Investments Exam One
A restricted account is defined as a margin account wherein the equity is A) less than the initial margin amount. B) greater than the initial margin amount. C) less than the maintenance margin amount. D) greater than the maintenance margin amount.
A
An act explicitly defining and prohibiting insider trading was passed in A) 1934. B) 1975. C) 1988. D) 2002.
A
Andrew and Jennifer are in the 25% marginal tax bracket. Three years ago they purchased 100 shares of stock at $20 a share. In 2012, they sold the 100 shares for $29 a share. What is the amount of federal income tax they owe as a result of this sale? A) $135 B) $165 C) $225 D) $435
A
Assume the foreign exchange rate for the euro was U.S. $1.00 = .70 euro last month. This month, the exchange rate is U.S. $1.00 = .72 euro. All things equal, the dollar value of European stocks A) decreased. B) increased. C) stayed the same. D) would vary depending on the country.
A
Both the holding period to qualify and the tax rate on long-term capital gains A) are subject to political pressure and change frequently. B) are very stable and have not changed in many years. C) are phased out on incomes over $388,351. D) are adjusted for inflation every year.
A
Charting is the technique of A) plotting the performance of a security over time. B) sorting through databases of securities to select one based on certain parameters. C) monitoring a stock based on the underlying economic conditions. D) determining the amount of money that must be saved based on a given financial goal.
A
Companies offering their stock to the public for the first time usually seek the assistance of A) investment bankers. B) the Securities and Exchange Commission. C) the Federal Reserve Bank. D) prospectors.
A
Current price information is found in which of the following? I. Dow Theory Letters II. Yahoo!Finance III. CNBC TV website IV. Hulbert Financial Digest A) II and III only B) I, II and III only C) II, III and IV only D) I, II, III and IV
A
Heather places an order to buy 525 shares of stock. This is an order for A) five round lots and one odd lot. B) 21 round lots of 25. C) one odd lot. D) five hundred round lots and twenty-five odd lots.
A
Holding securities in street name A) makes the trading of securities easier and more efficient for individual investors. B) allows the brokerage firm to sell securities without the customers approval. C) enables the brokerage firm to collect the stock dividends as compensation for their services. D) means that the brokerage firm actually owns the securities.
A
If a security is traded on the New York Stock Exchange and on a regional exchange, the security is said to be A) dual listed. B) multiple listed. C) traded in the second and third markets. D) geographically diversified.
A
In the U. S., the most prestigious designation for financial planners is A) CFP. B) CPA. C) ING. D) SIPC.
A
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 never executed. B) The order was executed at $21.01 per share. C) The order was executed at $22.49. D) The order was executed at $19.94.
A
On a net basis, funds in the financial markets are generally supplied by A) individuals. B) both individuals and business firms. C) business firms. D) the government.
A
Stock market averages reflect the arithmetic average price behavior of a group of stocks A) at a given point in time. B) relative to a base value set at an earlier point in time. C) relative to other indexes. D) relative to a base price of 100.
A
Stocks are a(n) ________ investment representing ________ of a business. A) direct; ownership B) direct; debt C) indirect; ownership D) indirect; debt
A
Subscription letters are A) sometimes geared to specific industries and companies. B) available free on the Internet. C) published on an annual basis. D) descriptive in nature but do not offer investment advice.
A
Tax planning A) guides investment activities to maximize after-tax returns over the long term for an acceptable level of risk. B) ignores the source of income and concentrates solely on the amount of income. C) is primarily done by individuals with incomes below $200,000. D) is limited to reviewing income for the current year and determining how to minimize current taxes.
A
The Dow Jones Industrial Average (DJIA) is based on the prices of A) 30 stocks. B) 100 stocks. C) 500 stocks. D) 200 stocks.
A
The Securities Investor Protection Corporation insures individual investors against A) the loss of up to $500,000 in securities or $100,000 in cash held by a broker. B) market losses of $500,000 total or $100,000 per transaction. C) losses of up to $100,000 incurred due to innocent online trading errors. D) losses incurred up to $500,000 due to churning by a broker.
A
The dominant options exchange is the A) Chicago Board Options Exchange. B) American Stock Exchange. C) Pacific Stock Exchange. D) Philadelphia Options Exchange.
A
The effects of fluctuating foreign exchange rates may I. increase a U. S. investor's rate of return. II. decrease a U. S. investor's rate of return. III. can be avoided by investing in ADRs. IV. can be avoided by investing in mutual funds that specialize in foreign stocks. A) I and II only B) I and III only C) III and IV only D) I, II,III and IV
A
The primary risk associated with a short-term investment is A) purchasing power risk. B) default risk. C) interest rate risk. D) economic risk.
A
The purchase of stock with cash in the hope of earning a capital gain is known as taking a A) long position in the stock. B) short position in the stock. C) long, margined position in the stock. D) short, margined position in the stock.
A
Three years ago, Emily bought 200 shares of HQ at $27.00 per share. HQ shares have risen to $57.50 per share. If the stock continues to rise, she wants to hold it, but she fears that the price could fall quickly and she will lose most of her profit. Which of the following decisions would be best? A) Place a limit order to sell at $60.00. B) Place a stop-limit order at $55.00. C) Place a stop-loss order at $27.00 D) Place a stop-loss order at $55.00.
A
Typical hedge funds are characterized by A) limited risk investment strategies. B) low minimum investment requirements. C) high minimum invested requirements. D) their appeal to a large number of small investors.
A
Unless the investor has requested another arrangement, cash from dividends and the sale of stock is normally A) deposited in a Money Market Account offered by the brokerage. B) automatically reinvested in more stock. C) direct deposited to the investor's bank account. D) held in escrow by the brokerage until it is be reinvested.
A
Which of the following are associated with bear markets? I. investor pessimism II. rising profits III. economic slowdown IV. rising security prices A) I and III only B) II and III only C) I, II and III only D) II, III and IV only
A
Which of the following are characteristics of short selling? I. borrowing shares of stock from a brokerage firm or other investors II. selling shares of stock you do not own III. betting the stock price will increase IV. limiting losses per share to the price at which the stock was sold A) I and II only B) III and IV only C) I, II and IV only D) I, II, III only
A
Which of the following is a general rather a financial newspaper? A) The New York Times B) Investor's Business Daily C) The Wall Street Journal D) Barron's
A
Which of the following is required by the Investment Advisers Act to disclose their background and any conflicts of interest? A) professional investment advisers B) accountants and lawyers C) stockbrokers D) all of the above
A
Which of the following practices is prohibited by the Insider Trading and Fraud Act of 1988. A) the use of nonpublic information to make profitable stock transactions B) selling of stock by officers of the company C) the granting of stock options to corporate executives in lieu of salaries D) private sales of stock between executives of the company
A
Which of the following statements about the Dow Jones Industrial Average are correct? I. Higher-priced stocks tend to affect the average more than lower-priced stocks. II. A one-point change in the DJIA correlates to a $1 change in average share value. III. Changes in the DJIA are made to reflect company mergers and acquisitions. IV. The DJIA divisor was determined when the average was created and remains constant. A) I and III only B) II and IV only C) I, III and IV only D) I, II, III and IV
A
Which of the following typically offers the highest rate of return? A) certificates of deposit B) passbook savings accounts C) Now accounts D) money market deposit accounts
A
Which one of the following is a measure of the performance of small companies? A) Russell 2000 B) Russell 1000 C) Russell 3000 D) Value Line 1700
A
Which one of the following is the LEAST important when selecting a stockbroker? A) knowing the stockbroker personally B) selecting a stockbroker who best understands your investment goals C) considering the services offered and the related costs D) getting referrals from personal acquaintances with similar investment objectives
A
Which one of the following statements about margin trading is correct? A) The Federal Reserve sets the minimum margin requirement for margin trading. B) If Fred buys $1,000 worth of stock using 60% margin, he will need to pay $400 in cash to make the purchase. C) Purchasing stocks on margin is less risky than purchasing stocks by paying cash for the entire purchase. D) Margin trading increases the potential profits while lowering the potential losses on a percentage basis.
A
Which one of the following statements is correct? A) The S&P 500 Index is based on 500 large companies that trade on U.S. exchanges. B) Because of mergers and bankruptcies, the S&P 500 Index no longer contains 500 stocks. C) The S&P 500 Index is carefully constructed to reflect the values of large, medium and small capitalization companies. D) The S&P 500 is based on the 500 largest U.S. companies as measured by market value.
A
Which one of the following web sites should you utilize to review the financial information in a company's 10-K report? A) freeedgar.com B) valueline.com C) wsj.com D) finance.yahoo.com
A
Whose responsibility is it to determine if a client can pay for the securities they purchase? A) the stockbroker who opens the account for the client B) the floor broker who places the trade on the floor of the exchange C) the dealer who acts as the seller in the trade D) the broker in charge of churning
A
A brokerage firm which provides analyst reports, investment advice and information as well as online brokerage services is called a(n) A) premium discount broker. B) full-service broker. C) basic discount broker. D) electronic broker.
B
A fill-or-kill order will be A) executed immediately upon order arrival on the floor of the exchange. B) will be cancelled if not immediately executed at the stated price or better. C) will be cancelled at the end of the trading day if not executed by that time. D) in effect until cancelled by the customer who placed the order.
B
A market where securities are are bought from or sold to a market maker is known as a A) broker market. B) dealer market. C) exchange floor. D) board of exchange.
B
A rights offering is the A) initial offering of securities to the public. B) offering of new securities to current shareholders on a pro-rata basis. C) sale of newly issued shares of stock to the general public. D) sale of securities directly to a select group of investors.
B
An exchange traded fund that invests in the stocks of large corporations is an example of A) direct investment. B) indirect investment. C) derivative investment. D) tangible investment.
B
An individual investor who wishes to borrow money to buy stocks must open a A) signature account. B) margin account. C) joint account. D) custodial account.
B
An investment in which of the following represents an direct foreign investment? I. global mutual fund II. U.S. multinational firm III. ADR IV. foreign security A) II and III only B) II and IV only C) III and IV only D) IV only
B
An order to sell 300 shares of ABC stock at the best available price is called a A) limit order. B) market order. C) stop loss order. D) fill-or-kill order.
B
Averages and indexes differ from one another in that an index A) is the arithmetic average price behavior of a group of stocks at a given point in time. B) measures the current price behavior of a group of stocks in relation to a base value set at an earlier point in time. C) is of value in-and-of itself, whereas an average must be compared to a historical figure to have any meaning. D) always moves up before a corresponding average moves up, and always moves down before a corresponding average moves down.
B
Dollar-denominated debt securities issued by foreign corporations and traded in U.S. markets are called A) ADRs. B) Yankee bonds. C) ETFs. D) global bonds.
B
EAFE stands for A) Europe, Asia, Far East. B) Europe, Australia, Far East. C) England, America, Far East. D) England, America, France, European Community.
B
ECNs are A) publicly owned auction markets for listed stocks. B) privately owned networks that transact trades between institutional investors. C) facilities used by market makers for trading unlisted securities. D) part of the third market which trades listed securities between individual investors.
B
Emily bought 200 shares of ABC Co. stock for $29.00 per share on 60% margin. Assume she holds the stock for one year and that her interest costs will be $80 over the holding period. Ignoring commissions, what is her percentage return (loss) on invested capital if the stock price went down 10%? A) -32% B) -21% C) -16% D) -10%
B
Excessively trading a customers account to increase a stockbrokers commission income is A) an acceptable method of timing the market to increase rates of return. B) called churning which is an illegal practice. C) probably unethical but yet is acceptable by the securities industry. D) permitted provided that the customer does not object.
B
Exchange traded funds are A) mutual funds that trade on the Big Board. B) baskets of securities that trade like a single stock. C) index funds that trade on the NYSE. D) groups of securities that trade only on regional exchanges.
B
IPO activity tends to peak when stock prices A) have fallen sharply. B) have risen sharply. C) are volatile and unstable. D) Stock prices have relatively little influence on IPO activity.
B
If an investor does not respond to a margin call, the broker will A) sell enough of the investor's holdings that the margin account can be closed. B) sell some of the investor's holdings to cover the margin call. C) notify the Federal Reserve so they can cover the call. D) sell all of the investor's holdings and close their brokerage account.
B
Jennifer expects the price of a stock to decrease over the next month. Which one of the following strategies would allow Jennifer to earn a profit if the expected decrease actually occurs? A) Take a long position in the stock today. B) Sell the stock short today. C) Buy the stock on margin today. D) Take a long position in the stock one month from today.
B
Jessica purchased 200 shares of stock at $38 using her 70% margin account. Her maintenance margin is 40%. Jessica has no other securities in her account. At what price will she receive a margin call? A) $26.60 B) $19.00 C) $11.40 D) $7.60
B
Joseph bought 100 shares of stock at a price of $24 a share. He used his 70% margin account to make the purchase. Joseph sold his stock after a year for $20 a share. Ignoring margin interest and trading costs, what is Joseph's return on investor's equity for this investment? A) -17% B) -24% C) 24% D) -56%
B
Josh earned $82,500 in taxable income, all from wages and interest, and files an individual tax return. What is the amount of Josh's taxes for the year 2012? Round to the nearest dollar. A) $13,750 B) $16,665 C) $18,425 D) $20,625
B
Kayla invested $3,000 and purchased shares of a German corporation when the exchange rate was $1.00 = .70 euro. After six months, she sold all of the shares for 3,180 euros, when the exchange rate was $1.00 = .68 euro. No dividends were paid during the time Heidi owned the shares of stock. What is the amount of Kayla's gain or loss on this investment? A) $129.60 gain B) $1676 gain C) $1676 loss D) $250 loss
B
Megan bought 200 shares of stock at a price of $10 a share. She used her 70% margin account to make the purchase. Megan sold her stock after a year for $12 a share. Ignoring margin interest and trading costs, what is Megan's return on investor's equity for this investment? A) 67% B) 29% C) 14% D) 10%
B
Over-the-counter market activity is reflected in the A) Standard & Poor's composite index. B) NASDAQ index. C) AMEX composite index. D) financials index.
B
Recent studies suggest that, on average, investments clubs A) outperform broad market indexes by several percentage points. B) underperform broad market indexes by a several percentage points. C) earn average rates of return. D) no data is available on investment club performance.
B
Ryan bought a stock three years ago for $6 a share. Today, June 22, the stock is selling for $72 a share. Ryan is afraid that the price will fall and does not want to lose his profits so he places a stop-loss order to sell at $70. The stock sells between $71 and $75 throughout the remainder of the day on June 22. On the morning of June 23, the stock opens at $9 a share based on rumors of a possible bankruptcy due to inappropriate accounting procedures. Which one of the following statements is true concerning this situation? A) Ryan was able to sell his stock for $70 a share thereby protecting his profits. B) Ryan's stock was sold for $9 a share causing him to lose most of his profits. C) Ryan still owns his shares of stock since his order was never executed at the $70 price. D) Ryan received a call from the specialist asking him what he wanted to do about his order.
B
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) $3.00. B) $6.00. C) $(6.00). D) $9.00.
B
Stock market averages and indexes are commonly used to measure the A) specific behavior of companies. B) general behavior of stock prices. C) specific behavior of alternative investments. D) specific behavior of the economy.
B
Stocks purchased in the secondary market are purchased A) directly from the issuing corporation. B) from other investors. C) from small, little-known brokerages. D) indirectly through financial institutions.
B
The Dow Jones Industrial Average (DJIA) consists of 30 stocks whose price behavior A) typically has little correlation with the rest of the stock market. B) broadly reflects the overall price behavior of the stock market. C) reflects the changes in value of manufacturing stocks only. D) leads the movements in the general economy by one to two weeks.
B
The law that requires investment advisers to register with the SEC is the A) Investment Company Act of 1940. B) Investment Advisers Act of 1940. C) Maloney Act of 1938. D) Securities Act of 1933.
B
The over-the-counter (OTC) market is a A) centrally located auction market. B) telecommunications network connecting dealers. C) market solely for institutional traders. D) geographically dispersed auction market.
B
The price an individual investor will pay to purchase a stock in the OTC market is the A) spread. B) ask price. C) bid price. D) broker price.
B
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 to compare the prices offered by various dealers and brokers. D) allow individual investors to traded directly with each other.
B
Typical responsibilities of financial professionals in a corporate setting include I. managing cash and short-term investments. II. evaluating investment opportunities. III. working one on one with individuals to formulate plans for reaching their financial goals. IV. interacting with financial markets to find sources of external financing such as debt and equity. A) I and IV only B) I, II and IV only C) II, III and IV only D) I, II, III and IV
B
Wages, tips, pension income and alimony are examples of A) portfolio income. B) active income. C) non-taxable income. D) passive income.
B
Which of the following are characteristics of a wrap account? I. a flat amount of commission per transaction II. an increased probability of account churning III. a money manager IV. detailed performance reports A) I and II only B) III and IV only C) II, III and IV only D) I, III and IV only
B
Which of the following are true concerning institutional investors? I. Institutional investors are professionals who manage money for other people. II. Banks, insurance companies and mutual funds are all institutional investors. III. Institutional investors are individuals who invest indirectly through financial institutions. IV. Institutional investors invest large sums of money. A) I and II only B) I, II and IV only C) II, III and IV only D) I, II, III and IV
B
Which of the following is NOT an investment as defined in the text? A) a certificate of deposit issued by a bank B) a new automobile C) a United States Saving Bond D) a mutual fund held in a retirement account
B
Which of the following is published yearly by publicly-held corporations and provided free to their stockholders and other investors? A) brokerage reports B) annual reports C) back-office reports D) red herrings
B
Which of the following sites is especially valuable for information concerning mutual funds? A) www.investopedia.com B) www.morningstar.com C) www.moody's.com D) www.bondsonline.com
B
Which of the following statements concerning day traders are correct? I. Day traders generally do not hold securities over night. II. Day trading is a relatively low risk approach to investing. III. Some day traders sell stocks short. IV. Day trading was declared illegal by the Market Stabilization Act of 2002. A) I and II only B) I and III only C) I, II and IV only D) II, III and IV only
B
Which of the following statements concerning market and limit orders are correct? I. Market orders guarantee both a price and an execution. II. Market orders guarantee an execution but not a price. III. Limit orders guarantee a price but not an execution. IV. Stop-loss orders may never be executed. A) I and III only B) II, III and IV only C) I and IV only D) II and IV only
B
Which one of the following can be considered a negative aspect of on-line investing? A) On-line trading is fast and efficient. B) On-line investors tend to trade more frequently. C) On-line trading is available to the average investor. D) On-line investors pay lower costs per trade than investors using a broker.
B
Which one of the following is a major advantage of margin trading? A) increase in potential diversification B) increase in potential profits on a percentage basis C) possibility of increased gains on a dollar basis D) interest free loans
B
Which one of the following statements about foreign investments is true? A) In general, major foreign markets always tend to underperform the U.S. market. B) Investing in foreign markets may involve specific risks not encountered with domestic securities. C) Investing in foreign markets will always produce higher returns because of exchange rate fluctuations. D) Foreign markets include equity securities only.
B
Which one of the following statements about margin trading is correct? A) The Securities Exchange Commission sets the minimum margin requirement for margin trading. B) If Fred buys $1,000 worth of stock using 60% margin, he will need to pay $600 in cash to make the purchase. C) Margin traders are willing to accept lower return to reduce their risk. D) Margin traders are pessimistic about the future price of the stock.
B
Which one of the following statements about stockbrokers is correct? A) Stockbrokers act as dealers in the securities they trade. B) Stockbrokers must be licensed by the Securities and Exchange Commission. C) Stockbrokers are regulated by financial consultants. D) Stockbrokers execute trades on the floor of the New York Stock Exchange on behalf of account executives.
B
Which one of the following statements is true concerning bonds? A) A bond yield represents only the interest earned on a bond. B) Bond yield data is more useful to an investor when compared over time. C) A bond's yield remains constant even when a bond is sold prior to maturity. D) Bonds with similar characteristics generally have widely disparate bond yields.
B
15) In 2012, John and Nicole earned a combined taxable income of $148,800 from employment plus $1,000 in long term capital gains and they file a joint tax return. What is their total federal income tax? Round to the nearest dollar. A) $41,664 B) $29,723 C) $29,593 D) $22,320
C
A major function of investment banking firms is A) providing loans to investors. B) providing financial planning services to wealthy individuals. C) assisting businesses when they issue stocks and bonds. D) developing investment strategies to neutralize risk.
C
A margin account A) can be opened by any investor who wants to purchase securities by charging them to his/her credit card. B) allows an investor to borrow one hundred percent of the cost of the securities purchased. C) allows an investor to borrow a portion of the purchase price at a reasonable rate of interest. D) is permitted only in wrap accounts.
C
A report describing the transactions in an account, listing the dividend and interest payments received, and detailing the current holdings is called a A) prospectus. B) red herring. C) statement. D) street certificate.
C
Advantages of a full-service brokerage include A) faster execution of trades. B) lower commissions on most trades. C) access to advice and research reports. D) the ability to place limit and stop-loss orders.
C
Advantages of investing in real estate potentially include I. rental income. II. liquidity. III. tax write offs. IV. capital gains. A) I and IV only B) II and IV only C) I, II and IV only D) I, II, III and IV
C
America Online, Yahoo! Finance, and the Motley Fool are all classified as A) subscription services. B) comparative data sources. C) financial portals. D) institutional news sites.
C
American Depositary Receipts represent A) receipts for dollar deposits in foreign banks. B) receipts from foreign broker-dealers establishing ownership of foreign stocks. C) receipts for the stocks of foreign companies held by banks in the companies' home country. D) receipts for shares of foreign companies held by U.S. broker-dealers.
C
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) voluntary arbitration. B) binding arbitration. C) mediation. D) litigation.
C
Assume that the S&P 500 composite stock index closes at 1300. This means that A) the average stock in the index is selling for $130.00. B) an investor would have to pay $1,300 to purchase one share of each of the stocks represented in the index. C) The average value of a company reflected in the Index is up 30% from when the Index was at 1000. D) the share prices of the stocks in the index have risen 13 times since the 1941-1943 base period.
C
At 10:45 a.m., Ashley placed a stop-loss order to sell 200 shares of Alpha stock at $43 a share. At 2:15 p.m., the price of Alpha fell to $42.90 and then rose to $43.40 a share by the end of the trading day. Ashley order was executed that day. Ashley would have received a price A) of $42.90 a share for her stock since her order was already recorded in the specialist's book. B) of $43.40 a share for her stock since that was the closing price on the day of execution. C) between $42.90 and $43.40 a share depending upon when her trade executed. D) equal to the average prices paid by the specialist during that trading day.
C
Beginning in 2010, the amount protected by the Federal Deposit Insurance Corporation in non-interest bearing checking accounts is A) zero. B) $100,000. C) unlimited. D) $250,000.
C
Beginning investors with small amounts to invest should A) avoid stock investments completely. B) invest all of their money in one high quality stock. C) buy mutual funds or exchange traded funds (ETFs). D) buy a portfolio of very low priced stocks (penny stocks).
C
Crossing markets are those that A) trade foreign securities. B) conduct transactions between institutional and individual traders. C) fill only the orders which have opposing orders at identical prices. D) conduct business at locations in varying time zones.
C
Danielle and Jonathan are in the 28% marginal tax bracket. They bought 200 shares of DJN stock at $35 per share and sold them 4 years later in 2012 at $12 per share? How much did their loss reduce their taxes in the year when they sold the stock? A) $0 B) $450 C) $840 D) $1,288
C
David opens a cash account with a brokerage firm. He buys 100 shares of GIA Co. stock at $30 a share. His broker charges a commission of $35. Which of the following statements concerning this transaction is correct? A) Daniel must have $3,035 in cash in his account on the day the trade is made. B) Daniel must have $2,965 in cash in his account on the day the trade is made. C) Daniel must have $3,035 in cash in his account within three business days. D) Daniel must have $2,965 in cash in his account within five business days.
C
Federal insurance protects passbook savings accounts and money market deposit accounts (MMDAs) up to A) $100,000. B) $150,000. C) $250,000. D) $1,000,000.
C
For a taxpayer in the 25% marginal tax bracket, a long-term capital gain realized in 2012 will be taxed at A) 5%. B) 10%. C) 15%. D) 25%.
C
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) 106.17% B) 20.48% C) 18.33 D) 9.16%
C
Including foreign investments in a portfolio A) increases the overall risk of the portfolio. B) reduces the potential rate of return. C) provides potential benefits from changes in currency values. D) limits the diversification amongst industries.
C
Information that can be found on the Internet at no cost includes I. P/E ratios. II. recent news about a company. III. financial statements. IV. future earnings and stock prices. A) I and IV only B) II and III only C) I, II and III only D) I, II, III and IV
C
Investment bankers who join together to share the financial risk associated with buying an entire issue of new securities and reselling them to the public is called a(n) A) selling group. B) tombstone group. C) underwriting syndicate. D) primary market group.
C
Investors seeking to increase their wealth as quickly as possible would invest in A) corporate bonds and preferred stock. B) large company stocks with high dividends. C) smaller companies pursuing rapid growth. D) government bonds and low-risk income stocks.
C
Jocelyn sells short 100 0 shares of JKLO stock at $31.25 per share and six months later purchases the shares at $29.00 each. Ignoring brokerage fees, Nancy will A) earn a total profit of $3,125. B) lose a total of $2,900. C) earn a total profit of $2,250. D) Lose a total of $2,250.
C
Large technology companies such as IBM and Microsoft trade A) exclusively on the NASDAQ. B) exclusively on the NYSE. C) on either the NASDAQ or the NYSE. D) exclusively on alternative trading systems.
C
Maintenance margin is the A) minimum amount of loan that can be used for margin trading. B) initial amount of equity required for a margin purchase. C) minimum amount of equity that an investor can have to avoid a margin call. D) amount of additional funds that need to be added to an account to meet minimal equity requirements.
C
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) market order. C) limit order. D) odd-lot order.
C
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) $16,000 C) $8.000 D) -$8,000
C
Mike bought 200 shares of EG stock two years ago at $16 per share. The stock has traded in a range of $21 to $44 a share over the past year. EG is now selling for $43.60 a share. EG announces its earnings today and Mike feels the stock could go to $60 on good news or fall to $30 on bad. To protect his profits, the most appropriate order for him to place is A) market order to sell immediately. B) a limit sell order at $60.00. C) a stop loss order at $42. D) a stop-limit order to sell at $45.
C
Monitoring and restructuring your investments is called A) diversification. B) valuation. C) portfolio management. D) financial planning.
C
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
Short-term investments I. provide liquidity. II. fill an important part of most investment programs. III. provide a high rate of return with low risk. IV. provide resources for emergencies. A) I and IV only B) II and IV only C) I, II and IV only D) I, II, III and IV
C
Short-term securities are bought and sold in the A) capital market. B) primary market. C) money market. D) stock market.
C
Speculative and growth oriented investments are least appropriate for A) young investors. B) middle-aged investors. C) retired investors. D) high income investors.
C
The Sarbanes-Oxley Act of 2002 focuses on A) insider trading. B) IPOs. C) accounting and other public disclosures of information. D) regulation of the OTC markets.
C
The Value Line Investment Survey includes which of the following reports? I. Selection and Opinion II. The Outlook III. Ratings and Reports IV. Summary and Index A) I and II only B) I, II and IV only C) I, III and IV only D) II, III and IV only
C
The document that describes the issuer of a security's management and financial position is known as a A) balance sheet. B) 10-K report. C) prospectus. D) red herring.
C
The governmental agency that oversees the capital markets is the A) Federal Trade Commission. B) Federal Reserve. C) Securities and Exchange Commission. D) Fair Trade and Banking Agency.
C
The major options exchanges such as the Chicago Board Options Exchange deal A) securities based options and custom options. B) options, futures contracts and exchange traded funds. C) exclusively in options based on listed securities. D) only in options based on listed securities and commodity futures.
C
The primary market for futures is the A) Kansas City Board of Trade. B) New York Mercantile Exchange. C) Chicago Board of Trade. D) Chicago Board Options Exchange.
C
The published analysis and recommendations of an individual brokerage firm is called a A) prospectus. B) comparative data source. C) back-office research report. D) broker's subscription report.
C
The value of a Standard & Poor's Index is computed by A) dividing the sum of the closing share prices by an adjusted divisor. B) dividing the sum of the closing share prices by a divisor and then multiplying the quotient by 100. C) 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. D) dividing the sum of the current market value of all the stocks in the index by 1 million.
C
Under current tax law, dividend income is taxed at the same rate as A) ordinary income. B) short-term capital gains. C) long-term capital gains. D) interest income.
C
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
Which of the following are advantages of investment clubs? I. Small investors can pool their money to build a portfolio. II. Members can share research responsibilities. III. Individual members may have different goals and tolerance levels for risk. IV. Investment clubs typically buy stocks for the long term rather than short term profits. A) I and III only. B) III and IV only. C) I, II and IV only D) I, II, III and IV
C
Which of the following are correct statements concerning the NYSE? I. Each stock has a designated location, called a post, at which its shares are traded. II. The NYSE is a dealer market. III. Supply and demand determines the price of each security. IV. A specialist buys and sells to maintain a market for a particular security. A) I and II only B) I and III only C) I, III and IV only D) I, II, III and IV
C
Which of the following are true concerning the NYSE Amex: I. Many exchange traded funds are listed there. II. Its listing requirements are stricter than the New York Stock Exchange. III. It is a major market for exchange traded funds. IV. It is a broker rather than a dealer exchange. A) I and II only. B) I and IV only. C) I, III and IV only. D) I, II, III and IV.
C
Which of the following designations does NOT have formal education and testing requirements? A) Chartered Financial Analyst B) Certified Financial Planner C) Registered Investment Adviser D) Certified Public Accountant
C
Which of the following is an example of a tangible asset. A) Bonds B) mutual funds C) real estate D) stocks
C
Which of the following statements about short selling is (are) true? I. Short selling requires an initial margin deposit. II. Short sellers begin a transaction with a sale and end it with a purchase. III. Short sellers profit when the stock prices rises. IV. Short selling can be a risky strategy. A) IV only B) I and II only C) I, II and IV only D) I, II, III and IV
C
Which one of the following indexes is the most comprehensive measure of financial market performance? A) NYSE composite B) DJIA C) Wilshire 5000 D) Value Line composite
C
Which one of the following is NOT published by the U.S. Government? A) Federal Reserve Bulletin B) Survey of Current Business C) Kiplinger Washington Letter D) Economic Report of the President
C
Which one of the following statements about limit orders is correct? A) The execution of the trade will occur prior to the close of trading on the day the trade is placed. B) The execution will occur at the regular open on the day following the day the trade is placed. C) The trade may be executed only at the limit price or better at any time prior to expiration or cancellation of the order. D) The trade will be executed at the market price at the end of the third business day, if not executed previously at the limit price.
C
Which one of the following statements concerning the primary market is correct? A) A transaction in the primary market is between two private stockholders. B) The first public sale of a company's stock in the primary market is called a seasoned new issue. C) The first public sale of a company's stock is called an IPO. D) A rights offering is a direct sale of stock to an institution that participates in the primary market.
C
Which one of the following statements is correct about a good-'til-cancelled order? A) The order generally expires after six weeks. B) The order will automatically renew unless cancelled by the customer. C) The order helps customers obtain a specific price without watching the market continuously. D) The order will be cancelled at the end of the trading day if not executed.
C
Which one of the following would be the most liquid investment? A) stock B) Series EE bond C) money market mutual fund D) real estate
C
A forum in which suppliers and demanders of funds make financial transactions is called a financial A) institution. B) bank. C) instrument. D) market.
D
American investors can participate in international stock markets by A) purchasing shares in a mutual fund that invests in foreign companies. B) purchasing shares of a U.S. based company such as Coca Cola or McDonald's with extensive international operations. C) purchasing ADSs (American Depositary shares). D) all of the above.
D
An odd-lot trade involves a trade A) of only 100 shares. B) that is generally priced at a discount to the market price. C) of 100,000 shares or more. D) consisting of any number of shares that is not a multiple of 100.
D
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's stock was sold for $28 a share. B) Angela's stock was sold for $24 a share. C) Angela's stock was sold at a price between $19 and $24 a share. D) Angela still owns her 100 shares of stock.
D
Assume the foreign exchange rate for the euro was U.S. $1.00 = .70 euro last month. This month, the exchange rate is U.S. $1.00 = .72 euro. This information indicates that over the past month the A) U.S. dollar remained unchanged relative to the euro. B) U.S. dollar appreciated relative to all foreign currencies. C) euro appreciated relative to the dollar. D) euro depreciated relative to the dollar.
D
Assume you wanted to find yesterday's closing stock price for the XYZ Corporation. You would be most likely to find this information in A) Kiplinger's Personal Finance Magazine. B) The Investor's Resource Manual. C) The Granville Market Letter. D) The Wall Street Journal.
D
Bond yields are A) quoted as the average monthly rate of return and assume the bond is purchased today at the quoted price and held for twelve months. B) quoted as annual rates of return and assume the bond is purchased today at the stated price and sold one year from today. C) stated as a percentage of the maturity value and assume the bond is held to maturity. D) stated as an annual rate of return and assume the bond is purchased today and held until maturity.
D
Debt represents funds loaned in exchange for A) dividend income and the repayment of the loan principal. B) dividend income and an ownership interest in the firm. C) interest income and a partial ownership interest in the firm. D) interest income and the repayment of the loan principal.
D
In recent years, trading in secondary markets has increasingly become a function of A) securities exchanges. B) dealer markets. C) technology that by-passes both brokers and dealers. D) broker-dealer markets using consolidated venues and technologies.
D
In selecting investments consistent with your goals, you should consider A) rates of return and taxes only. B) the pre-tax rate of return only. C) annual dividends and taxes only. D) risks, returns, and taxes.
D
In which of the following cases might an investor receive help from The Securities Investor Protection Corporation? A) The investor purchased a stock at $40 per share because his broker recommended it. Over the next six months, it fell to $20 per share. B) The investor purchases stock in a company that shortly later was forced into bankruptcy because of accounting fraud. C) The investor holds $100,000 worth of stock in certificate form. The certificates are destroyed in a fire. D) A broker took money sent by investors to cover stock purchases, but never invested it and sent falsified statements to cover the fraud.
D
Individuals can now use the Internet to buy and sell I. stocks. II. bonds. III. mutual funds. IV. stock options. A) I and IV only B) II and III only C) I, II and III only D) I, II, III and IV
D
Individuals can use the Internet to I. analyze individual securities. II. search for stocks that meet specific investment criteria. III. organize their financial information. IV. track the performance of their portfolio. A) I and IV only B) II and III only C) I, III and IV only D) I, II, III and IV
D
Investors seeking a diversified, professionally managed portfolio of securities can purchase shares of A) preferred stock. B) convertible securities. C) insurance policies. D) mutual funds.
D
Jobs in which of the following fields require an understanding of the investment environment? I. commercial banking II. corporate finance III. financial planning IV. insurance A) I and IV only B) I, II and IV only C) II, III and IV only D) I, II, III and IV
D
Justin just made a margin purchase of 100 shares of DEF Corp. for $22.50 per share. The initial margin is 70%. The maintenance margin is 30%. How low can the price of each share of DEF be before Justin will have to add equity to his account? A) $4.73 B) $5.25 C) $6.75 D) $9.64
D
Last week, Seward Company stock was selling at $66 a share when Ryan sold 300 shares of the stock short. Today Ryan bought 300 shares of the same stock at a price of $70.00 share to cover his position. Ignoring trading costs, what is the dollar return on Ryan's investment? A) $1,200 B) -$400 C) $400 D) $-1,200
D
Market orders are usually executed A) only after all limit orders have been executed. B) at the average price during the previous trading session. C) at the closing price for the day's trading. D) before the price can change significantly if the order is placed while the markets are in session.
D
Most brokerage firms will invest surplus cash, dividends and interest received, proceeds from the sale of stock and the like in A) additional securities of the same type. B) certificates of deposit. C) a non-interest bearing account. D) a money market mutual fund.
D
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 cancelled on May 15 because it had not been executed within the allowable two-month time period. B) The order was executed on March 15 at $10.50 a share since that was the best available price of the day. C) The order was executed on June 7 at a price of $10.00 a share. D) The order was executed on June 7 at a price of $8.00 a share.
D
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 Roy's order? A) The trade will not be executed and will be immediately cancelled. B) The specialist will record the order in the order book and execute the trade as soon as the price hits $18.00. C) The brokerage firm will sell the 300 shares at $18.20 and keep the additional $0.20 as a commission. D) The order will be executed at $18.20 with the proceeds credited to Roy's account.
D
Stocks and bonds are traded in A) securities and exchange commissions. B) money markets. C) federal trade commissions. D) capital markets.
D
The Internet provides I. educational sites for financial investing. II. the ability to trade securities on-line. III. current information on stocks and bonds. IV. analysts reports on individual stocks. A) II and III only B) III and IV only C) I, II and III only D) I, II, III and IV
D
The NYSE has listing requirements that include a minimum I. number of outstanding shares. II. amount of pre-tax earnings. III. market value of publicly held shares. IV. number of shareholders owning 100 shares or more. A) I and IV only B) I, II and III only C) II, III and IV only D) I, II, III and IV
D
The Securities Exchange Act of 1934 A) requires full disclosure of information on all new security issues. B) authorized the SEC to regulate mutual funds. C) established trade associations such as the NASD. D) created the SEC as the regulator of the securities exchanges.
D
The automated system for trading highly active OTC securities is the A) Big Board. B) Kansas City Board. C) Chicago Board of Trade. D) NASDAQ.
D
The documents signed when a customer opens a brokerage account A) serve as an informal relationship between the customer and the stockbroker. B) limit the customer to dealing only through that brokerage firm. C) may be signed by a minor child provided that the money being invested belongs to the child. D) establish a legal relationship between the customer and the brokerage firm.
D
The financial crisis of 2008 resulted in a sharp reduction in the number of initial public offerings because A) investors lacked confidence in future market conditions. B) the crisis led to new regulations which were not yet fully understood. C) investors were wary of new companies with no sustained record of profitability. D) all of the above.
D
The government is generally A) not involved in the financial markets. B) the owner of the financial market. C) a supplier of funds to the financial market. D) a demander of funds in the financial market.
D
Which is the correct order of events when an individual buys a stock through a brokerage firm? I. The order is transmitted to the main office of the brokerage firm. II. The customer places the order with their local stockbroker. III. The confirmation of the order is sent to the broker placing the order. IV. The order is sent to the floor of the exchange. A) I, II, III, IV B) II, I, III, IV C) II, IV, I, III D) II, I, IV, III
D
Which of the following are associated with bull markets? I. investor pessimism II. government stimulus III. economic recovery IV. low inflation A) I and II only B) II and III only C) I, II and III only D) II, III and IV only
D
Which of the following are functions of the secondary market? I. Provide liquidity for current stockholders. II. Equate the demand and supply of securities. III. Provide a market for the dale of new stock by companies that are already public. IV. Provide continuous pricing of securities. A) I and II only B) II and IV only C) I and III only D) I, II and IV only
D
Which of the following are provisions of the Sarbanes-Oxley Act of 2002? I. an oversight board to monitor the accounting industry II. tougher penalties for executives who commit corporate fraud III. stricter prohibitions against insider trading IV. guidelines for analysts conflicts of interest A) II and IV only B) I, II and III only C) I and IV only D) I, II and IV only
D
Which of the following are traded in the securities market? A) stocks B) bonds C) derivatives D) all of the above
D
Which of the following can be encountered when investing in foreign markets? I. foreign taxation of dividends II. different accounting standards for financial disclosure III. restrictions on types of investments IV. illiquid markets A) II and III only B) II and IV only C) I, II and IV only D) I, II, III and IV
D
Which of the following characteristics apply to trading before and after regular hours? I. Stock prices can vary from one ECN to another ECN. II. Most brokerage firms require individual investors to place only market orders for after-hours trades. III. The NYSE offers after-hours trading at that day's closing prices. IV. After-hours markets tend to be more volatile and less liquid than the regular trading sessions. A) II and IV only B) I, II and III only C) I and IV only D) I, III and IV only
D
Which of the following has set an outstanding example of ethical behavior in the financial professions? A) Bernard Madoff of Madoff Securities B) former U.S. senator and governor of New Jersey John Corzine of MF Global C) Ramalinga Rau of Satyam Computers D) none of the above
D
Which of the following indexes would best reflect the performance of a large, diversified portfolio with equal amounts of money invested in each company. A) the S&P 500 Index B) the Russell 3000 C) the NASDAQ 100 D) the Value Line Composite Index
D
Which of the following investments represents partial ownership of a corporation? A) bonds B) mutual funds C) commercial paper D) common stock
D
Which of the following represent investment goals? I. saving for major expenditures such as a house or education II. sheltering income from taxes III. increasing current income IV. saving funds for retirement A) I and IV only B) I, III and IV only C) III and IV only D) I,,II, III and IV
D
Which of the following types of information will NOT be found in major urban newspapers? A) price quotations for stocks of local interest B) stories concerning local business leaders C) interest rates offered by local and national banks D) real time price quotes for widely held stocks and exchange traded funds
D
Which one of the following has the lowest level of risk? A) commercial paper B) money market mutual fund account C) banker's acceptance D) U.S. Treasury bill
D
Which one of the following statements about back-office research reports is FALSE? A) They frequently include buy or sell recommendations. B) They include analyses of current and future prospects for the securities markets. C) They look at specific companies as well as industries. D) They are only available to high-profile clients who maintain large accounts with the brokerage firm.
D
Which one of the following statements about the NYSE is correct? A) Each member of the exchange owns a trading post. B) Any listed stock may be traded at any of 20 trading posts. C) Brokerage firms are only permitted to have one individual trading on the floor of the exchange. D) Buy orders are filled at the lowest price and sell orders are filled at the highest price.
D
Which one of the following statements concerning stock trades is correct? A) Brokerage firms send customer orders to a market maker on the floor of the NYSE. B) Confirmation of a trade is transmitted directly from the NYSE to the customer who placed the order. C) A broker transmits OTC orders from a customer directly to a floor broker in the OTC market. D) Brokerage firms generally hold securities in street name so they can be transferred without the customer's signature.
D
Which one of the following web sites does NOT offer bond ratings? A) Standard & Poor's B) Fitch C) Mergent's Manuals D) Financial Times
D
A brokerage firm may set a lower margin requirement than that set by the Federal Reserve Board.
F
A limit order is an order to sell at the limit price or less
F
A market maker brings together buyers and sellers in an auction market.
F
A non-interest bearing checking account is still considered an investment.
F
A person can become a Certified Financial Planner merely by filling out an application and paying an annual fee.
F
After hours markets tend to be less volatile and more liquid than the regular trading sessions.
F
An investor who mistakenly buys the wrong stock because the symbols are similar has 24 hours to undo the trade.
F
An option to purchase common stock is a type of equity security.
F
Bond interest and stock dividends are different ways of distributing a corporation's earnings to its owners.
F
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.
F
Brokerage firms are not allowed to make specific buy or sell recommendations to their clients.
F
Capital markets deal exclusively in stock. Money markets deal exclusively in debt instruments.
F
Chartered Financial Analyst (CFA) is a degree offered by several prestigious business schools.
F
Chemical Week and the Oil and Gas Journal are considered to be general business periodicals.
F
Commercial bankers work with corporate and institutional clients, but not with individuals.
F
Descriptive information might include estimates of future demand for a company's products and future stock prices.
F
Earning a high rate of return with little or no risk is a realistic investment goal.
F
Earnings on securities held in street name by the brokerage are not reported to the Internal Revenue Service.
F
Federal laws that control the sale of securities are called blue sky laws.
F
Federal securities laws are designed to protect financial institutions.
F
For most stocks, charts and tables of historical prices are only available through subscription services.
F
IPOs are relatively safe investments.
F
In addition to the Dow Jones Industrial Average, there are Dow Jones Averages for transportation and bond prices.
F
In the financial markets, individuals are net demanders of funds.
F
Institutional investors are individuals who invest indirectly through financial institutions.
F
Institutional investors manage money for businesses and nonprofit organizations, but not for individuals.
F
Investment advisors are legally responsible for losses incurred by their clients.
F
It can be argued that an IPO was overpriced when the IPO produces extraordinarily high rates of return on its first day of trading.
F
Margin trading requires the borrowing of securities.
F
Money market accounts, certificates of deposit, bonds and commercial paper are all forms of short-term investment vehicles.
F
Most brokers charge higher commissions for on-line trades than for telephone transactions.
F
Most commodity futures are traded on the NYSE Amex.
F
Mutual funds are traded on exchanges and priced continuously throughout the trading day.
F
Only U.S. corporations can list their stocks on the NYSE.
F
Participation in foreign stock markets is complicated and expensive for American investors.
F
Primary markets deal in the stocks of larger, well-known companies; secondary markets deal in the stocks of smaller, less well-known companies.
F
Regulation FD requires that brokerage firms share buy and sell recommendations with all clients simultaneously.
F
SEC regulations strictly prohibit trading outside the normal hours of 9:30 A.m. to 4:00 P.M. EST.
F
Short selling involves the sale of depreciated stock at a price below the amount borrowed on margin.
F
Short-term investments generally provide liquidity, safety, and a high rate of return.
F
Small investors normally have a negotiated commission schedule while large investors benefit from a fixed-commission schedule.
F
Stocks of many large foreign companies such as trade on the NYSE as well as on exchanges in their own country.
F
Stop orders are used only when selling a stock.
F
Stringent regulations and vigorous enforcement have all but eliminated unethical behavior by financial professionals in recent years.
F
The NYSE and AMEX are examples of dealer markets.
F
The Securities Investors Protection Corporation protects investors from brokers who offer incompetent advice.
F
The U.S. stock markets tend to produce the highest rate of return each year.
F
The Value Line Index is a value weighted index based on a small sample of the 1700 stocks covered by the Value Line investment reports.
F
The linking of global markets has progressed to the point where electronic order matching for stocks of large international companies is now possible 24 hours a day.
F
The percentage of common stock owned directly by U.S. households has dramatically increased since 1945.
F
The price of stock sold in an IPO is set by bids submitted in the month before trading begins.
F
The tools and calculators available on the FINRA website are useful, but quite expensive to use.
F
Traders who hold stocks for less than a full day can reduce the tax burden on their profits.
F
Trading stocks is much faster and less complicated if an individual investor has possession of the actual stock certificates.
F
Under current tax laws, most taxpayers will pay a lower tax rate on capital gains than on dividends.
F
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
A United States Savings Bond is an example of an investment as defined in the text.
T
A brokerage firm may set a higher margin requirement than that set by the Federal Reserve Board.
T
A collection of securities designed to meet an investment goal is called a portfolio.
T
A limit order is an order to buy at the limit price or less.
T
A major goal of corporate financial management is to increase the value of the firm to investors.
T
A stop-loss order is activated once the stock reaches the specified price.
T
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
An index measures the current value of a group of stocks in relation to a base value established previously.
T
Analytical information would include such information as estimates of growth in sales and future earnings.
T
Banks and insurance companies are examples of institutional investors.
T
Bond investors lend their money for a fixed period of time and receive interest.
T
Bond prices rise as interest rates decline.
T
Bonds represent a lower level of risk than do stocks in the same company.
T
Chartered Financial Analysts and Certified Financial Planners must pass a rigorous series of exams, as well as meet educational and experience requirements.
T
Commission structures vary with the type of security being traded, the type of broker involved and the size of the order.
T
Current price information on shares of a company's stock is often accompanied by statistics on the recent price behavior of that stock.
T
Descriptive information might include the company's lines of business, a list of major competitors, and recent changes in management.
T
Diversification is the inclusion of a number of different investments in a portfolio with the goal of increasing returns or reducing risk
T
Exchange traded funds (ETFs) perform like a broad market index but trade are bought and sold like individual stocks.
T
Exchange traded funds similar to mutual funds, but are traded like stocks.
T
Firms that list their stock on an exchange can be delisted for failing to meet the requirements of the exchange.
T
If the market moves rapidly, an on-line trader may experience difficulty placing a trade.
T
If the value of a common stock increases the value of an option to buy that stock should also increase.
T
Insider trading is the use of nonpublic information about a security to gain a profit.
T
Insurance companies invest the premiums and fees collected from customers in order to neutralize the risks assumed from their clients.
T
Investing online is usually less expensive than traditional methods.
T
Investment clubs are legal partnerships.
T
Investment clubs are prohibited from opening accounts for on-line trading.
T
Investors are protected from market losses by the SIPC insurance offered by some full-service brokers.
T
Investors can postpone or avoid income taxes by investing through Individual Retirement Accounts.
T
Investors can usually find the financial statements of a firm on the firm's website.
T
Investors who are aware of current economic, political, and market events tend to make better investment decisions.
T
It is generally a good idea to use limit orders when trading after hours.
T
Land and buildings are examples of real property investments.
T
Liquidity is the ability to convert an investment into cash quickly with little or no loss of value.
T
Losses on a stock purchase are limited to the price of the stock, but losses on a short sale are potentially unlimited.
T
Many brokerage firms require that disputes between individual investors and brokers be settled through arbitration.
T
Many day traders are also margin traders.
T
Margin trading will magnify losses on a percentage basis.
T
More than half the volume on the NYSE Amex results from trading in exchange traded funds and options.
T
Mutual funds invest in diversified portfolios of securities.
T
On-line trading has greatly lowered greatly lowered the cost of buying and selling stock as well as greatly increasing the speed of transactions.
T
Placing your trades with a discount broker can save you as much as 80% of the commission charged by a full-service broker.
T
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
Reviewing industry and company information may provide guidance on the future outlook of a particular firm.
T
Securities that trade in the over-the-counter market are called unlisted securities.
T
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
Short selling requires the borrowing of securities.
T
Short-term capital gains are taxed at the taxpayer's marginal tax rate.
T
Standard & Poor's and Mergent both publish extensive data on bonds.
T
Stocks held in street name can be quickly sold online or by telephone.
T
Stocks, bonds and mutual fund shares are bought and sold in the capital market.
T
The Sarbanes-Oxley Act of 2002 strengthens accounting disclosure requirements and ethical guidelines for financial officers.
T
The Securities Act of 1933 deals mostly with primary markets.
T
The basic function of stockbrokers is to execute client orders at the best possible price.
T
The financial markets are becoming more globally integrated.
T
The income paid to a market maker is referred to as the spread.
T
The majority of bonds trade in the OTC market.
T
The preliminary version of a prospectus is called a red herring.
T
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
To qualify for long-term capital gains rates, a stock must be held for at least 12 months.
T
U. S. Treasury Bills mature in 1 year or less.
T
Under current tax laws, most taxpayers will pay a lower tax rate on capital gains than on income from wages.
T
Underwriters are responsible for promoting and facilitating the sale of securities.
T
When a person sells a common stock short, she or he is betting that the price of the stock will fall.
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When placing an order on-line, an individual investor should always double check the ticker symbol prior to submitting the order.
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You can utilize the Internet to develop financial plans and goals, analyze and select individual investments and organize your portfolio.
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You should spend money on housing, clothing and basic insurance before investing.
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