Econ Pretest

A firm's retained earnings belong to the firm's: a. Common stockholders. b. Preferred stockholders. c. Bondholders. d. Suppliers.

a

A mutual fund with a sales charge is called ________________ a. a load fund b a no load fund c. a 12b-1 fund

a

A personal investment such as purchasing stocks or corporate bonds should be made once the return on the investment is expected to be: a. Greater than the interest rate on federally insured savings accounts or on government bonds. b. The same as the interest rate on federally insured savings accounts or on government bonds. c. Greater than zero but less than the interest rate on federally insured savings accounts or on government bonds. d. Positive—that is, greater than zero.

a

A stock is to a mutual fund as: a. a flower is to a garden b. a can of soda is to a six-pack c. the Dallas Cowboys are to the NFL

a

An increase in which of the following would be most likely to increase wages for U.S. workers? a. Productivity. b. Stock prices. c. Interest rates. d. Business inventories.

a

Diversification creates: a. a varied portfolio b. dividends c. a short position

a

Holding stocks from several different sectors __________ your portfolio. a. diversifies b. marginalizes c. specializes

a

Hurricane Katrina most greatly affected which of these industries? a. lumber b. technology c. bio-medical

a

If JCC Telecommunication's EPS is $4, and its stock is currently valued at $60 per share, then its PE ratio a. is 15 b. is 240 c. can't be determined from data provided.

a

Information about a new issue of common stock by a corporation, including the size of the issue and how these funds will be used by the firm, is provided to potential investors in a document known as a: a. Prospectus. b. Letter of commitment. c. Registration statement. d. Tombstone advertisement.

a

International events can have an affect on some stocks and the U.S. economy. a. True b. False

a

Investments that have high risk may provide higher returns over time than investments with less risk. a. True b. False

a

Investors with a low risk tolerance tend to seek stocks that are a. blue chip b. cyclical c. small-cap

a

Lin has $4,000 in Dell Computer stock, $2,500 in BioMed stock, $1,500 in 1stBank stock and $2,000 in a government bond. A broker tells Lin that her portfolio is not diversified enough. Lin should probably: a. sell some of her stock and buy a mutual fund b. sell the government bond and buy a mutual fund c. sell the Dell Computer stock and buy another bond

a

National economic news data, i.e., unemployment reports, can have an effect on the stock market. a. True b. False

a

Rank the following four projects from the least to the most risky, for most U.S. firms: 1. Introducing an entirely new product in U.S Markets. 2. Introducing an entirely new product in the countries of the former Soviet bloc. 3. Expanding a current product line in existing markets. 4. Repairing machinery at a current production site or factory. a. 4, 3, 1, 2 b. 4, 3, 2, 1 c. 1, 2, 3, 4 d. 1, 2, 4, 3

a

Short selling is a way to make money when: a. the market is going down b. you don't have enough money to buy a round lot c. you use the Internet and not a broker

a

The Dow Jones Industrial Average represents: a. a stock index that represents 30 companies b. the most popular companies on the NYSE c. the 100 largest companies in America

a

The stock market is influenced by the economy. a. True b. False

a

What person or organization sets monetary policy and tries to control the overall availability of credit in the U.S.? a. The Federal Reserve. b. The U.S. Treasury. c. The Congress. d. The President.

a

Which of the following is considered an economic factor of production (i.e. productive resource)? a. Labor. b. Money. c. Government bonds. d. A firm's common stock.

a

You want earnings to keep going up each year for any stock you own. a. True b. False

a

A guaranteed payment of $100 to be received one year from today is worth: a. Less than a guaranteed payment of $100 to be received two years from today. b. More than a guaranteed payment of $100 to be received two years from today. c. Exactly the same amount as a guaranteed payment of $100 to be received two years from today. d. We cannot determine whether the payment will be worth more, less, or the same as an identical payment to be received two years from today—that depends on too many other things.

b

An industry is composed of: a. multi-national competitors b. corporations with similar products and services c. industrial businesses working together

b

As a return on investment, or stockholder's equity, the average rate of profits for U.S corporations is usually: a. 1 - 9 % b. 10 - 20 % c. 21 - 40 % d. 41 - 60 %

b

Capital gains are earned whenever: a. Companies must pay federal and state taxes on the profits they have earned. b. Assets such as stocks are sold at prices greater than their purchase price. c. A stock pays dividends. d. A stock splits.

b

Dividing a stock's current price per share by the issuing company's earnings per share results in: a. the profit margin of the company b. the price to earnings ratio c. the stock's current price

b

Dividing a stock's current price per share by the issuing company's earnings per share results in: a. the profit margin of the company c. the Beta b. the P/E ratio

b

Economists assume that they typical individual investor in common stocks is: a. Wealthy. b. Risk averse. c. A speculator or gambler. d. Risk seeking or at least risk neutral.

b

If the Battery corporation has 100,000 outstanding shares and the current price per share is $10 per share, then the market capitalization for this company is a. $10,000 b. 1,000,000 c. $10,000,000

b

Inflation can affect the economy, but not the earnings of a company a. True b. False

b

Investments that are riskier tend to provide lower returns over time than investments with less risk. a. True b. False

b

Large cap, mid caps and small caps are descriptions of: a. mutual funds b. company size and market value c. stock market exchanges

b

RC Drugs, Walt Pharmacy, and KC Drugstore show PE ratios of 15, 4, and 21, respectively. Based solely on this information, which company's stock would be the best buy? a. RC Drugs b. Walt Pharmacy c. KC Drugstore

b

Stock prices rise because: a. companies are increasing dividends b. there are more buyers than sellers c. the government is raising the interest rate

b

Stocks of companies that tend to mirror the economy, i.e., housing and automobile sectors, are called a. economic stocks b. cyclical stocks c. blue chip stocks

b

The main difference between common stocks and bonds is that: a. Stocks sometimes pay out at a fixed rate of interest, but bonds don't. b. Stocks are not a contractual promise to pay a specific amount of money in the future; bonds are. c. Bonds are only issued by government agencies, while stocks are issued by private companies. d. Changes in a corporation's expected earnings (profits) will lead to changes in its bond prices, but not its stock prices.

b

The main economic role of profits is to: a. Compensate owners of land and other natural resources for using up those nonrenewable resources. b. Signal owners of firms where to direct resources to satisfy consumers' demands. c. Provide income to pay salaries to a firm's managers. d. Provide income to pay wages to a firm's employees.

b

The major sources of long-run productivity growth in the U.S economy over the last century have included all of the following EXCEPT: a. Technological change. b. Rising rates of public and private savings. c. Better education and training or workers. d. Investments in capital goods, such as factories and machines.

b

The price of a stock reflects the company's value as well as a. the value of other companies in the same industry. b. the expected earnings growth of the company that investors expect in the future c. neither of the above.

b

This week, ABC stock's price increased from $42 to $51 per share, PQR stock increased from $3 to $6 per share, and XYZ stock increased from $18 to $21 per share. Which stock showed the greatest percentage gain in value? a. ABC b. PQR c. XYZ

b

To be diversified, a portfolio must hold bonds as well as stocks. a. True b. False

b

To maximize its stock holders' wealth, a corporation should: a. Use advertisements to make its brand names more widely known by consumers. b. Increase the overall value of the firm as much as possible. c. Maximize the firm's short-run economic profits. d. Pay out all of its profits as dividends.

b

Usually when interest rates rise, bond prices: a. rise b. fall c. stay the same

b

_____________ is good advice for long term stockholders. a. Buy when the market goes up b. Buy and hold c. Sell when the market is down

b

_________________ analysis uses charts and graphs to track price patterns and market trends. a. Fundamental b. Technical c. Quantitive

b

______________is the total income generated by a company from its goods and services. a. Cash b. Revenue c. Profit

b

. ______________are determined by the economics of supply and demand. a. Company profit b. Shareholders' dividends c. Stock prices

c

A secondary financial market is one where: a. New government bonds are sold. b. New issues of common stocks are bought and sold. c. Existing securities such as stocks and bonds are bought and sold. d. Securities such as stocks and bonds are purchased and retired by the firms or governments that issued them.

c

Gas price increases have greatly affected which of these industries? a. retail sales b. transportation c. many industries, including retail sales and transportation

c

If a share of a mutual fund cost $9 a year ago and costs $15 today, it means the NAV increased how much per share? a. 33% b. 20% c. 66%

c

If people who invest in the stock market become more risk averse: a. A smaller financial return will be required to make investors accept risks. b. Companies will find it a good time to offer new issues of stocks and bonds. c. The price of stocks and bonds will fall in order to increase the expected rate of return. d. Funds deposited in savings accounts in commercial banks will shrink, while investments in common stocks increase.

c

If you know that the ticker symbol for Microsoft is MSFT, on which exchange is it listed? a. NYSE b. AMEX c. NASDAQ

c

Jake is researching BioMark pharmaceutical stock. He should compare BioMark's a. revenue and profits to other pharmaceutical companies b. current events surrounding the pharmaceutical industry c. both a and b.

c

Janet owns Tory Cosmetic stock which has dropped in value the last two weeks, from $25/share to $18/share, although the company's profits are up. The best advice for Janet would be a. sell Tory stock immediately b. buy more Tory stock c. hold Tory stock and research other companies in the cosmetic industry

c

Lionel is researching the TopHat company and is reviewing the management and financial data in its annual report. Lionel is using a. technical analysis. b. qualitative analysis. c. fundamental and quantitative analysis.

c

Net income is the amount of income received after a. all payroll has been deducted. b. all revenue and account receivables have been collected. c. all expenses and taxes have been deducted.

c

New issues of common stock released by large corporations are usually underwritten and sold to the public by: a. The New York and American Stock Exchanges. b. The corporations that issue the stock. c. Investment bankers. d. Commercial bankers.

c

Other things being equal, household savings increase as interest rates rise because: a. Companies reduce investment spending as interest rates rise. b. The government tries to borrow more money at higher interest rates. c. People reduce current consumption when higher interest rates reward them for doing so. d. The Federal Reserve is trying to increase income and consumption spending by raising interest rates

c

Other things being equal, increases in the interest rate will: a. Raise the price of corporate bonds. b. Raise the price of preferred stocks. c. Lower the price of common stocks. d. Lower the payments on savings account at commercial banks.

c

Stocks, bonds and cash are all part of a: a. initial public offering b. industry sector c. financial growth plan

c

The S&P 500 Index is made up of ________ a. the best performing stocks on the NASDAQ. b. 500 small cap stocks. c. 500 stocks of the largest US companies.

c

The S&P 500, the Nasdaq 100 and the Russell 2000 are examples of: a. a stock report b. stock exchanges c. stock indices

c

The difference between accounting profits and economic profits is: a. There is no difference—they are the same thing. b. Economic profits cannot be earned in the long run, but accounting profits can. c. Accounting profits are the difference between revenues and explicit costs; economic profits are the difference between revenues and opportunity costs. d. Both use the same measure of total costs, but accounting profits only count revenues that have been received, while economic profits also add accounts receivable.

c

The value of the best alternative forgone whenever an economic choice is made, including the choice to buy a stock or bond, is known as the: a. Price. b. Resource cost. c. Opportunity cost. d. Cost of production.

c

You bought 100 shares of stock at $20 each. At the end of the year, you received a total of $400 in dividends, and the market value of your stock was $2,500. Your total annual rate of return was: a. 90 % b. 50 % c. 45 % d. 20 %

c

Insider trading occurs when: a. The managers or members of the Board of Directors of a company buy more stock in the firm. b. Lawyers and investment bankers buy or sell common stock in the companies their firms represent. c. A company's common stock is purchased by competing firms, in violation of federal antitrust laws. d. Anyone with information that is not available to the public at large uses that information to make money by buying and selling stocks.

d

Other things being equal, an increase in savings by households will: a. Increase the interest rate and increase investment spending. b. Increase the interest rate and decrease investment spending. c. Decrease the interest rate and decrease investment spending. d. Decrease the interest rate and increase investment spending.

d

Other things being equal, as the price of a share of common stock in the XYZ Company decreases: a. The supply of the stock will decrease. b. The demand for the stock will increase. c. Sellers will offer more shares of the stock for sale. d. Buyers will want to buy more shares of stock in XYZ Company.

d

Risk-return management means that: a. Individuals and firms should avoid all risks. b. Low but safe earnings are better than high but risky earnings. c. Individuals and firms should choose the investments that have the highest possible returns. d. There is an appropriate trade-off between risk and return that is different for different people and firms depending on their investment objectives.

d

Which of the following groups usually bears the greatest cost if a firm declares bankruptcy and goes out of business? a. The firm's managers. b. The firm's suppliers. c. The firm's bondholders. d. The firm's stockholders.

d

Which of the following statements about the efficient market hypothesis is true? a. The rate of return of stocks with a given risk profile is always changing, and never in equilibrium. b. Stock prices will not change as a result of unexpected events affecting a company's sales, production costs, and earnings. c. The equilibrium rate of return is paid on all stocks, given their different risk characteristics, so all investors will earn the same amount of money on their investments. d. On average, a portfolio of stocks picked by throwing darts at a listing of all stocks will do just as well as a portfolio picked by experts who work for the leading brokerage houses

d

Which of the following would definitely increase the price of the common stock for a company that has its stock traded on the New York Stock Exchange? a. A decrease in both the supply or and demand for the stock. b. An increase in both the supply of and demand for the stock. c. And increase in the supply of and a decrease in the demand for the stock. d. An increase in the demand for and a decrease in the supply of the stock.

d