FIN 360 Investments Test #1
Christopher invests $400 today at a 4% rate of return which is compounded annually. What is the future value of this investment after four years? A) $468 B) $342 C) $464 D) $416
A) $468
Alexis bought a stock for $34 a share two years ago. The stock does not pay any dividends. Today she sold the stock for $28.50 a share. What was her internal rate of return on this investment? A) -8.44% B) 19.30% C) 9.22% D) -9.22%
A) -8.44%
The markets in general are paying a 2% real rate of return. Inflation is expected to be 3%. ABC stock commands a 6% risk premium. What is the expected rate of return on ABC stock? A) 11% B) 2% C) 5% D) 8%
A) 11%
Lauren purchased a stock for $28 a share and sold it six months later for $31. While she owned the stock, Lauren received two quarterly dividends of $0.35 per share. Brittany's holding period return on this stock is A) 13.2%. B) 26.4%. C) 10.7%. D) 11.9%.
A) 13.2%.
An investment produced annual rates of return of 5%, 12%, 8% and 11% respectively over the past four years. What is the (sample) standard deviation of these returns? A) 3.2% B) 2.7% C) 3.6% D) 3.8%
A) 3.2%
Angela placed a stop-limit order to sell 100 shares of RST stock at $28 when the market price of RST was $31. Shortly after Angela placed her order, trading on RST was halted due to a pending news announcement. When trading re-opens RST is priced at $24 a share. Within minutes the price of RST began to drop further until it reached $19 a share. Which one of the following statements is correct concerning Angela's stop-limit order to sell? A) Angela still owns her 100 shares of stock. B) Angela's stock was sold at a price between $19 and $24 a share. C) Angela's stock was sold for $24 a share. D) Angela's stock was sold for $28 a share.
A) Angela still owns her 100 shares of stock.
To compute the present value of $1,000 annuity received at the end of each of the next three years and discounted at the rate of 5% per year, you should use which of the following EXCEL commands? A) PV B) ANN C) RATE D) TVM
A) PV
The government is generally A) a demander of funds in the financial market. B) a supplier of funds to the financial market. C) not involved in the financial markets. D) the owner of the financial market.
A) a demander of funds in the financial market.
Which of the following is NOT an investment as defined in the text? A) a new automobile B) a certificate of deposit issued by a bank C) a United States Saving Bond D) a mutual fund held in a retirement account
A) a new automobile
As gasoline prices fell in 2015, sales of hybrid and electric vehicles dropped sharply. This is an example of A) business risk. B) purchasing power risk. C) liquidity risk. D) event risk.
A) business risk.
The Securities Exchange Act of 1934 A) created the SEC as the regulator of the securities exchanges. B) established trade associations such as the NASD. C) authorized the SEC to regulate mutual funds. D) requires full disclosure of information on all new security issues.
A) created the SEC as the regulator of the securities exchanges.
Stocks are a(n) ________ investment representing ________ of a business. A) direct; ownership B) direct; debt C) indirect; debt D) indirect; ownership
A) direct; ownership
The value of a Standard & Poor's Index is computed by A) dividing the sum of the current market value of all the stocks in the index by a divisor that adjusts for stock splits and scales the Index figure to a manageable size. B) dividing the sum of the current market value of all the stocks in the index by a divisor adjusted for changes in the companies composing the Index. C) dividing the sum of the closing share prices by an adjusted divisor. D) dividing the sum of the closing share prices by a divisor and then multiplying the quotient by 100.
A) dividing the sum of the current market value of all the stocks in the index by a divisor that adjusts for stock splits and scales the Index figure to a manageable size.
An exchange traded fund that invests in the stocks of large corporations is an example of A) indirect investment. B) tangible investment. C) derivative investment. D) direct investment.
A) indirect investment.
Debt represents funds loaned in exchange for A) interest income and the repayment of the loan principal. B) dividend income and an ownership interest in the firm. C) dividend income and the repayment of the loan principal. D) interest income and a partial ownership interest in the firm.
A) interest income and the repayment of the loan principal.
When an investor places a ________ order, he agrees to buy or sell at the best available price when the trade is executed. A) market B) limit C) stop-limit D) stop
A) market
A business has strong sales and profits, but its stock price falls anyway because stock prices in general are declining. This is an example of A) market risk. B) business risk. C) financial risk. D) liquidity risk.
A) market risk.
Which one of the following would be the most liquid investment? A) money market mutual fund B) real estate C) stock D) Series EE bond
A) money market mutual fund
ECNs are A) privately owned networks that transact trades between institutional investors. B) part of the third market which trades listed securities between individual investors. C) facilities used by market makers for trading unlisted securities. D) publicly owned auction markets for listed stocks.
A) privately owned networks that transact trades between institutional investors.
The document that describes the issuer of a security's management and financial position is known as a A) prospectus. B) red herring. C) balance sheet. D) 10-K report.
A) prospectus.
Which of the following is not traded in the securities markets? A) real estate B) stocks C) derivatives D) bonds
A) real estate
When the rate of return is equal to the discount rate A) the cost of an investment equals the present value of its benefits. B) the cost of an investment equals the sum of its benefits. C) the cost of an investment equals the future value of its benefits. D) the present value of an investment's benefits must be greater than its cost.
A) the cost of an investment equals the present value of its benefits.
If you invest $2,000 at the end of each year for five years and you earn 7% interest compounded annually, how much will you have accumulated at the end of the fifth year? A) $14,026 B) $11,501 C) $10,700 D) $12,307
B) $11,501
The required return on Beta stock is 14%. The risk-free rate of return is 4% and the real rate of return is 2%. How much are investors requiring as compensation for risk? A) 12% B) 10% C) 8% D) 14%
B) 10%
Gerry bought 100 shares of stock for $30.00 per share on 70% margin. Assume Gerry holds the stock for one year and that his interest costs will be $45 over the holding period. Gerry also received dividends amounting to $0.30 per share. Ignoring commissions, what is his percentage return on invested capital if he sells the stock for $34 a share? A) 20.48% B) 18.33% C) 106.17% D) 9.16%
B) 18.33%
Ashley purchased a stock at a price of $27 a share. She received quarterly dividends of $0.75 per share. After one year, Ashley sold the stock at a price of $29.25 a share. What is her percentage holding period return on this investment? A) 10.3% B) 19.4% C) 11.1% D) 17.9%
B) 19.4%
Camille purchased a bond 5 years ago for $1,050. The bond paid $50 in annual interest and returned the $1,000 principal at the end of the fifth year. Camille used the interest payment to pay for college textbooks. A) Her internal rate of return was exactly than 5%. B) Her internal rate of return was less than 5%. C) Her internal rate of return was greater than 5%. D) Her internal rate of return cannot be determined.
B) Her internal rate of return was less than 5%.
The Consumer Financial Protection Agency was established by A) The Securities Acts Amendments of 1975. B) The Dodd-Frank Act of 2010. C) The Sarbanes-Oxley Act of 2002. D) Investment Company Act of 1940.
B) The Dodd-Frank Act of 2010.
On March 15, Marcos placed a good-'til-canceled order to buy 200 shares of ABC at $10 a share. ABC sold between $10.50 and $11.00 on that day. Over the following two months the stock price continued to rise and Marcos forgot about the order. After the markets closed on June 6, some bad news concerning ABC was released. The stock opened on June 7 at a price of $8.00 a share. Which one of the following statements is correct concerning Marcos' order? A) The order was executed on March 15 at $10.50 a share since that was the best available price of the day. B) The order was executed on June 7 at a price of $8.00 a share. C) The order was executed on June 7 at a price of $10.00 a share. D) The order was cancelled on May 15 because it had not been executed within the allowable two-month time period.
B) The order was executed on June 7 at a price of $8.00 a share.
On October 12, Kevin placed a day order to purchase 100 shares of ABC stock at $21 a share. During the day, the stock sold at prices ranging from $21.01 to $22.49. Over the following month the stock sold in a range of $21.60 to $23.05. On December 2, the market declined radically and the price of ABC stock dropped to $19.94. Which one of the following statements is correct concerning Allen's order? A) The order was executed at $21.01 per share. B) The order was never executed. C) The order was executed at $22.49. D) The order was executed at $19.94.
B) The order was never executed.
Ryan places a good-'til-canceled limit order to sell 300 shares of KM at $18 a share. When his order reaches the trading floor, KM is trading at $18.20. Which of the following statements is true concerning Ryan's order? A) The brokerage firm will sell the 300 shares at $18.20 and keep the additional $0.20 as a commission. B) The order will be executed at $18.20 with the proceeds credited to Ryan's account. C) The trade will not be executed and will be immediately cancelled. D) The specialist will record the order in the order book and execute the trade as soon as the price hits $18.00.
B) The order will be executed at $18.20 with the proceeds credited to Ryan's account.
Jeremy purchased 100 shares of FB for $19 per share in September 2012 and sold them 3 years later at $91 per share. At what annual rate did the value of his investment grow? A) about 12% B) about 69% C) about 95% D) about 48%
B) about 69%
The purpose of the Intermarket Trading System is to link major exchanges and dealer markets to A) eliminate competition between brokers and dealers. B) allow brokers and dealers to make transactions at the best price. C) allow individual investors to traded directly with each other. D) allow individual to compare the prices offered by various dealers and brokers.
B) allow brokers and dealers to make transactions at the best price.
Which of the following will lower the rate of return on a stock whose price has doubled since you bought it? A) persistently low inflation rates B) an increase in the capital gains tax from 15% to 20% C) an increase in the tax rate on dividend income from 15% to 20% D) the Federal Reserve acts to lower interest rates
B) an increase in the capital gains tax from 15% to 20%
A major function of investment banking firms is A) providing loans to investors. B) assisting businesses when they issue stocks and bonds. C) developing investment strategies to neutralize risk. D) providing financial planning services to wealthy individuals.
B) assisting businesses when they issue stocks and bonds.
The great majority of transactions on the NYSE are executed A) on the trading floor by brokers known as specialists. B) automatically through electronic technology. C) by auction in trading areas known as pits. D) by dealers known as market makers.
B) automatically through electronic technology.
Market makers in dealer markets A) bring sellers and buyers together by matching offers. B) buy securities at a bid price and hope to resell them at a higher offer price. C) earn commissions paid by the sellers of securities. D) all of the above.
B) buy securities at a bid price and hope to resell them at a higher offer price.
Heather places an order to buy 525 shares of stock. This is an order for A) five hundred round lots and twenty-five odd lots. B) five round lots and one odd lot. C) one odd lot. D) 21 round lots of 25.
B) five round lots and one odd lot.
Each of the following investments produces the same rate of return. Which one has the greatest amount of risk? A) investment C with a standard deviation of 8% B) investment D with a standard deviation of 19% C) investment B with a standard deviation of 12% D) investment A with a standard deviation of 4%
B) investment D with a standard deviation of 19%
Companies offering their stock to the public for the first time usually seek the assistance of A) prospectors. B) investment bankers. C) the Securities and Exchange Commission. D) the Federal Reserve Bank.
B) investment bankers.
McDonald's stock is now selling for $92 per share. Kim wants to buy 100 shares but only if she can do so at $90 or less. She should place a(n) A) stop order. B) limit order. C) market order. D) odd-lot order.
B) limit order.
An informal, voluntary agreement to solve disputes between an investor and his/her broker by utilizing a person to facilitate negotiations between the two parties is called A) binding arbitration. B) mediation. C) litigation. D) voluntary arbitration.
B) mediation.
Liquidity risk is defined as the risk of A) having inflation erode the purchasing power of your investment. B) not being able to sell an investment conveniently and at a reasonable price. C) having declining price levels affect the reinvestment rate of your current income stream. D) having to trade a security in a broad market.
B) not being able to sell an investment conveniently and at a reasonable price.
A capital loss is computed by A) subtracting the proceeds received from the sale of an investment from the original cost of the investment. B) subtracting the original cost of an investment from the proceeds received from the sale of that investment. C) subtracting the original cost of an investment from the proceeds received from the sale of that investment plus any income from the investment. D) subtracting the original cost of an investment from the proceeds received from the sale of that investment minus any income from the investment.
B) subtracting the original cost of an investment from the proceeds received from the sale of that investment.
Congress considers a bill that would eliminate the mortgage interest deduction for individuals. For the housing industry, this is an example of A) event risk. B) tax risk. C) interest rate risk. D) business risk.
B) tax risk.
The Securities Investor Protection Corporation insures individual investors against A) losses of up to $100,000 incurred due to innocent online trading errors. B) the loss of up to $500,000 in securities or $100,000 in cash held by a broker. C) market losses of $500,000 total or $100,000 per transaction. D) losses incurred up to $500,000 due to churning by a broker.
B) the loss of up to $500,000 in securities or $100,000 in cash held by a broker.
Federal insurance protects passbook savings accounts and money market deposit accounts (MMDAs) up to A) $1,000,000. B) $100,000. C) $250,000. D) $150,000.
C) $250,000.
Justin invests $4,000 in a savings account for two years. The account pays 2% interest compounded annually. How much money will be in the account at the end of the second year? A) $4,160.00 B) $4,080.00 C) $4,161.60 D) $1,161.60
C) $4,161.60
Sarah purchased a stock one year ago at a price of $32 a share. In the past year, she has received four quarterly dividends of $0.75 each. Today she sold the stock for $38 a share. Her capital gain per share is A) $(6.00). B) $9.00. C) $6.00. D) $3.00.
C) $6.00.
Michael purchased 1000 shares of stock at a price of $16 a share. He utilized his 50% margin account to make the purchase. What is Michael's initial equity in this investment? A) -$16,000 B) -$8,000 C) $8,000 D) $16,000
C) $8,000
The dominant exchange for trading options contracts is the ________. The dominant player in the trading of futures contracts is ________. A) ISE; CBOT B) PHLX; CBOE C) CBOE; CME Group D) NYSE; Nasdaq OMX BX
C) CBOE; CME Group
Which of the following acts abolished fixed commission schedules? A) Investment Advisers Act of 1940 B) Investment Company Act of 1940 C) Securities Acts Amendments of 1975 D) Insider Trading and Fraud Act of 1988
C) Securities Acts Amendments of 1975
Assume that $100 is deposited at the end of each year for five years at 10% compound interest and that no withdrawals are made over the five-year period. Based on this data, which one of the following statements is correct? A) The present value can be determined by computing the present value of $500 in five years at 10%. B) The present value will be $500. C) The present value can be determined by computing the present value of a $100 ordinary annuity for five years at 10%. D) The future value will be $550.
C) The present value can be determined by computing the present value of a $100 ordinary annuity for five years at 10%.
Inflation tends to have a particularly negative impact on the price of A) real estate. B) crude oil. C) bonds. D) gold.
C) bonds.
Excessively trading a customers account to increase a stockbrokers commission income is A) probably unethical but yet is acceptable by the securities industry. B) an acceptable method of timing the market to increase rates of return. C) called churning which is an illegal practice. D) permitted provided that the customer does not object.
C) called churning which is an illegal practice.
Stocks and bonds are traded in A) federal trade commissions. B) securities and exchange commissions. C) capital markets. D) money markets.
C) capital markets.
Options contracts on stocks may A) grant the owner the right to sell the stock at a specified price over a specified period of time. B) legally oblige the owner to buy the stock at a specified price over a specified period of time. C) depending on the type of contract, grant the owner the right to either buy or sell the stock at a specified price over a specified period of time. D) grant the owner the right to buy the stock at a specified price over a specified period of time.
C) depending on the type of contract, grant the owner the right to either buy or sell the stock at a specified price over a specified period of time.
The most predictable component of stock returns is A) capital gains. B) inflation adjusted return. C) dividend income. D) capital losses.
C) dividend income.
Short-term securities are bought and sold in the A) stock market. B) capital market. C) money market. D) primary market.
C) money market.
Charting is the technique of A) monitoring a stock based on the underlying economic conditions. B) determining the amount of money that must be saved based on a given financial goal. C) plotting the performance of a security over time. D) sorting through databases of securities to select one based on certain parameters.
C) plotting the performance of a security over time.
Regulation FD requires simultaneous disclosure of critical information simultaneously to investment professionals and the general public with the exception of A) brokerage firms. B) hedge funds. C) securities rating service such as Moody's Investor Services and Standard & Poor's. D) mutual fund managers.
C) securities rating service such as Moody's Investor Services and Standard & Poor's.
A fill-or-kill order will be A) in effect until cancelled by the customer who placed the order. B) will be cancelled at the end of the trading day if not executed by that time. C) will be cancelled if not immediately executed at the stated price or better. D) executed immediately upon order arrival on the floor of the exchange.
C) will be cancelled if not immediately executed at the stated price or better.
The present value of $10,000 discounted at 5% per year and received at the end of 5 years is A) $10,000(1.05)5. B) $10,000/1.25. C) $10,000 (1.05)1/5. D) $10,000/(1.05)5.
D) $10,000/(1.05)5.
Kelly bought a stock at a price of $22.50. She received a $1.75 dividend and sold the stock for $24.75. What is Kelly's capital gain on this investment? A) $1.75 B) $3.75 C) $4.00 D) $2.25
D) $2.25
An act explicitly defining and prohibiting insider trading was passed in A) 2002. B) 1934. C) 1975. D) 1988.
D) 1988.
Bob's house has doubled in value since he bought it 30 years ago. The house's value has increased by an annual rate of A) 6.67%. B) 100%. C) 3.33%. D) 2.34%.
D) 2.34%.
Ryan purchased a bond for $980 at the beginning of 2011. He received annual interest payments of $55 at the end of each year through 2016 when the bond was redeemed at its face value of $1,000. Compute the yield (internal rate of return) Ryan earned on his bond purchase. A) 5.50% B) .34% C) 5.61% D) 5.91%
D) 5.91%
Table 1 A B 1 Year Cash Flow 2 1 $(5,000) 3 2 $4,000 4 3 $3,000 Given a spreadsheet similar to the one shown in Table 1, the command to compute the internal rate of return would be A) =RATE(3,B3,B4,B2). B) =TVM(A2:B4). C) =IRR(B3:B4)-B2. D) =IRR(B2:B4).
D) =IRR(B2:B4).
The expected rate of return and standard deviations, respectively for four stocks are given below: ABC 9%, 3% CDE 11%, 9% FGH 12%, 8% IJK 14%, 10% Which stock is clearly least desirable? A) IJK B) ABC C) FGH D) CDE
D) CDE
EAFE stands for A) England, America, Far East. B) England, America, France, European Community. C) Europe, Asia, Far East. D) Europe, Australia, Far East.
D) Europe, Australia, Far East.
Which one of the following is a measure of the performance of small companies? A) Russell 1000 B) Russell 3000 C) Value Line 1700 D) Russell 2000
D) Russell 2000
Historically, what is the correct ranking of the following securities from lowest rate of return to the highest? A) Stocks, short-term government bills,long-term government bonds. B) Long-term government bonds, short-term government bills, stocks. C) Historical returns do not exhibit a consistent pattern. D) Short-term government bills, long-term government bonds, stocks.
D) Short-term government bills, long-term government bonds, stocks.
Which one of the following services provides bond ratings? A) Value Line B) Bureau of the Public Debt Online C) Yahoo Finance D) Standard & Poor's
D) Standard & Poor's
Assume that the S&P 500 composite stock index closes at 2,000. This means that A) the average stock in the index is selling for $20.00. B) the share prices of the stocks in the index have risen 20 times since the 1941-1943 base period. C) an investor would have to pay $2,000 to purchase one share of each of the stocks represented in the index. D) The average value of a company reflected in the Index has doubled from when the Index was at 1000.
D) The average value of a company reflected in the Index has doubled from when the Index was at 1000.
Since 2010, the interest rate on passbook accounts and certificates of deposit has A) exceeded the rate of inflation by 1.5% on average. B) fluctuated widely. C) has closely tracked the rate of inflation. D) been less than the rate of inflation.
D) been less than the rate of inflation.
The Dow Jones Industrial Average (DJIA) consists of 30 stocks whose price behavior A) reflects the changes in value of manufacturing stocks only. B) typically has little correlation with the rest of the stock market. C) leads the movements in the general economy by one to two weeks. D) broadly reflects the overall price behavior of the stock market.
D) broadly reflects the overall price behavior of the stock market.
Which of the following choices is in the correct order from less risk to more risk? A) certificates of deposit, mutual funds that invest in stock, common stock, corporate bonds B) certificates of deposit, corporate bonds, common stock, mutual funds that invest in stock C) corporate bonds, certificates of deposit, mutual funds that invest in stock, common stock D) certificates of deposit, corporate bonds, mutual funds that invest in stock, common stock
D) certificates of deposit, corporate bonds, mutual funds that invest in stock, common stock
Which of the following has declined in recent years? A) institutional ownership of common stocks B) the timeliness of information available to investors C) the percentage of foreign stocks held in typical portfolios D) direct ownership of stock by individual investors
D) direct ownership of stock by individual investors
An individual investor who wishes to borrow money to buy stocks must open a A) custodial account. B) joint account. C) signature account. D) margin account.
D) margin account.
A forum in which suppliers and demanders of funds make financial transactions is called a financial A) instrument. B) bank. C) institution. D) market.
D) market.
Which of the following internal characteristics should cause investors to expect the highest rate of return? A) a steady record of past dividends B) a record of excellent management and consistent dividend payments C) interest and principal guaranteed by the U.S. government D) poor management and excessive use of debt financing
D) poor management and excessive use of debt financing
American Depositary Receipts represent A) receipts for dollar deposits in foreign banks. B) receipts for shares of foreign companies held by U.S. broker-dealers. C) receipts from foreign broker-dealers establishing ownership of foreign stocks. D) receipts for the stocks of foreign companies held by banks in the companies' home country.
D) receipts for the stocks of foreign companies held by banks in the companies' home country.
A listing of a firm's major product lines and projections of future sales would both be considered descriptive information. T/F
False
An investment's internal rate of return does not depend on the rate at which income from the investment is reinvested. T/F
False
An ordinary annuity is defined as an annuity for which the cash flows occur at the beginning of each year or payment period. T/F
False
Bond interest and stock dividends are different ways of distributing a corporation's earnings to its owners. T/F
False
Both the Dow Jones Industrial Average and the Standard & Poor's 500 Index are constructed to reflect the value of shares in large, mid-size and smaller companies. T/F
False
Capital markets deal exclusively in stock. Money markets deal exclusively in debt instruments. T/F
False
Dividends earned on securities held in street name by the brokerage are not reported to the Internal Revenue Service. T/F
False
Federal securities laws are designed to protect financial institutions. T/F
False
Historically speaking, the standard deviation of returns on U.S. Treasury Bills is zero. T/F
False
In the financial markets, individuals are net demanders of funds. T/F
False
In the short term, stock prices tend to rise as inflation rises. T/F
False
Institutional investors manage money for businesses and nonprofit organizations, but not for individuals. T/F
False
Money market accounts, certificates of deposit, bonds and commercial paper are all forms of short-term investment vehicles. T/F
False
Most commodity futures are traded on the NYSE Amex. T/F
False
Primary markets deal in the stocks of larger, well-known companies; secondary markets deal in the stocks of smaller, less well-known companies. T/F
False
SIPC insurance is offered by some full-service brokers to protect investors from large losses. T/F
False
Stop orders are used only when selling a stock. T/F
False
The holding period return includes the time value of money. T/F
False
The present value of an investment must be computed by discounting cash flows at the internal rate of return. T/F
False
The return that fully compensates for the risk of an investment is called the risk-free rate of return. T/F
False
Trading stocks is much faster and less complicated if an individual investor has possession of the actual stock certificates. T/F
False
When using a financial calculator to compute the present value of a lump sum, the future value is entered as PMT. T/F
False
A "pump and dump" scheme involves buying shares of stock, hyping that stock via the Internet and then quickly selling the shares at a profit. T/F
True
A limit order is an order to buy at the limit price or less. T/F
True
A stop-loss order is activated once the stock reaches the specified price. T/F
True
All the Standard & Poor's indexes are based on the total market values of the companies rather than on the price of a single share. T/F
True
An index measures the current value of a group of stocks in relation to a base value established previously. T/F
True
An investor who requires a 7% rate of return should be willing to pay $934.58 now to receive $1,000 at the end of one year. T/F
True
An option to purchase common stock is a type of derivative security. T/F
True
Analytical information would include such information as estimates of growth in sales and future earnings. T/F
True
Banks and insurance companies are examples of institutional investors. T/F
True
Bond investors lend their money for a fixed period of time and receive interest. T/F
True
Bond prices rise as interest rates decline. T/F
True
Bonds represent a lower level of risk than do stocks in the same company. T/F
True
Compound interest is interest paid not only on the initial investment but also on any interest earned after the initial investment. T/F
True
Descriptive information might include the company's lines of business, a list of major competitors, and recent changes in management. T/F
True
Exchange traded funds (ETFs) perform like a broad market index but are bought and sold like individual stocks. T/F
True
Exchange traded funds are similar to mutual funds, but are traded like stocks. T/F
True
IPOs are typically underpriced so that the price rises during the first few days of trading. T/F
True
If the discount rate is appropriate for the level of risk, a satisfactory investment will have a present value of benefits equal to or greater than than the present value of costs. T/F
True
If the value of a common stock increases the value of an option to buy that stock should also increase. T/F
True
Investors can postpone or avoid income taxes by investing through Individual Retirement Accounts. T/F
True
Investors can usually find the financial statements of a firm on the firm's website. T/F
True
Investors who are aware of current economic, political, and market events tend to make better investment decisions. T/F
True
It is generally a good idea to use limit orders when trading after hours. T/F
True
Many brokerage firms require that disputes between individual investors and brokers be settled through arbitration. T/F
True
Many day traders are also margin traders. T/F
True
Meaningful measures of an investment's return must consider both income and capital gains. T/F
True
Mutual funds invest in diversified portfolios of securities. T/F
True
Retirement plans, such as a 401(k), allow employees to defer taxes on the plan contributions until such time as the funds are withdrawn from the retirement plan. T/F
True
Reviewing industry and company information may provide guidance on the future outlook of a particular firm. T/F
True
Shares of stock owned by an individual but held in a brokerage firm's name for ease of trading are said to be held in street name. T/F
True
Short-term U. S. Treasury bills are yielding 0.5%. The expected inflation rate is 2%. Therefore, the real rate of interest must be negative 1.5%. T/F
True
Short-term capital gains are taxed at the taxpayer's marginal tax rate. T/F
True
Since 1900, the average return on stocks has exceeded the average return on savings accounts by more than 6 percentage points. T/F
True
Stocks, bonds and mutual fund shares are bought and sold in the capital market. T/F
True
The NYSE is part of the world's largest international trading network known as NYSE Euronext. T/F
True
The greater the dispersion around an asset's expected return, the greater the risk. T/F
True
The income paid to a market maker is referred to as the spread. T/F
True
The internal rate of return is the rate of return that causes a project to have a zero net present value. T/F
True
The majority of bonds trade in the OTC market. T/F
True
The preliminary version of a prospectus is called a red herring. T/F
True
The purpose of the "quiet period" a company must observe from the time it files a registration statement with the SEC until after an IPO is complete is to assure that all investors receive the same information. T/F
True
The required return on a risky investment includes a real rate of return, an inflation premium and a risk premium. T/F
True
To calculate the interest rate or growth rate using a spreadsheet or financial calculator, the present value and the future value most have opposite signs. T/F
True
U.S. Treasury Bills mature in 1 year or less. T/F
True
Underwriters are responsible for promoting and facilitating the sale of securities. T/F
True
When investors expect higher inflation, they will generally require higher rates of return. T/F
True
