CH 11 pretest

The Dow Jones Industrial Average Consists of A. 500 different stocks that change annually B. 30 stocks that are considered representative of the market as a whole C. the top-selling 250 stocks over a 10 year period D. 60 stocks selected from the NYSE, the NASDAQ-AMEX, and the OTC market

B. 30 stocks that are considered representative of the market as a whole

An example of equity is A. A treasury box B. A share of stock C. A treasury bill D. A long-term certificate of deposit

B. A share of stock

All of the following are examples of financial intermediaries EXCEPT A. A credit union B. A stock certificate C. A finance company D. A life insurance company

B. A stock certificate

Why would a person invest in junk bonds A. he does not know anything about investment B. Junk bonds can pay very high interest rates C. Most junk bonds have low interest rates D. Junk bonds have high bond rating

B. Junk bonds can pay very high interest rates

You realize that many students who come early in the morning hockey practice.... You borrow $500 from your parents to start a bagel delivery service to the hockey rink in the early mornings. You are acting as A. a supplier in the capital market B. an entrepreneur C. a financial capital investor D. an intermediary

B. an entrepreneur

All of the following are basic components of bonds EXCEPT A. maturity B. liquidity C. par value D. coupon rate

B. liquidity

Karen wants to buy stock, but is worried about the current "bear market". This means that A. profits from stock are rising, making it a good time to buy B. many investors are selling their stock in anticipation of lower profits C. profits from stocks are falling, making it a good time to buy D. many investors are buying stocks in anticipation of higher profits

B. many investors are selling their stock in anticipation of lower profits

You do not have to pay state taxes on interest earned on A. corporate bonds B. treasury bills C. money market mutual funds D. junk bonds

B. treasury bills

If a bond from the franchise Green Galore has a coupon rate of 5 percent, a par value of $2000, and will mature in 5 years, how much will the company have paid the holder when it retires its debts A. $2100,plus the original investment of $2000 B. $200, plus the original investment of $2000 C. $2500, plus the original investment of $2000 D. $500, plus the original investment of $2000

D. $500, plus the original investment of $2000

A stock that reinvests its earnings in the business instead of paying regular dividends is called A. an income stock B. common stock C. preferred stock D. a growth stock

D. a growth stock

An example of blue chip stock might be A. a new start-up firm B. a foreign-owed company that operates in another country C. an established company that is traded over the Internet D. a large, well-known company traded on the NYSE

D. a large, well-known company traded on the NYSE

Against your better judgement, you lend $100 to your cousin Manny, who has a reputation for failing to pay back loans. You are taking a A. liquidity risk B. time risk C. inflation rate risk D. credit risk

D. credit risk

Since bonds are considered among the safest investments, you would expect that they would A. Mature quickly B. have high interest rates C. take a long time to mature D. have low interest rates

D. have low interest rates

You are a financial advisor whose client is concerned about losing his investment if a company goes out of business. You advise him to buy A. income stock B. growth stock C. common stock D. preferred stock

D. preferred stock

par value

amount paid to purchase a bond that will be repaid at maturity

prospectus

an investment report to potential investors

financial asset

claim on the property or income of a borrower

Equities

claims of ownership in a corporation

primary market

market for selling financial assets that can only be redeemed by the original holder

investment

the act of redirecting resources from being consumed today so that they may create benefits in the future

yield

the annual rate of return on a bond if the bond were held to maturity

capital gain

the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the seller

portfolio

A collection of financial assets

bear market

A steady drop in the stock market over a period of time

The main advantages of diversification as an investment policy is that it A. Reduces risk to investors B. Increases investors' access to their money C. Offsets the effects of inflation on investment D. Guarantees a fixed rate of return

A. Reduces risk to investors

Investing in a money market mutual fund is a higher risk than investing in a certificate of deposit because unlike CDs, money market funds A. are not insured by the FDIC B. are not protected by the securities and exchange commission C. do not earn a fixed interest rate D. must be held for a preset amount of time

A. are not insured by the FDIC

Your neighbor asks you to invest $500 at 5 percent interest in her catering business. She insists that with all the working parents in the neighborhood, a business that provides home-cooked meals has the potential for making huge profits. You want to invest, but are concerned because your neighbor has not had any business experience. How can you offset your risk? A. ask for a higher interest rate B. Invest your $500 in a certificate of deposit C. Use the $500 to open a savings account D. Lend you neighbor the $500 and keep your fingers crossed

A. ask for a higher interest rate

Your friend Jorge has just inherited $1000 and would like to invest the money in the stock market. You suggest that he A. contact a brokerage firm, who will put him in touch with a stock broker B. reserve a seat at the New York Stock exchange C. contact NASDAQ, who will assign a stockbroker to him D. call the New York Stock Exchange, who can direct him to the OTC market

A. contact a brokerage firm, who will put him in touch with a stock broker

The interest rate the bond issuer pays to the bondholder is called the A. coupon rate B. maturity rate C. discount rate D. value rate

A. coupon rate

You are a financial advisor whose client wants stock that pays regular dividends. You advise him to buy A. income stock B. growth stock C. common stock D. preferred stock

A. income stock

All of the following are low-risk investments EXCEPT A. junk bonds B. treasury bonds C. municipal bonds D. savings bonds

A. junk bonds

Because you want to reduce the risk of losing all your savings if an investment fails, you decide to invest in A. mutual funds B. finance company C. the stock market D. credit unions

A. mutual funds

The most trades are made A. on the NEW York Stock exchange B. at the Chicago Board of Trade C. on the NASDAQ-AMEX D. on the OTC market

A. on the NEW York Stock exchange

If a bond from the franchise Greens Galore has a coupon rate of 5 percent, a par value of $2000, and will mature in 5 year, what is its yield to maturity? A. $2500 B. $200 C. $100 D. $500

C. $100

Savings bonds differ from most other bonds in that A. They provide a higher rate of return B. They are held for a shorter time C. The buyer does not receive periodic interest payments in exchange for a lower purchase price D. They are issued in fairly large denominations in exchange for a lower purchase price

C. The buyer does not receive periodic interest payments in exchange for a lower purchase price

The Great Crash can be attributed to all of the following reasons EXCEPT A. many people had gone into debt buying consumer items on credit B. the practice of making high-risk investments with borrowed money C. The small number of people buying stock on margin D. a relative few companies and families held much of the nation's wealth

C. The small number of people buying stock on margin

An accurate statement about bonds would be that A. They are insured by the FDIC B. They are generally held for 3 or 6 months C. They are usually a low-risk investment D. They entitle the holder to a share of ownership in a corporation

C. They are usually a low-risk investment

In June, Leslie wins a cash prize...Leslie puts this money in a savings account because her main priority is A. receiving the maximum amount of interest possible B. taking a risk in hopes that she'll get a high return C. liquidity, since she'll need to use the money in a short time D. Making a safe long term investment

C. liquidity, since she'll need to use the money in a short time

To finance the building of a new police station, a local government is most likely to issue a A. junk bond B. treasury bond C. municipal bond D. money market bond

C. municipal bond

You hear on the news that The Dow has fallen to just below 8000 points. This means that A. the Dow is at the lowest level it has been since the Great Depression B. the Dow has fallen after an all-time high of 8000 points C. the Dow is at relatively high levels compared to the early 1980s, but short of its all-time high D. the Dow has plunged to its lowest level in 100 years

C. the Dow is at relatively high levels compared to the early 1980s, but short of its all-time high

A stock split is most likely to occur when: A. a company is losing money B. stockholders demand higher dividends C. the price of a stock becomes too high D. the stock market as a whole is doing poorly

C. the price of a stock becomes too high

When you invest in a mutual fund, A. your money is invested in a variety of insurance policies B. you have easier access to your money than in a savings account C. your money is invested in a variety of stocks and bonds D. you are guaranteed a fixed return on your investment

C. your money is invested in a variety of stocks and bonds

return

the money an investor receives above and beyond the sum of money initially invested

investment

the use of assets to earn income or profit