sample questions ch.15 ( 9-2)

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A PE of 10 means that the firm's stock price is ten times the firm's A) earnings per share. B) book value. C) net income. D) dividends.

A

The stock exchange that is the largest in terms of dollar volume is the A) NYSE. B) NYSE MKT LLC. C) NASDAQ. D) Securities and Exchange Commission (SEC).

A

Unlike discount brokers, full-service brokers A) give stock advice to their clients. B) execute stock trades quickly. C) charge competitive rates. D) seldom meet with clients.

A

When economic conditions are weak, the aggregate demand for products and services A) declines. B) increases. C) remains the same. D) may either decline or increase.

A

A round lot of stock is ________ shares. A) 10 B) 100 C) $100 worth of D) $1,000 worth of

B

If you are a day trader you would probably utilize a(n) A) discount brokerage firm. B) full-service brokerage firm. C) online brokerage service. D) commercial bank trust department

C

Economic growth, as measured by increases in the gross domestic product (GDP) signals the start of a bull market where stock prices are bound to rise.

FALSE

Interest rates can affect economic growth and therefore have a direct impact on stock prices.

FALSE

The income statement for a company is like a budget in that it shows how much money the company would like to have made in a given accounting period

FALSE

A discount brokerage firm executes transactions and provides investment advice at a price less than that of full-service brokers.

FALSE

Limit orders can only be placed for a short period of time, usually a week or less.

FALSE

Some traders, called specialists, help to make a market in stocks by taking the same position as those who want to buy or sell the stock.

FALSE

Stocks are usually bought or sold in round lots, which are multiples of $100.

FALSE

The NYSE MKT LLC (formerly called the American Stock Exchange) is the largest of the physical stock exchanges.

FALSE

The daily stock quotations found in financial newspapers will not tell you the annual dividends paid per share of stock

FALSE

The most up-to-date quotes of stock prices may be found in The Wall Street Journal.

FALSE

You can currently borrow up to 75% of stock transactions under today's margin rules.

FALSE

A margin call is a request from a brokerage firm for the investor to increase the cash in the account in order to bring the margin back up to the minimum level

TRUE

A market order is normally executed much more quickly than a limit order

TRUE

A stop order is a special form of limit order; it is an order to execute a transaction when the stock price reaches a specified level.

TRUE

An odd lot is the purchase of less than 100 shares of stock.

TRUE

Before buying a stock, you should estimate its future market value, just as you would the future value of a car or a home.

TRUE

Fiscal policy, the means by which the U.S. government imposes taxes on individuals and corporations and spends its money, has an impact on spending and thus an impact on the stock of some companies.

TRUE

Floor traders on the NYSE are willing to trade stocks for others and earn a commission for doing so.

TRUE

If you don't need advice or other services offered, you are better off using a discount broker or Internet broker rather than a full-service broker.

TRUE

In getting recommendations from brokers and analysts, you need to be careful that frequent suggestions to buy or sell are not being made in order to generate revenues for these traders

TRUE

Low interest rates tend to entice investors into the stock market where they can achieve better returns

TRUE

NASDAQ has less stringent trading requirements than the organized exchanges and tends to attract newer, high-tech companies.

TRUE

Online trading of stocks is not only less expensive than using traditional brokers, but is usually more convenient too.

TRUE

Technical analysis and fundamental analysis are methods commonly used by investors to value stocks.

TRUE

The daily stock quotations found in financial newspapers will tell you the closing price per share of stock for the previous day's trading, the range of prices the stock traded at the previous day, and a range of trading prices for the last year

TRUE

The two parts of a company's balance sheet: (1) assets and (2) liabilities and shareholder's equity, must be equal or in balance.

TRUE

With an online brokerage firm, you have all of the following except A) money market fund for uninvested cash. B) a personal sales representative to answer your questions. C) quick and convenient trades. D) very low cost trades

B

You bought IBM stock at $70 per share. It is now $120 a share. You think it could go higher but you are nervous that it could go down and you would lose your gains. To protect your gains but still give yourself the chance to make future profits you could place a A) market order. B) sell stop order at $100 a share. C) buy stop order at $100 a share. D) sell stop order at $150 a share.

B

When you buy a stock on margin, your gain is magnified if the stock goes up in value.

TRUE

A measure of inflation that represents prices of various products, such as groceries, household products, housing, and gasoline is the ________ index. A) consumer price B) cost of living C) inflationary D) household

A

All of the following are true about a "stop sell" limit order, except A) your stock will be sold at the exact price indicated on the stop sell order. B) your stock will be sold at the first available trade once the stop sell limit price is reached. C) stop sell orders are a good way to reduce downside risk of a stock. D) a stop sell limit order can be issued for the trading day or as a good until canceled order

A

Companies A and B are both in the same industry and generally compete against each other in the marketplace. Stock A has a P/E ratio of 15 while Stock B's P/E is 21. Which of the following is not true about the relative positioning of Stock A and Stock B? A) Stock B has lower perceived risk. B) Investor's are willing to pay a higher price for shares in Company B. C) Company A business performance is probably not as strong as Company B performance. D) All of the statements are correct.

A

Generally, stocks perform better when interest rates are A) low. B) high. C) average. D) Stocks are unaffected by interest rates

A

The CPI is used as part of the ________ analysis. A) economic B) industry C) firm D) government

A

When you place an order to buy or sell stock, you must specify all of the following except A) the commission you are willing to pay. B) whether the order is a market order or a limit order. C) the ticker symbol. D) whether you are buying or selling.

A

Which of the following actions of the U.S. government could not be considered part of fiscal policy? A) Federal Reserve actions to adjust interest rates B) Raising the capital gains tax rate C) Construction of a new dam D) Providing job training for the unemployed

A

A ________ is an order for a brokerage firm to buy a stock when the price rises to a specified level. A) stop order B) buy stop order C) sell stop order D) go order

B

A ________ symbol is used to identify a stock for trading purposes. A) company B) ticker C) graphic D) numeric

B

A stock that you purchased at a price of $22 per share has risen to $46 per share. You wish to avoid losing all of your your profit while still allowing an opportunity for additional gains; therefore, you should put in a sell stop order at a price of A) $22 per share. B) $40 per share. C) $47 per share. D) $53 per share.

B

An increased demand for stock ________ the price. A) has no effect on B) increases C) decreases D) stabilizes

B

Assets and liabilities on the balance sheet are classified as A) personal and business. B) short-term and long-term. C) fundamental and discretionary. D) secure and insecure.

B

From an investing standpoint, stage in life has a lot to do with willingness to bear the risk of various investments. Generally, as an investor moves from wealth accumulation years to wealth preservation years, their portfolio should rotate from a higher risk ________ to a more moderate risk ________ to a lower risk ________. A) fixed income fund; bank cd; blue chip stock portfolio B) equity portfolio; balanced portfolio; conservative portfolio C) commodities portfolio; equity portfolio; mostly equity; some debt portfolio D) None of the above are satisfactory

B

If a stock is near it's 52 week low, that means the stock A) is trading at its lowest volume for past year. B) has a stock price that is near the lowest for the past year. C) is reflecting very low sales for the company that issued the stock. D) is a high risk investment.

B

If you want recommendations you can A) trade with an online broker. B) open an account at a full-service brokerage firm. C) visit the SEC Web site. D) contact a discount broker.

B

Most newly public companies list their IPO shares on the A) NYSE MKT LLC. B) NASDAQ. C) NYSE. D) Over the Counter market.

B

People who execute stock trades for others at the NYSE are called A) day traders. B) floor traders. C) stock traders. D) commission traders.

B

The means by which the U.S. government imposes taxes on individuals and corporations and by which it spends its money is called ________ policy. A) taxing B) fiscal C) financial D) spending

B

The valuation of stocks based on an examination of revenues or earnings is called A) technical analysis. B) fundamental analysis. C) fiscal analysis. D) financial analysis.

B

When aggregate demand by consumers ________, firms produce ________ products to accommodate the demand. A) rises; less B) rises; more C) declines; more D) all of the above.

B

When corporate taxes rates are ________, the after-tax earnings of corporations are ________, which means ________ money for shareholders. A) increased; decreased; more B) decreased; increased; more C) increased; increased; more D) decreased; decreased; less

B

Which of the following is not a good source of current stock quotations? A) Newspapers, such as The Wall Street Journal B) Magazines that focus on success stories of new businesses C) Financial news television networks, such as CNBC D) Web sites such as Yahoo Finance or Bloomberg

B

) Fundamental analysis is based on all of the following except A) the firm's revenue. B) the firm's earnings. C) the firm's stock price over the last year. D) the firm's sensitivity to economic conditions.

C

A ________ executes trades to fulfill orders placed by other investors. A) day trader B) stock trader C) floor trader D) specialist

C

A ________ is an order for a brokerage firm to sell a stock when the price falls to a specified level. A) stop order B) buy stop order C) sell stop order D) go order

C

A ________ order is an order to execute a transaction to buy or sell a stock at its prevailing price. A) limit B) stock C) market D) written

C

All of the following are odd lots except A) 99 shares. B) 189 shares. C) 200 shares. D) 970 shares

C

Computer systems that match up purchases and sales of stocks even at night when the other exchanges are closed are A) the NASDAQ. B) the over-the-counter (OTC) markets. C) electronic communication networks. D) the regional stock exchanges.

C

Long established, "blue chip" companies list their shares on the A) NYSE MKT LLC. B) Over the Counter market. C) NYSE. D) NASDAQ.

C

One of the most commonly used measures of inflation is the A) gross domestic product. B) fiscal policy. C) consumer price index. D) inflation factor.

C

One way for an investor to protect themselves when selling a stock short is to A) not make the sale on margin. B) buy an offsetting amount of the same shares coincident with the short sale to perfectly hedge the transaction. C) issue a stop buy limit order at a price somewhere above the short sale price. D) An investor cannot protect against large losses in a short sale transaction

C

Some investors use ________ as a simple measure of the firm's risk. A) a stock's dividend yield B) a stock's trading volume C) a stock's price range D) a stock's closing price

C

Some stockbrokers or analysts encourage frequent buying and selling of your securities which may cause you to A) increase your profit margin. B) pay less commissions. C) incur additional tax liabilities. D) reduce your risk of loss.

C

The ________ is/are not a physical location, but rather an electronic communications network to buy and sell stocks. A) NYSE B) NYSE MKT LLC C) NASDAQ D) Securities and Exchange Commission (SEC)

C

The demand for which of the following will decrease the most with a weak economy? A) Cereal B) Bread C) Boats D) Paper towels

C

The stock exchange with the most stringent listing requirements is the A) NASDAQ. B) NYSE MKT LLC. C) NYSE. D) Securities and Exchange Commission (SEC).

C

The yield represents which of the following? A) Earnings per share B) Dividend payment C) Annual return from dividends D) Market price

C

A ________ trader helps create a market in one or more stocks by taking an opposite position to the orders placed by clients. A) day B) stock C) floor D) specialist

D

A stock dividend is distributed to the company's A) individual creditors. B) bank lenders. C) suppliers. D) stockholders.

D

All of the following online publications provide information about inflation except A) Bloomberg. B) Yahoo. C) Federal Reserve. D) Consumer Reports.

D

Fees charged by brokerage firms A) are set by the NYSE. B) are set by the Federal Reserve. C) are set by the National Association of Securities Dealers. D) vary according to the services offered.

D

In the early 1980's President Reagan and Congress made sweeping changes to the income tax system, lowering both individual and corporate income tax rates significantly. These changes were an example of A) monetary policy. B) tax policy. C) fiscal policy. D) both tax and fiscal policy.

D

To start an online brokerage account, you need to do all of the following except A) follow instructions to set up an account. B) mail or deposit cash in an account. C) go to the Web site. D) deposit a minimum number of shares already owned.

D

Which of the following is not a reason some investors never purchase stock? A) They are afraid of the risk. B) They lack the knowledge. C) They like safe investments such as CDs. D) They don't want to make better returns

D

A ________ order is an order to execute a transaction to buy or sell a stock only if the price is within the range specified. A) limit B) stock C) market D) written

A

If a firm performs strongly over a period of time the impact on its stock price is A) positive. B) inversely related. C) uncertain. D) unrelated

A

In a corporate income statement, cost of goods sold is subtracted from A) revenue. B) operating expenses. C) earnings before interest and taxes. D) taxes.

A

In the U.S., IPO shares are generally listed on the ________ because the listing requirements are ________. A) NASDAQ; less stringent B) NYSE MKT LLC; less stringent C) NYSE; more stringent D) Amex; flexible

A

On the over-the-counter market trades are executed by A) market makers. B) day traders. C) floor traders. D) specialists.

A

Stocks that are subject to more uncertainty tend to have a A) wider range in prices over time. B) narrower range in prices over time. C) higher closing price. D) higher annual dividend

A

Stocks would be most favorably affected by A) a decline in interest rates and a decline in inflation. B) an increase in interest rates and a decline in inflation. C) a decline in interest rates and an increase in inflation. D) an increase in interest rates and an increase in inflation.

A

The ________ shows the firm's operating results over a period of time. A) income statement B) statement of cash flows C) balance sheet D) statement of retained earnings

A

A company's annual report usually includes all of the following but A) an auditor's report. B) testimonials from employees. C) a letter from the CEO. D) management discussion and analysis

B

NASDAQ is a key part of the ________ where dealers conduct stock trades over a computer network. A) Intercontinental Exchange B) over-the-counter (OTC) market C) NYSE MKT LLC D) mortgage market

B

The Federal Reserve currently limits the margin rate, the amount that can be borrowed from the brokerage firm to A) 40%. B) 50%. C) 60%. D) 75%.

B

The ________ is a measure of inflation that represents prices of products such as coal, lumber, and metals that are used to produce other products. A) CPI B) PPI C) inflation index D) cost of living index

B

The best time to sell stock is when you A) need the money. B) think the stock price has peaked. C) want to purchase another stock. D) have achieved 25% return.

B

Which of the following is the most risky? A) Buying stocks online B) Buying on margin C) Buying from a broker D) Buying a bond

B


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