't put all of your eggs in one basket.

Investments, insurance, and tax assistance are tools for financial planning and are also known as

Financial services.

Corporations use bonds

For financing ongoing business activities. When it is difficult to sell stock. To improve financial leverage. ***All of these are correct.

Which of the following risks associated with preferred stocks or government or corporate bonds is a result of changes in rates in the economy?

Interest rate risk

Which of the following investments is the most liquid?

Interest-bearing checking account

Kylie went to a post office to obtain a

Money order.

If a bond is quoted in the newspaper at 105, what is its price?

$1,050.00 Current price = Bond price quotation × Face value → 105% × $1,000 = $1,050.

Using the information given here, what is the price-earnings ratio for DEF Company? (Hint: This is a two-step calculation.) Earnings = $180,000 Number of shares outstanding = 60,000 Price per share = $30 Book value per share = $10

$10.00 First, earnings per share needs to be calculated. EPS = Earnings/Number of shares outstanding = $180,000/60,000 = $3.00. Then price-earnings ratio can be determined: Price per share/Earnings per share = $30/$3.00 = $10.00.

Gregory bought 500 shares of stock at a price of $60 per share. He later sold his stock at a price of $56. What was his total return on his investment?

$2,000 capital loss Total return on investment = Dividends + Capital gain (loss) = Dividends + [(Price change) × # shares] = $0 + [($56 − $60) × 500] = ($2,000 capital loss).

Using the information given here, what are the earnings per share for GHI Company? Number of shares outstanding = 150,000 Price per share = $60 Book value per share = $20 Earnings = $375,000

$2.50 Earnings per share = Earnings/Number of shares outstanding = $375,000/150,000 = $2.50.

Brandon lost his debit card. When he realized it was gone, his account had $238 in unauthorized charges. Since he was embarrassed about his loss, he didn't contact his financial institution for 70 days. What is the most that he is liable for?

$238

The insurance coverage provided by the FDIC for a savings account is ________ per depositor per insured financial institution.

$250,000

Gwendolyn Francis is interested in buying a bond that pays $70 annually. The current price of the bond is $800. What is her current yield?

8.75% Current yield = Annual interest amount/Current price → 70/800 = 0.0875 = 8.75%.

The opportunity, but not the obligation, to buy a security within a specified period of time at a guaranteed price is

A call option.

All of the following are deposit institutions except

A commercial bank. A credit union. A mutual savings bank. A savings and loan association. The correct answer is: A finance company is not a deposit institution.

All of the following are non-deposit institutions except

A credit card company. An investment company. A life insurance company. A finance company. correct answer is: A credit union is not a non-deposit institution

Zach wants to open an account, but he doesn't know which kind is appropriate. He is interested in earning a higher interest rate and knows that he might not be able to write many checks from his account. In addition, he plans to keep at least $1,000 in his account so he can avoid paying a fee. He definitely wants to have federal deposit insurance. What kind of account should he open?

A money market account

Which of the following primarily provides loans for home purchases?

A mortgage company

Which of the following will likely provide the most expensive loans?

A payday loan company

The opportunity, but not the obligation, to sell a security within a specified period of time at a guaranteed price is

A put option.

Inflation risk deals with

A reduction in purchasing power.

A drawback of a regular savings account is

A relatively low rate of return.

Franklin is planning for a purchase of a vehicle in two years. Since he wants to be certain that his funds are safe (insured), which of the following should he use?

A savings account.

An all-in-one account that provides a complete financial services program for a single fee is known as

An asset management account.

Preston never opened his bank statements, so he was surprised to see that he had incurred a service charge, because his balance went below a required minimum balance. In addition, he did not earn interest for this month. What kind of account does Preston have?

An interest-earning checking account.

Dividend yield equals

Annual dividend amount/Current price per share.

Chloe signed the back of her check with just her signature. She used a(n)

Blank endorsement.

Investors who earn larger returns because they borrow part of the money needed to by a particular stock are using which of the following techniques?

Buying on margin

Nora bought a used car and was told that she needed a personal check with guaranteed payment. She obtained a

Certified check.

Excessive buying and selling of securities to generate commissions is called

Churning

Which of the following is some of the information found on a financial website such as Yahoo! Finance?

Company name, last price (previous day's close), target price, price change (day's range). 52-week price range, number of shares traded (volume). Market capitalization (Market Cap). Dividend paid and yield. ***All of this information is included.

After you purchase an investment, you should

Continually evaluate your investment.

Ethan wants to purchase some stock for the first time. Which of the following is correct?

His commission should be lower at an online broker than at a full-service broker.

Which of the following statements is FALSE?

Individual investors who purchase U.S. government securities must hold the investments until maturity.

When investing, in your role as an investor you should not

Let the investments manage themselves.

When Angela wanted to provide financial security for her dependents, she considered purchasing a product that would provide income replacement in the event of her untimely death and also provide a savings/investment component while she is alive. Which company would she most likely do business with?

Life insurance company.

Devin wants to purchase DEF stock for a specified price of $40.00 or less, and he understands this request will be executed after all previously received orders have been fulfilled. He should use a

Limit order.

Which of the following refers to the opportunity to withdraw your money on short notice without incurring a loss in value?

Liquidity

If your main focus is to be able to buy or sell an investment quickly without substantially affecting the investment's value, you are most concerned with

Liquidity.

Annual reports

May be sent to all stockholders on an annual basis.

Which of the following describes a growth company?

Profits are reinvested in the company for future growth.

Megan decided to start investing in stocks. Which of the following should she do first?

Research the corporations she is interested in as well as their industries.

Zoe signed the back of her check with the words "for deposit only." She used a(n)

Restrictive endorsement.

A bond that is repaid from the income generated by the project it is designed to finance is called a(n)

Revenue bond.

The NYSE is an example of a(n)

Securities exchange.

If you bought a stock on July 1, 2016, and sold it on July 15, 2016, you may be a(n)

Speculator. Trader. Investor. ***Two of these are correct. Individuals who routinely buy and then sell stocks within a short time are called speculators or traders.

Which of the following is not one of the four components of the risk factor to be considered when evaluating investments?

Stock risk

Which of the following has returned an average of almost 10% per year since 1926?

Stocks

If you can leave your funds alone for 5-10 years or more, which of the following investments would be most appropriate?

Stocks and mutual funds

If you need access to your funds in two years or less, which of the following investments would be least appropriate?

Stocks and mutual funds Stocks and mutual funds are appropriate if you can leave your investments alone for 5-10 years or more.

Gavin has owned MNOP stock for several years and has seen the stock increase in value from $20 to $35. He wants to "lock in" his gains, so he needs to place an order that will sell his stock at the next available opportunity after its market price drops to $33. What kind of order should he use?

Stop-loss order.

If a check is lost or stolen, you should use a

Stop-payment order.

Interest paid to corporate bond owners is

Tax-deductible for the corporation.

Gwendolyn and Jack Francis are investors with no financial training or investment background. Which approach will they likely take?

They will choose investments with less risk.

Why are some financial service operations referred to as financial supermarkets?

They offer a combination of services from one source.

Which of the following steps should be completed before making your first investment?

Work to balance your budget. Before beginning an investment program, you should perform a financial checkup. This includes working to balance a budget.

Total return equals

Yearly dividends in dollars plus capital gains.

The Truth in Savings Act requires financial institutions to disclose the _____ on savings accounts.

annual percentage yield (APY)