Final
What type of investor might be attracted to junk bond funds? (Select the best answer below.)
Some investors are willing to assume a higher risk in order to generate higher overall returns.
What are some advantages of hybrid funds? (Select the best answer below.)
The stocks provide growth potential and the bonds provide a stable income.
What types of stocks would this type of fund typically avoid owning? (Select the best answer below.)
These funds often avoid investments in tobacco firms, gun makers, or producers and/or heavy consumers of fossil fuels.
What are some of the potential problems with this strategy? (Select the best answer below.)
This strategy requires frequent trading to capitalize on shifts in interest rate expectations, but results in high transaction costs.
A prospectus is: (Select the best answer below.)
a document that provides financial information about the fund.
A mutual fund supermarket: (Select the best answer below.)
allows investors to diversify among various mutual funds and receive a summary statement for these funds on a consolidated basis.
Junk bond funds: (Select the best answer below.)
also known as high-yield bond funds, focus on risky bonds issued by firms with higher default risk. These bonds offer higher yields to entice investors to buy them.
A bond's yield to maturity is the bond's: (Select the best answer below.)
annualized return if it is held to maturity.
payments on treasury bonds
are guaranteed by fed gov and are free of default
A call feature on a bond allows the bond issuer to: (Select the best answer below.)
buy back the bond from the investor before maturity.
An investor will benefit from owning a convertible bond by: (Select the best answer below.)
converting the bond into a certain number of shares of the issuer's stock when the issuer's stock price increases.
The impact on stock price: (Select the best answer below.)
depends on the percentage of total business conducted with that country and the magnitude and direction of the economic shift.
An effective diversification strategy is to: (Select the best answer below.)
diversify across stock funds and bond funds.
Investors who invest in index funds should: (Select the best answer below.)
earn returns that are similar to actually investing in the index
Socially responsible funds: (Select the best answer below.)
focus their stock holdings on firms that have high standards of corporate governance and ethical behavior.
An investor can find price quotations for closed-end and open-end funds: (Select the best answer below.)
in financial papers and at financial websites
Hybrid funds: (Select the best answer below.)
include both stocks and bonds in their portfolio.
Closed-end funds are: (Select the best answer below.)
listed on the exchanges where they are traded.
Diversification: (Select the best answer below.)
lowers the level of risk in a portfolio.
Exchange Traded Funds (ETFs) are: (Select the best answer below.)
similar to closed-end mutual funds expect they can be traded like stocks throughout the day. They are designed to mimic particular stock indexes or sectors and are not actively managed.
Investors are only willing to purchase bonds with a call feature if the bonds offer a: (Select the best answer below.)
slightly higher return than bonds without a call feat
For open-end funds, if a company offers several different funds, (Select the best answer below.)
the company name is listed in bold and the funds are listed below.
Young people should have investments in stocks as part of their portfolio because: (Select the best answer below.)
they have longer time horizons and should consider stocks as a primary component of their investment portfolio in order to maximize returns over time.
The abbreviated term that is used to identify the stock for trading purposes is called the: (Select the best answer below.)
ticker symbol
Capital gains resulting from the sale of investments held more than one year are
long-term capital gains and are taxed at a lower rate than ordinary income for most investors.
Which one of the following is an example of a high-risk return scenario for bonds in the event that the economy deteriorates? (Select the best answer below.)
Firms may be unable to pay its coupon payment.
How have regulators attempted to resolve this issue? (Select the best answer below.)
To address this issue the SEC issued new rules in 2014 to try to make the bond rating process more transparent.
The disadvantage of investments that satisfy that priority is
a relatively low return
what is inflation
an increase in the general level of prices of products and services over a specific period.
Interest rates affect economic growth and thus have: (Select the best answer below.)
an indirect impact on stock prices
Brokerage firms expedite this process by: (Select the best answer below.)
creating brokerage accounts for each client.
mutual funds are managed by
portfolio managers
two terms that measure risk are
range of return and st. deviation of the returns
Real estate that can be rented generates income in the form of
rent payments
Income stocks are: (Select the best answer below.)
stocks of firms that are more mature. These firms will elect to pay much higher dividends and therefore generate more current income for their shareholders.
Another country's economic conditions can affect a U.S. firm when: (Select the best answer below.)
substantial cash flows from imports and/or exports are affected by the other country's economic woes, or a booming economy.
The price of a stock changes each day in response to changes in the
supply and demand for the stock in the secondary market
The price of land is based on:
supply and demand in the land market
What characteristic makes municipal bonds especially attractive to high-income investors? (Select the best answer below.)
tax exemption
Income from interest payments, coupon payments, and capital gains on assets held for less than a year are
taxed as ordinary income these are short term capital gains
When buying a stock on margin, an investor borrows a portion of the funds to buy the stock from: (Select the best answer below.)
the brokerage firm
The market for a stock is created by: (Select the best answer below.)
the flow of orders to buy and sell each stock
The price of a stock is determined by: (Select the best answer below.)
the interaction of supply and demand for that stock.
The market price of the stock depends on
the number of investors willing to buy a stock versus the number of investors willing to sell.
During a weak economy, (Select the best answer below.)
the risk of default on bonds may rise and you could only sell your holdings of these bonds to other investors if you are willing to sell them at a lower price to reflect the high risk of these bonds.
Stock exchanges facilitate: (Select the best answer below.)
the trading of stocks in the secondary market by providing a physical location for trading.
What is the role of a market maker? (Select the best answer below.)
Market-makers, or dealers, are charged with maintaining a market for certain stocks. These market-makers ensure that investors have liquidity and they make commissions based on the bid-ask spread, or the difference between what they are willing to pay for a stock and the price they are willing to sell the stock for.
what are bonds
long-term debt securities issued by government agencies or corporations.
Corporate bonds are: (Select the best answer below.)
long-term debt securities issued by large firms, subject to default risk because these are not backed by the federal government.
Municipal bonds are: (Select the best answer below.)
long-term debt securities issued by state and local government agencies.
Treasury bonds are: (Select the best answer below.)
long-term debt securities issued by the U.S. Treasury.
Why would investors prefer one type over the other? (Select the best answer below.)
An investor's need for current income and/or desire to defer taxes will determine which category of stocks they hold in their portfolio.
Interest rates are influenced by the monetary policy of the: (Select the best answer below.)
Fed reserve board
Some limitations of stock analysis include: (Select the best answer below.)
Forecasting what will happen in the future is virtually impossible and future events can have significant impacts on a stock's price. Many investors may look for favorable conditions that are expected to bode well for a firm's future earnings but this information may already be reflected in a higher stock price as other investors anticipated the same impact.
How do investors use this information to make buy or sell decisions? (Select the best answer below.)
Investors analyze all relevant information about a firm and its prospects and then decide how this information will impact demand and supply and therefore price.
Why would an investor buy a junk bond? (Select the best answer below.)
Investors buy junk bonds to earn a higher return.
What other exchange trades stocks in a similar manner to the NYSE? (Select the best answer below.)
NYSE MKT LLC
Which one of the following is an example of a risk for real estate investments? (Select the best answer below.)
Tenants may miss several monthly payments.
The primary and secondary stock markets differ in which of the following aspects?
The primary stock market offers newly issued securities and the secondary stock market offers existing securities.
A junk bond is: (Select the best answer below.)
a bond that is rated below investment grade by a bond rating agency. These bonds can be original issue junk and carry a high coupon rate, or they can be bonds issued earlier with higher ratings that have since been downgraded and now sell at a discount.
In a passive strategy for bond investment, (Select the best answer below.)
a diversified portfolio of bonds are held for a long period of time.
Municipal bonds have: (Select the best answer below.)
a relatively low default risk
Stock exchanges are facilities that: (Select the best answer below.)
allow investors to purchase or sell existing stocks.
The OTC, or over-the-counter market, is: (Select the best answer below.)
an electronic communications network that allows investors to buy and sell stock.
Electronic Communication Networks: (Select the best answer below.)
are used to execute some transactions on the NYSE and NYSE MKT LLC.
Fundamental analysis involves: (Select the best answer below.)
attempting to value a stock based on fundamental characteristics such as earnings, revenue growth and numerous other factors.
If the U.S. government's fiscal policy involves raising taxes, corporate earnings will: (Select the best answer below.)
be negatively affected
Bond rating agencies have a possible conflict of interest when issuing bond ratings because: (Select the best answer below.)
bond rating agencies are paid by the bond issuer to rate the bond prior to issuance.
Stock prices are more sensitive in industries where: (Select the best answer below.)
borrowing is used by consumers
Day traders are investors who:
buy and sell stock the same day
If a mutual fund's shares decline over time, individual investors would have a
capital loss
Electronic Communication Networks (ECNs) are: (Select the best answer below.)
computer systems that match up desired purchases and sales of stocks.
Inflation is measured by the: (Select the best answer below.)
consumer price index
The two main advantages of using online brokerage services are the: (Select the best answer below.)
convenience and the low cost per transaction.
Stocks are financial instruments representing partial ownership in a
corporation
Bonds can offer a return to investors in the form of:
coupon payments and bond price appreciation
This approach is considered conservative because it is designed to: (Select the best answer below.)
cover future expenses rather than to outperform the bond market in general.
Stock prices tend to _________________ when inflation is expected to increase
decrease
Investors want to measure risk to understand the:
degree of uncertainty surrounding their future returns
Shareholders can earn a return through ____________ or _______________
dividends, selling their stock at a price higher than the price they paid
The main disadvantage of this strategy is that it: (Select the best answer below.)
does not capitalize on interest rate movements.
When performing an economic analysis of stocks, the three economic factors that are most closely watched are: (Select the best answer below.)
economic growth, interest rates, and inflation.
Your first investing priority should be to:
ensure adequate liguidity
floor traders
execute trades on the floor for themselves or someone else
a discount brokerage frim
executes an investors orders for a low fee but does not give investment advise
The interest income from federal agency bonds is: (Select the best answer below.)
exempt from state and local taxes, however, investors must pay federal taxes on interest income.
Investors can obtain information about firms and their corresponding industry from: (Select the best answer below.)
financial web sites and published sources.
The matching strategy involves selecting bonds that will: (Select the best answer below.)
generate payments to match future expenses.
Economic growth is measured using: (Select the best answer below.)
gross domestic produc
Stocks with potential for substantial growth are
growth stocks
Stocks are a common investment for those who believe that they will get a:
higher return from stocks than from other investments
An analysis of the firm is: (Select the best answer below.)
important because there are variations in management skills and firm performance.
stocks that deliver large dividends are
income stocks
higher economic growth
increases stock prices
IPO stands for: (Select the best answer below.)
initial public offerings, which occur when a firm sells equity for the first time in the primary market.
Two types of investors are:
institutional investors and individual investors.
Default risk: (Select the best answer below.)
is reflected in the risk premium associated with a bond
A firm's stock price: (Select the best answer below.)
is susceptible to industry conditions.
Junk bonds are: (Select the best answer below.)
issued by smaller, less stable companies and have a higher risk of default and a higher return.
Dividends are usually paid by older, more established firms that have
less potential for substantial growth
an odd is an order for
less than 100 shares of stock
If an investor expects interest rates will decline over time, he should invest in: (Select the best answer below.)
longer term maturity bonds
If investors expect interest rates to decline, they would invest heavily in: (Select the best answer below.)
longer term maturity bonds
The market value of a stock is determined by:
multiplying the number of shares outstanding by the market price of the stock
Coupon or dividend payments generated by a mutual fund's portfolio are
passed on to the individual investor
Corporations sell stock in order to
raise funds for expansion of their business operation
Top managers of a firm may be tempted to use misleading estimates of revenues and expenses because: (Select the best answer below.)
reported earnings influence the stock value and the firm value, and this is a component of managers' evaluation and compensation.
Bonds that have a call feature are: (Select the best answer below.)
risky for investors because the issuer can buy (call) the bonds back and issue new bonds at a lower interest rate.
To set up and use an online brokerage account, an investor would: (Select the best answer below.)
set up the account online, then send a check, and could make trades once the check clears.
An annual report contains: (Select the best answer below.)
standardized financial information that can be used to analyze a firm's performance.
If the value of the stock bought on margin declines: (Select the best answer below.)
the inverstor may get a margin call from the brokerage firm to put additional cash in his account to back the loan
Which of the following is a popular indicator of economic growth? (Select the best answer below.)
the level of employment, new home sales, personal income level
When placing an order to buy or sell stock, you must provide: (Select the best answer below.)
the name of the stock, whether the order is to buy or sell the stock, the number of shares of stock, and whether it is a market order or a limit order.
Technical analysis is: (Select the best answer below.)
the process of valuing a stock using historical price data.
Margin sales benefit the brokerage firm because: (Select the best answer below.)
they earn interest
Mutual funds sell shares
to individuals and invest the proceeds in a portfolio of investments such as bonds or stocks
Managers may be able to boost the reported earnings of their firm by: (Select the best answer below.)
using a specific accounting method
a limit order
will specify what portion of the desired shares you are willing to accept
A short sale is when an investor: (Select the best answer below.)
"borrows" a stock he or she does not own from another investor and sells the stock with the expectation that the stock is overvalued and will soon fall in price. When the price falls the investor can now purchase the stock and replace the shares borrowed prior to the sale.
If interest rates were to rise, the price of a: (Select the best answer below.)
20-year bond would fall to a greater extent than the price of a 1-year bond.
