Introduction to Careers in Finance D9126 : 2. SECURITIES ANALYSIS AND INVESTMENTS
Clark is reviewing his investment portfolio and realizes that right now he has an investment in each of the three main securities areas. He has _____. (Select all that apply.)
1,000 shares of Bank of America stock a 10-year bond from ABC Insurance Company options to purchase another 1,000 shares of Bank of America if it hits a certain price
The total value of all of the 2,000 mutual fund shares in Dion's portfolio is $260,000. He has liabilities of $10,000. The per-share dollar amount of the securities in his portfolio is $ _____.
125.00
A robber baron is a person has settled on land that doesn't belong to him.
False
Although it is not possible, per the EMH, to outperform the market in the long run, it is relatively easy to consistently realize high rates of return by investing in securities in the short term.
False
An investment advisor most likely first worked as a commodities and futures broker.
False
The main reason an investor will evaluate a bond is to determine the payout at the security's maturity.
False
Prior to the Gramm-Leach-Bliley Act of 1999, it was not possible to buy stock through _____. (Select all that apply.)
J.P. Morgan Goldman Sachs Deutsche Bank Credit Suisse
Marco is an investor in a mutual fund. He has just sold half of his shares and is paying an exit fee. Jack is also an investor in this fund and is selling half of his shares. Marco is paying a higher exit fee. That is most likely because _____.
Jack held the shares longer than Marco.
stock
Jack invests $10,000 in this capital investment.
futures
Jack invests $10,000 in this obligation to purchase shares of the ABC Corporation with a set length of time.
option
Jack pays $5,000 for the right to purchase shares of the ABC Corporation and ends up exercising this three weeks later.
bond
Jack pays $5,000 to buy this debt instrument.
semi-strong form
Market prices for XYZ Corporation are based on the financial statements issued and accessed recently.
efficient market hypothesis
Market prices for XYZ Corporation can be studied by it is still not possible to beat the market.
weak form
Market prices for XYZ Corporation stock reflect the company before it was taken over by the ABC Corporation.
Predictive models account for unknown variables as they attempt to forecast a security's outcome.
True
The Securities Investor Protection Corporation is a government agency charged with administering the liquidation of failed securities firms to protect the interests of investors as much as possible.
True
Of the bonds listed below, the riskiest investment is _____.
a bond costing $5,000 and with an interest rate of 10 percent
annual report
a comprehensive report on a company's performance covering a particular time usually a year 1
open-end fund
a fund open to new investors and issues; it redeems shares at net asset value
Sanjay is targeting the ABC Corporation as a potential investment. He is researching financial data and comparing what he learns with a successful company he has done well with. It sounds as though Sanjay is most likely doing _____.
a fundamental analysis
hedge
a risk management strategy used to minimize or eliminate risk of loss in an investment
Descriptions of a robber baron include _____. (Select all that apply.)
a wealthy person who attempts to add to her wealth dishonestly a 19th-century American capitalist who became wealthy dishonestly
market sales
actively traded securities, to include stocks and corporate bonds
An investor's portfolio holds an assortment of different bonds from different places. The safest investment she's holding right now is _____.
an AAA bond from a waste water treatment plant
capital appreciation
an increase in the value or price of a company's asset such as a building, land, or shares of stock
capital asset pricing model
an investing formula that takes sensitivity to risk into account in predicting the performance of a specific stock
unsystematic risk
analyzed and measured and therefore accommodated in a portfolio of securities; for example employee strikes and prices
Sanford's portfolio includes stock in Rowan Company, a business his grandfather worked for before it was publicly traded. To control risk as it directly pertains to this stock, Sanford should make sure that he _____.
applies sound research and logic to selecting potential investments
Short-term gains _____. (Select all that apply.)
are taxed at ordinary income tax rates come from investments bought and sold in less than 12 months
Hector is selling his shares in a mutual fund and is being charged a fee for the transaction. It sounds as though the fund is set up as a _____.
back-end fund
An investor has some high-risk technology bonds in her portfolio. The wisest method to keep her investments safe is to _____.
buy some low risk energy bonds
The equation: the expected rate of return times the return of the risk-free asset, equals the return plus the sensitivity for market risk, times the expected rate of return, minus the rate of return for a risk free asset is the formula to assess _____.
capital asset pricing
Mike is trying to figure out whether he should buy Security A or Security B. It would be most helpful for him if he was able to do a(n) _____.
capital asset pricing model
The Gordon Growth model is best used to value companies that are _____.
considered mature
net present value
current value of an investment's future cash inflows and cash outflows overa given period
Bonds are _____. (Select all that apply.)
debt instruments traded in a stock market
The Securities and Exchange Commission will consider a monetary penalty to those financial institutions that do not abide by their mandates. This activity is an example of _____.
enforcement
Although China continues to move to be more of a global power, investors find it to be a weak investment possibility. That is mainly because _____. (Select all that apply.)
it isn't possible to get current financial information the government controls the country's currency the marketplace is not transparent
After the bankruptcy of 2008, investors in Lehman Brothers received _____.
nothing
Samantha buys 500 shares of Acme skin products, which is a company that is not actively traded. This would be a(n) _____ sale.
over-the-counter
step one
owners of the private company have been approached by private-equity investors
Bonds are discounted for _____.
risk
The main reason investors choose money market products are _____. (Select all that apply.)
safety liquidity
secondary markets
securities able to be redeemed at a set price in a specific period of time
Money market investments are a type of _____.
security
Lorena is a private investor who studies the annual report of a company before buying its stock. She orders the reports by calling the headquarters of the companies she is potentially interested in. After studying the material, she makes her decisions about what to buy, then calls her broker to place the order. It sounds as though Lorena is operating under _____.
semi-strong form market efficiency
P/B
share price divided by the book value of the stock.
Mia buys 1,000 shares of ABC Corporation as an over-the-counter sale. This means that the _____.
shares were of a company that is not actively traded.
banker's acceptance notes
short-term debt instruments similar to Treasury bills
corporate bonds
short-term investment in publicly traded companies that carries some risk
commercial paper
short-term money market instrument used in business
The process used by the SEC to approve securities products can be said to be _____.
standardized
step four
stock is publicly available on the stock market
A hurricane and ensuing damage cause a resort area to close for two months at the height of the tourist season. This results in ten businesses going bankrupt. These included a hotel, three restaurants, two bars, a bakery, a food store, a realtor, and a coffee shop. Investors in any of those businesses should realize this is a _____.
systematic risk
Tad is evaluating his portfolio and buying some investments in a few industries: an energy stock, a tech stock, and soon a bank stock. It sounds as though he is trying to avoid _____.
systematic risk
municipal bonds
tax-exempt money market fund which is a type of government bond
bond ratings
the current value of an investment, which will mature in the future, accounting for time and the expected rate of return
Mitchell has shares in an open-ended mutual fund. He is very happy with his investment, mainly because _____. (Select all that apply.)
the funds are liquid it is a diversified investment he can recommend others invest in the fund
enterprise value
the market value of the business as a whole. It is looked at as the takeover price if another company was looking to buy the business
According to the efficient market hypothesis, the reason an individual cannot outperform the market is mainly because of _____.
the principles of economic efficiency
fundamental analysis
the process of evaluating an investment to determine if it is a good value or what actions needs to be taken
present value
the value of an expected income stream as of the date it is being valued; the current worth of a future sum of money
When evaluating a security, investors will look to the company issuing to see its _____. (Select all that apply.)
total assets and liabilities earnings forecasts earnings ratios
balanced portfolio
usually comprised of different types of securities such as stocks and bonds
primary markets
where IPOs are sold
The present value of a five-year loan at 11 percent with payments of $322.00/month is _____.
$3,243.00
Andres bought 100 shares of ABC Corporation stock at $45/share, then a week later bought another 100 shares at $45/share, and shortly after that bought 100 shares at $42/share. Just now, he bought 100 shares at $36/share. The mean price of the ABC stock is _____.
$42.00
back-end load
Edna pays $75 in transaction fees when she sells her investment
strong form
Market prices for XYZ are based on all public and private information currently available.
All securities products in the United States are sold through licensed representatives in a market subject to strict oversight and controls. These controls are mandated by the _____.
SEC
The efficient market hypothesis forms a foundation of modern finance theory and was fathered by _____. (Select all that apply.)
Samuelson Fama
Consumers are protected in the event of the collapse of a member securities firm by the _____.
Securities Investor Protection Corporation
fundamental analysis
Terry and Edna are researching financial data before purchasing an investment
risk-return trade-off
Terry and Edna bet that their investment will have a high yield
front-end load
Terry pays $50 in transaction fees when his investment is purchased
An investor decides that instead of a bond with the highest risk and return, he will invest in a bond with lower risk but lower return. This is referred to as a risk/return tradeoff.
True
Financial products may include those offered by banks, insurance companies, and brokerage or securities firms.
True
Open-end mutual funds are more liquid than close-end mutual funds.
True
The higher the projected interest rate, the more risky the bond.
True
systematic risk
cannot be offset using risk management tools for a specific security; for example, war, calamities, and inflation
Most mutual funds tend to be _____. (Select all that apply.)
diversified balanced managed
Researching financial and other data on a potential investment, and comparing this information with other possible investments, is the process known as _____.
fundamental analysis
GAAP
generally accepted accounting principles; standard framework of accounting guidelines
A bond is worth $10,600 at last month's interest rate of 8.5 percent. The present interest rate is 8 percent. That means the value of the bond will be _____.
greater than $10,600
As he looks to invest some money, Angelo requests the annual reports from three potential companies. One of them, the XYZ Company, tells him that the report is private and available only to investors. Angelo knows that this is_____.
illegal, since all companies must make their annual report public
diversification
investing in a variety of assets; used to manage or reduce risk
step two
investors look to make the company as efficient as possible
Which of the following has the lowest risk?
junk bonds
On his income tax, Mike is being taxed at 15 percent for the gain on his securities. It is most likely that Mike had a _____.
long-term gain
The Capital Asset Pricing Model is related to the efficient market hypothesis because they are both essentially about _____.
market risk
When comparing the rate of return of one bond with a similar bond with the same time period, first create a line graph. Plot the market rate return first, as the _____.
midpoint
Mandy is looking at Morningstar.com. It is probable that she is trying to find information about _____.
mutual funds
OTC sales
products not actively traded (ex. variable life insurance)
certificates of deposit
promissory note with restricted withdrawals
Certificates of deposit are _____. (Select all that apply.)
promissory notes issued by a bank
Tammy just bought a AA bond from a city's waste management project. The purchase price was $5,000, and it is due in 10 years, with an annual yield of 8 percent. To evaluate that bond, Tammy would need to note the bond's _____. (Select all that apply.)
purchase price duration annual yield
The three basic parts of a bond are _____. (Select all that apply.)
purchase price interest rate term to maturity
step three
the company must have its value securitized
Investors will buy risky bonds mainly because _____.
they have the possibility of a big payoff
