Personal Finance 11-13
You purchased some stock last month for $50 per share. Today the stock closed at $80 per share. You would like to protect the profit that you have made on this stock but you really dont want to sell it in case it continues to rise in price. What should you do?
place a stop-loss order on this stock
The phrase ________ is sadly appropriate for the actions of some people, as they perceive that investment success rests in making frequent transactions.
playing the market
A bond rating is really a measure of a bonds
riskiness
Juan purchased shares in ABC company for $5,000 three years ago. During these three years he received $600 in dividends. He just sold the stock for $4,300. What was his total return on this investment?
-2%
For individuals in their golden years who are approaching retirement, a mix of ________ percent common stocks and ________ percent bonds is a relatively common recommendation from financial planners.
60, 40
Suppose that you are beginning an investment plan. You have decided that you want to retire in 30 years with $1,000,000 in your bank account at that time. How much would you need to invest at the end each of the next 30 years if you could earn 8%?
8,827.43
The Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act of 1988 made it illegal to trade while in the possession of inside information, or material non-public information held by
All of the above are correct
Jessica wanted to gauge stock performance in general. She found a useful tool that measured the stock prices of 30 large industrial firms, called the
DJIA
Much of the day-to-day regulation of the market is left to the securities industry and is performed by the exchanges and the
FINRA
You have just recently started your investment activities for retirement. You were happy to learn from your broker that your investors account balance would be insured for up to $500,000 through the ________ in the event their brokerage firm goes bankrupt.
SIPC
One of the problems with most bonds is that their coupon payment is fixed and rising inflation weakens the purchasing power of their coupon payments. Which of the following bonds is the best option during times of high inflation?
TIPS
If you wanted information about how the entire stock market is performing, which index would provide you with information on virtually all types and sizes of companies?
Wilshire 5000
Which stock index will have the largest representation of small-, mid- and large -cap stocks?
Wilshire 5000
Day trading has been called
a trading method for transferring wealth from unsophisticated investors to sophisticated investors
Jennifer has money invested in stocks. She earns a return on her investment, which is a portion of the company's profits, called
dividends
______ are a companys distribution of its profits in the form of cash or stock to its owners.
dividends
Hostess and Kodak recently filed for bankruptcy protection in an attempt to restructure their debts. One could assume that both of these companies experienced too much ________ risk.
financial
You are considering the purchase of a corporations stock. You have noted that this particular corporation has a high use of debt, which is associated with ________ risk.
financial
According to the Keown book, which of the following is not a primary source of information about the stock market and individual stocks?
fitch investment survey
Your father-in-laws stockbroker examines future earnings and dividends, the expected level of interest rates, and the firms risk to provide a basis for buy-sell recommendations. This stockbroker uses the ________ approach to stock valuation.
fundamental analysis
The difference between an investment and speculation is that an investment ________ while speculation depends solely on ________ to produce results.
generates a return; supply and demand
Our study of efficient markets tells us all of the following about investing except
go with the best investment advisor money can buy
Brenda is a 25 year old investor who recently graduated from college and has a successful career, which type of stock should represent a good portion of her portfolio?
growth stock
The disposition effect involves
neither a nor b
Is it possible to both accumulate wealth and preserve wealth with the same asset allocation strategy?
no, there are conflicting risks that are contrary to achieving both goals with the same asset classes
Barbara Ann ordered 50 shares of stock, which is called a(n) ________ lot on the NYSE.
odd
That portion of a stocks risk or variability that cannot be eliminated through investor diversification is called ________ risk.
systematic
All of the following are stock market indexes except
the Russell 100
Gracie Johnson saw the securities announcement for New York Bagel Enterprises that provided the details of the offering and a listing of the underwriting syndicate. She saw the
tombstone advertisement
A GTC order remains effective until filled or cancelled.
true
A companys dividend distribution can be in the form of cash or additional stock.
true
A day trader typically sits at a computer and looks for stocks that are moving up or down in value.
true
This equation, dividends next year/required rate of return minus growth rate tells us the stock's
value
The discounted dividends valuation model of common stock assumes that dividends will grow at a constant rate forever. This method tells us that the (dividend next year) divided by the (required rate of return - growth rate) yields the
value of the common stock
Pedro is trying to take advantage of the bond valuation relationships. He has figured out that when you expect interest rates to go up, buy ________ bonds and when you expect interest rates to go down, buy ________.
very short term; bonds with very long term maturities that are not called
Investing prior to age 54 is a time of ________ by investing the majority of ones savings into ________.
wealth accumulation; common stocks
XYZ company issued bonds three years ago with a 7% coupon rate. Today, the market rate of interest was lowered to 4%. What most likely will happen next?
xyz will call their bonds in
interest payments on municipal bonds are exempt from federal taxes and state taxes as long as you live in the state in which the bonds were issued.
true
Because junk bonds carry a much higher risk of default, they also carry an interest rate ________ percent above the AAA grade long-term bonds.
3-6
The ________ rate is the interest to be paid annually on a bond as a percentage of its par value.
coupon interest
When you are holding preferred stock that you can exchange for a predetermined number of shares of common stock, you are holding ________ stock.
convertible preferred
Recently an oil rig in the Gulf of Texas blew up causing the value of your stock in the company who owns the oil rig to fall. What type of risk does this represent?
diversifiable risk
If a bond has a fixed coupon interest rate, the only way for the bond to increase its return to investors is to
drop in value and sell for less
The following equation, (net income - preferred stock dividends)/number of shares of common stock outstanding, allows us to calculate the ________ and this information is necessary to calculate the ________ ratio.
earnings per share; P/E ratio
When a stock price reflects all relevant information about the stock, the market is said to be
efficient
Real estate investments are more liquid than stocks most of the time.
false
Stocks reduce risk by portfolio rebalancing.
false
An investor with a low propensity for risk would avoid investments with high risk premiums.
true
If the school district wants to build a new high school, they can sell municipal bonds.
true
Investing in bonds is generally less risky than investing in stocks.
true
Merrill Lynch, Edward Jones and Morgan Stanley Smith Barney are all full service brokers.
true
Microsoft is an example of a company whose common stock is considered to be a growth stock.
true
Movement in the stock market indexes determines whether it is a bear or bull market.
true
On average, just by chance, half of the stock markets investors will outperform the market and half will underperform the market.
true
One of the most important types of risk associated with real estate is the liquidity risk.
true
Returns on stocks can come in the form of capital appreciation.
true
Risk capacity refers to the strength of your financial safety net.
true
The NASDAQ is the largest electronic stock exchange.
true
The real rate of return is the nominal rate of return adjusted for inflation.
true
When purchasing stock short, you must put up some collateral.
true
When the economy slumps, the earnings of cyclical stocks drop; when the economy recovers, so do their earnings.
true
When trading there are round trip costs in that you will pay costs when you buy securities and when you sell securities.
true
While you cant be assured of what you will get when you sell your stock, you will most likely not have difficulty selling it.
true
With short selling you are hoping for the stock price to fall.
true
What is the value of the current yield?
It allows the investor to compare the bond with alternative investment opportunities.
General Electric is the only stock originally listed and still remaining on the Big Board. This means that its stock is traded on the
NYSE
The two major organized stock exchanges in the Unites States are the ________ and the ________.
NYSE; AMEX
Michael Milkman has suggested that you consider the purchase of some bonds that are rated BB or below. He is asking you to purchase ________ bonds.
all of the above
Randall has $25,000 and is considering investing in bonds. With this amount of start up money he should look into which of the following bonds?
all of the above
What are the major differences between preferred stock and common stock?
all of the above
What type of investment would have a high risk premium associated with political and regulatory risk?
all of the above
Which of the following bonds would be appropriate for a retired person seeking a stream of income during retirement?
all of the above
Which of the following questions is relevant to setting investment goals?
all of the above
Which of the following questions should potential investors answer before investing?
all of the above
Which of the following would have liquidity risk associated with it?
all of the above
Why does it cost so much to trade with a full service broker?
all of the above
Why might you consider investing in bonds?
all of the above
You own a bond issued by BMW, a German company. What kind of risk are you exposed to?
all of the above
real estate investments can be income producing investments. Which of these would be included as an income producing real estate investment?
all of the above
the advantages of Treasury bonds include
all of the above
What does an effective asset allocation strategy provide to an investor?
all of the above are correct
Which of the following statements is not true of asset allocation?
all of the above are true
Anthony Hopkins wants to start investing and desires to consistently beat the market. What will you tell him?
all of the above except it can be done regularly by a skilled investor
What could happen if you sell a bond before its maturity date?
all the above
When you purchase an asset that generates a return, it is generally considered to be
an investment
If the total rate of return is multiplied by 1/N, where N is the number of years for which the investment was held, the result is the
annualized rate of return
Which of the following statements is most correct regarding the general relationship between stocks and interest rates?
as interest rates increase, stock prices should decrease
Which of the following is true regarding fluctuations in the prices of bonds?
as interest rates rise, investors demand a higher return on bonds
The price at which an individual is willing to sell a security is called the
ask on offer price
Patti DeVry has been trading stocks in the over-the-counter market. When she wants to sell her stocks she will specify the ________ price and when she wants to purchase stocks she will specify the ________ price.
ask on offer; bid
If you are very optimistic about the ability of firms to earn profits today and in the immediate future, what type of investor philosophy do you exhibit?
bullish
Barney Hopkins is the financial manager for Amax Corporation. He knows that ________ risk deals with good or bad management decisions and ________ is associated with his companys use of debt.
business; financial
Which of the following makes common stocks more risky than corporate bonds when both are issued by the same company?
claims on income; claims on assets
If you were to own a stock that offers voting rights and may pay dividends, you would most likely own ________ stock.
common
An option gives its owner the right to buy or sell an asset. This asset is generally
common stock
Lavon has his money invested into an asset that has averaged the following returns the last three years: +22%, -8%, +13%. Most likely what type of asset is he invested in?
common stock
The experts say that a person under the age of 40 should have a majority of their retirement money invested in the stock markets. What is the reason for this?
common stocks provide a higher roi and younger people have enough time to ride out any dramatic market movements
Historical rates of return for the last 82 years place ________ at the highest end of the spectrum for risk and ________ at the lowest end for risk.
common stocks; t bills
Most of the bonds that are bought and sold are not transacted on the organized exchanges. They are bought and sold through bond dealers who do not sell many ________ bonds but do trade many ________ bonds in the secondary market.
corporate; government
Kathy Faust was paid all of her past dividends before any common stock dividends were declared. Obviously, she profited from preferred stocks ________ feature.
cumulative
When a preferred stock requires that all past unpaid preferred stock dividends must be paid before any common stock dividends can be declared, this preferred stock has a ________ feature.
cumulative
investing in bonds tends to be riskier financial strategy than investing in common stocks.
false
Compared to other investment options, we can safely say that investing in stocks
has greater risk
the interest rate carried on agency bonds, such as FNMA and FHLB, is ________ the interest rate on Treasury bonds.
higher than
When market interest rates go up investors demand ________ returns on other types of investments and when market interest rates go down, the return investors demand on other types of investments ________.
higher; goes down
The ________ the firms earnings growth rate, the ________ the firms P/E ratio and the ________ the investors required rate of return, the ________ the P/E ratio.
higher; higher; higher; lower
Greg spent the weekend in Las Vegas. He started out with $10,000 and won an additional $5000. Greg was very risky with how he gambled with the $5000 he had won. Greg was exhibiting the ________ effect.
house money
The dividend yield tells investors which of the following?
how much in the way of a return they would receive If the stock price and the dividend level remain constant
Insider trading is both unfair and illegal. It occurs when officers, directors, major stockholders, or others trade securities while
in possession of material nonpublic security information
The S&P 500
includes some stocks from the OTC market
A ________ is a member of an exchange who oversees the trading in one or more stocks and is generally responsible for maintaining a fair and orderly market in those stocks by purchasing or releasing stocks into the market.
specialist
You are considered to be engaging in ________ when you purchase an asset whose value depends solely on supply and demand.
speculation
Petrina was told by a successful friend to invest in stocks and income-producing real estate. Both of these are examples of ________ investments.
ownership
The ________ is the face value of a bond, and the amount that is returned to the bondholder at maturity.
par value
The ________ is the stated amount on the face of a bond, which the firm is to repay at the maturity date.
par value
You own a(n) ________ certificate, which is a certificate that represents a portion of ownership in a pool of federally insured mortgages.
pass through
Hern MacTavish only invests in lending investments. If his financial advisor gave him the list below, which might Hern invest in?
saving accounts and bonds
ABC Corporation is selling additional shares of common stock. Although ABC Corporation has already sold shares of stock in the public equity markets, these are new shares of stock, and have never been sold or traded previously. This is called a(n)
seasoned new issue
You have just purchased shares of stock from a stockbroker. These shares were previously traded on the NYSE. This trade took place in the
secondary market
Any bond that is backed by the pledge of collateral is known as what type of bond?
secured
Just as valuable as the tax break on capital gains income is the fact that you dont have to claim it and, therefore, you dont pay taxes on the asset until you
sell it
In the event that a corporation files for bankruptcy, bond trustees have the power to
sell the corporations secured assets and use the proceeds to pay the bondholders
You have decided to borrow stock from your broker, sell it in the market, and then (you hope) replace the borrowed shares when the price drops in the future. This is an example of
selling short
When you got home after work, you saw on the news that the S&P was down by 20 points. Which of the following is true?
some of your stocks may have increased and some may have decreased
Deborah recently purchased a stock that is considerably more risky than a typical stock. It has exhibited a high degree of earnings variability. This is an example of a(n) ________ stock.
speculative
Which of the following investors will potentially receive dividends on their investments?
stock holders and derivative holders
A ________ is a measure of the performance of a group of stocks that represent the market or a sector of the market.
stock market index
When a company buys back its own common stock it is engaging in a
stock repurchase
A ________ increases the number of stock shares outstanding by replacing each existing share of stock with a stated number of new shares.
stock split
A discount broker executes trades but does not provide much advice.
true
A firm may decide that the price per share for its stock is getting too high for the smaller investor so the company splits the stock.
true
A good source of investment advice is a neutral party that doesnt charge a fee or earn a commission from you.
true
A lending type investment, such as a corporate bond, represents a legal obligation for the issuer to pay its creditors back.
true
A limit order specifies a securities trade is to be made only at a certain price or better.
true
A margin call requires you to replenish the margin account by adding additional cash or securities to bring the account back up to the minimum.
true
A market order is an order to buy or sell a set number of securities immediately at the best price available.
true
A primary market is a market in which new, as opposed to previously issued, securities are traded.
true
A proxy is a legal agreement a stockholder signs to allow someone else to vote for him or her at the corporations annual meeting.
true
A sale of a security in the primary markets is the only time the issuing company receives the proceeds from the sale.
true
A secured bond is one that is backed by collateral.
true
A stock market index is a measure of the performance of a group of stocks that represent the market or a sector of the market.
true
A stock split is a tactic by a corporation to manipulate the market price of its stock.
true
A typical bond will pay annual coupon payments until it matures, at which time it will surrender its par value to the owner of the bond.
true
A typical young investor should have most of their retirement money allocated in common stocks.
true
A young investor who is averse to risk should invest their money in government bonds.
true
According to your text, over time, investing in stocks generally outperforms most other investments.
true
According to your text, there is very little validation in using technical analysis as an investing tool.
true
Although some bonds are traded on the NYSE, most of the buying and selling of bonds doesnt occur on organized exchanges.
true
An I bond is an accrual-type bond, meaning that interest is added to the value of the bond and paid when the bond is cashed in.
true
An ask on offer price is one at which an individual is willing to sell a security.
true
An efficient market is one in which all relevant information about the stock is reflected in the stock price.
true
An initial public offering is the first time the companys stock is traded publicly.
true
An investor should always consider the source when receiving stock tips from other people.
true
An option gives you the right to buy or sell the underlying asset at a set price on or before the options maturity date.
true
As the length of your investment horizon increases, you can assume greater risks with your investing.
true
Because Nancy is extremely risk averse she is less likely to receive a solid rate of return on her investment portfolio than Babby who is more accepting of a risky portfolio.
true
Because its difficult to beat the market, make sure you dont give away too much of your return in the way of commissions.
true
Berkshire Hathaways A stock has never split. As a result, in mid-2014 one share of the stock was selling at a price of more than $190,000 per share.
true
Beta is the measure of how responsive a stock is to changes in the market portfolios, like the S&P 500.
true
Bonds reduce risk through diversification.
true
Bonds which are very low rated, yet high yielding bonds are known as junk bonds.
true
By using the risk evaluation tool called beta, you can measure the movement of your individual stock compared to the S&P 500.
true
Call risk is the risk to bondholders that a bond may be called away from them before maturity.
true
Capital appreciation refers to an increase in the selling price of your shares of stock.
true
Churning occurs when a broker engages in excessive trading in a clients security account to generate more commissions for the broker.
true
Corporations receive a tax break on the dividend income from preferred stock.
true
Defensive stocks frequently perform better during economic downturns.
true
Diversification works in ones portfolio because stock returns in ones portfolio do not always move in the same direction; as a result, the upswings and downturns in ones portfolio eliminate one another.
true
During a bear market stocks prices typically fall.
true
Earnings per share is a ratio that describes the amount of net income less preferred stock dividends available to the common shareholders.
true
For a long-term investor, the yield to maturity is the most important yield to determine.
true
For investors with a long time in front of them, market volatility is not of great concern today.
true
For the international investor, exchange rate risk is simply another layer of risk.
true
Governments issue savings bonds such as the Series EE bonds in an attempt to meet the investing needs of the small investor.
true
Growth stocks are issued by companies that have exhibited sales and earnings growth well above their industry average.
true
Historically, U.S. government securities have been considered the safest, lowest-risk investment available.
true
Holding several types of stock can greatly reduce the risk in your portfolio.
true
If the corporation that issued a bond goes bankrupt, the bondholders are paid before stock holders are paid from any remaining assets of the corporation.
true
If the nominal rate is 10% and inflation is 3%, the real rate of return is 7%.
true
If you are already retired and seek additional income, then bonds as an investment choice would be wise.
true
If you are too conservative with your investments, they may not keep up with inflation.
true
If you earned a negative 5% return on your investments while the overall stock market was down 9% then you have outperformed the market.
true
If your stocks beta was greater than 1.0 that indicates that your stock is more susceptible to movements in the market.
true
If youre going to make informed investment decisions, you have to seek investment information, read it, and interpret it.
true
In comparing municipal bonds to other taxable bonds, the comparison must be between equivalent taxable yields.
true
In the event of a corporate bankruptcy, bondholders claims are paid before shareholders claims are paid.
true
In the short run, market variability or volatility creates potential risk.
true
In trying to time the market investors are just as likely to miss out on upswings in the market as well as avoid down turns.
true
Interest rates are closely tied to the rate of inflation.
true
Investing in assets such as collectable Barbie Dolls or Beanie Babies are both example of speculating.
true
It is a good idea for every investor to read the Wall Street Journal.
true
It is very tough to consistently beat the market.
true
Limited liability associated with stock ownership means that shareholders can only lose the amount of money they have invested in the company.
true
Liquidity risk is a very important part of the time dimension of investing.
true
Long-term capital gains have favorable tax treatment over earned income.
true
Typically, the closer you get to retirement, the smaller the proportion of your retirement funds that should be invested in common stocks.
true
Under the risk aversion effect, investors who lose money are more reluctant to take risks.
true
When a bond is bought at a premium price above its par value, the current yield will be lower than the coupon rate.
true
When a corporation repurchases its own stock, it does so in the secondary markets.
true
When it comes to tax advantages, capital gains and dividend income are taxed at a lower rate than ordinary income.
true
You cannot benefit from capital appreciation until you actually sell your stock.
true
when a bond is bought at a discount price below its par value, the current yield will be higher than the coupon rate.
true
IBM is considering hiring an investment banker who will purchase and subsequently resell an issue of stock for them. This service is called
underwriting
Common stockholders have a superior claim on a companys assets over creditors and bondholders.
false
Common stockholders not only have the right to elect the board but also must approve day-to-day decisions of the chief executive officer.
false
Coupon interest is usually paid in quarterly installments.
false
Day trading is considered to be a safe, conservative investment practice.
false
Discount brokers are so named because they are able to get you discounts on the market price of stocks.
false
Diversification eliminates all the risk from your portfolio.
false
Diversification lowers risk, but it also lowers the expected return.
false
Dividends are paid regardless if the company makes a profit.
false
During times of rising inflation, investments with fixed returns like a bond or bank CD are attractive investments to own.
false
Every company must pay dividends as a portion of the companys profits to its stockholders.
false
Firms raise outside financial capital through the sale of stocks in the secondary markets.
false
For an investor looking for capital gains, preferred stock is preferred over common stock.
false
For most typical married couples, joint tenancy with the right of survivorship is not an appropriate form of account ownership.
false
Full service brokers are legally obligated to analyze the recommendations they receive from analysts.
false
If your portfolio is very diversified then the beta is of no use to you.
false
In the over-the-counter market, the individual investor must be physically present to purchase the security over-the-counter.
false
Income stocks are stocks that have a very high capital appreciation potential.
false
Income stocks pay relatively low dividends, and offer a high potential for capital appreciation.
false
Investment advice is very difficult to find and expensive to purchase.
false
Investors require a higher rate of return on bonds with higher bond ratings.
false
Market risk deals with the inability to sell a security quickly at fair market value.
false
Market risk is the risk of fluctuations in security prices due to changes in the market interest rate.
false
Most corporate bonds are tax-free bonds in the state the corporation is based in.
false
Most of the stocks listed in the Dow Jones Industrials have high P/E ratios and are classified as speculative stocks.
false
On the TV show The Big Bang Theory the main characters are frequently seen purchasing comic books. Purchasing rare comic books is an example of investing.
false
Publicly traded stocks listed on a major exchange are not very liquid investments.
false
Reesa is purchasing stock through the NYSE and the AMEX, as a result she will need to have a different broker to purchase stocks listed on each of these different exchanges.
false
Stock can only be purchased in round lots.
false
Stock splits increase the number of the shares you own, but decrease the value of your total holdings with the company.
false
Stocks of most larger companies trade on the American Stock Exchange, while the stocks of most smaller companies trade on the New York Stock Exchange.
false
Stocks represent a legal obligation for the issuing company to pay dividends, whether the company has made a profit or not.
false
Systematic risk can be effectively managed through diversification.
false
Technical analysis is a stock valuation technique that incorporates expected future earnings of the company, the riskiness of the companies cash flows, and interest rates in the markets in determining the current value of the stock.
false
The Dow Jones Industrial Average is based on the movement of 500 stocks, primarily from the NYSE.
false
The Internet is full of investment information, and all of it is stringently regulated so you can be sure of its reliability.
false
The New York Stock Exchange and the American Stock Exchange are considered regional stock exchanges.
false
The OTC market is a link-up of dealers, with stringent listing and membership requirements.
false
The concept of asset allocation has nothing to do with the time dimension of investing.
false
The dividend yield is calculated by dividing the earnings per share by the market price of the stock.
false
The herd behavior effect involves the emotions of fearing regret and seeking pride, resulting in selling winners too soon and keeping losers too long.
false
The higher your marginal tax bracket, the less attractive tax-free investments become.
false
The issuer of the bond is effectively loaning money to the bondholder when the bond is purchased.
false
The nominal rate of return is simply the real rate of return minus the inflation rate.
false
The only time to buy stocks is in a bull market and the only times to sell stocks is during a bear market.
false
The par value of the bond is the rate at which payments will be made to the bondholder annually, in the form of interest.
false
The real rate of return can never be a negative number.
false
The real rate of return is the rate of return earned on an investment without any adjustment for inflation.
false
The reluctance effect plays on the fear of regret and the seeking of pride, resulting in selling winning stocks too soon and keeping losing stocks too long.
false
The risk associated with the use of debt by the firm is business risk.
false
The share price is always less with a round lot than with an odd lot purchase.
false
The stocks tracked by the Dow represent over 50% of the market value of the NYSE.
false
The term bear stems from the fact that bears raise their paws upward when they attack.
false
The yield to maturity for a bond with eight years to maturity, with a face value of $1,000, pays 10 percent annual coupon and currently sells for $1,950, is 5 percent.
false
Unsystematic risk cannot be eliminated through diversification.
false
When a corporation engages in a stock repurchase, each remaining shareholder owns a smaller proportion of the firm.
false
When all stocks move in the same direction, diversification among stocks works just as well as ever.
false
When an individual investor sells their shares on the OTC, the price at which they are willing to sell is called the bid price.
false
When investors talk about movements in the market, they generally refer to the Russell 1000.
false
When placing a market order to purchase shares of stock, you will be required to make the order good-till-canceled.
false
When the market becomes too bullish, the average P/E ratio will fall.
false
Your emergency fund should always be invested in illiquid assets.
false
a prospectus is an advertisement placed in a newspaper or magazine that provides a listing of the underwriting syndicate involved in the new offering, in addition to basic information on the offering.
false
an individual investor should look for a stock broker who will churn their accounts for them.
false
if you are the owners of a share of preferred stock then you have voting rights.
false
if you purchases securities jointly with another person, how the account is registered is not very important.
false
A stock market characterized by increasing prices is termed a(n) ________ market.
bull
Sherman has three bonds with a $1,000 par value that pay a 9% coupon interest rate. How much will he earn every six months?
$135
If you bought a 20-year bond issued by the government, with a par value of $1,000 and an interest rate of 8%. At maturity you will be returned the principal of
$1600
The net income of the firm is $4 million dollars. The firm will pay $500,000 in dividends to the preferred shareholders. There are currently 1 million shares of common stock outstanding. What are the earnings per share for this firm?
$3.50
You believe that the stock of MoabBikes will soon fall from its current price of $25 per share. You short 1,000 shares with your broker who has a 50% margin requirement. The price falls to $15 per share, but not before it pays a $5 dividend per share. Your commissions and other charges totaled $50. What was your total profit?
$4950
Long term capital gains are taxed at ________ percent.
15
A bonds coupon interest rate is a factor if its market price.
false
If you purchase some shares of stock
you may earn dividends
Assume you have a margin account with a 50% initial margin. You purchase 100 shares of stock at $80 per share. The price increases to $100 per share. What is the net value of your investment (margin) now?
$6000
Suppose that you have a bond that has a par value of $1,000 and a coupon interest rate of 9%. Its current price is $950 and it will mature in 7 years. What is the yield to maturity?
10.03
Using a financial calculator calculate the value of a bond that matures in 20 years with a coupon interest rate of 10%, which is the required rate of return, and a par value of $1,000.
1000
What is the value of a $1,000 par value bond with a 12% annual coupon that will mature in 5 years if the bond is currently priced to yield 10%?
1075.82
Gail used her financial calculator to calculate her bonds yield to maturity. Given the following information what was her yield? N = 10; PV = -880.00; PMT = 100; FV = 1000.
12.14
The Dow Jones Industrial Average has been an index since what year?
1896
A stock currently selling for $105 with estimated earnings per share of $5.25 would have a P/E ratio of
20
Paula bought a stock for $200 last year and sold it today for $150. If she earned a dividend of $100 while she held the stock her rate of return was
25%
Latisha invested $1,000 in XYZ stock. Two years later she sold the stock for $1,200. During the time she owned the stock, she received a total of $80 in dividends. What was her total return on this investment?
28%
You have a corporate bond that pays interest every six months. Its par value is $1,000 and it carries a coupon rate of 10%. What is your accrued interest on the bond if it has been four months since interest was last paid?
33.33
Suppose that you just purchased a $1,000 Treasury Inflation-Indexed Bond which carried an original interest rate of 3.375%. The consumer price index just increased by 5% increasing the par value of the bond to $1,050. What is your interest payment considering this change?
35.44
Tran purchased a house for a rental property for $100,000 five years ago. During the time he owned this rental, his net rental income was a total of $4,000. He just sold the property for $120,000. What was his average annual return on this investment?
4.8%
You recently purchased a stock for $50. It is now worth $75, and it paid a $15 dividend during the two years you held it. What is your annualized rate of return on this stock?
40%
You recently purchased 100 shares of stock at $15 per share. The stock is now worth $20 per share, and it paid a $2 dividend during the time you held it. Your rate of return on this stock is closest to which of the following?
47%
A bond has a par value of $1,000, a market price of $300, and a 9% coupon rate. It will mature in 5 years. What is the current yield of the bond?
48.27
The firm will pay an annual dividend this year of $2 per share. The current market price of the stock is $40.00 per share. The book value of this stock is $24.00 per share. The earnings per share for this firm is $5.75. What is the current dividend yield of this stock?
5%
You recently purchased a stock for $30. It is now worth $40, and it paid a $5 dividend during the time you held it. Your rate of return on this stock is closest to which of the following?
50%
You are looking at the stock quotes in your newspaper and you see that your stock closed up 5% yesterday. Where would you look to see how it has been doing over the last year?
52 week high and low
You recently purchased a stock for $25. It is now worth $35, and it paid a $5 dividend during the time you held it. Your rate of return on this stock is closest to which of the following?
60%
Suppose you just purchased a corporate bond with a par value of $1,000 for $951.25. It carries a 7% coupon rate and will mature in 5 years. What is the yield to maturity?
8.23
You purchased an investment for $1,000 on which you earned $120 investment last year. The inflation rate during that time was 3%. What was your real rate of return?
9%
Louis purchased $5,000 worth of stock three years ago and sold it today for $7,000. He received no dividends from this investment. Inflation averaged 4% during the three years he owned the stock. What was his annualized real rate of return on this investment?
9.33%
A(n) ________ is a marketable document (a receipt) that certifies a bank holds shares of a foreign firms stock that backs the receipt.
ADR
The ________ is a common stock indicator, consisting of 30 large industrial firms, and is used to indicate how well stocks have done.
DJIA
Securities that are less frequently traded, along with many new and high-tech stocks, are relegated to the
OTC market
This approach is used regularly by security analysts to measure a stocks relative value, or how much investors are willing to pay for a dollar of the companys earnings. It is found by dividing the price per share by the earnings per share and is called the
P/E ratio
When a bond is described as AA, what does this refer to?
a bond rating of very strong capacity to pay interest and principle repayment
You have decided to give your stockbroker the power to make trades in the market on your behalf, without notifying you of the trades prior to execution. This is an example of
a discretionary account
What would you expect to be associated with a company whose stock has a high beta?
a high potential return
You have been watching a stock that has dramatically increased in price for the last several days. Today it closed at $50 per share. You want to purchase this stock in the morning using your online brokerage account. You are willing to pay up to $53 a share but no higher. What type of purchase order should you use?
a limit order
Because there is no default or call risk associated with government bonds, they generally pay ________ rate of interest than other bonds.
a lower
What is the purpose of a margin account and using margin to purchase stocks?
a margin account allows you to purchase more shares than you could afford to purchase using only your money; using margin to purchase more shares gives you the potential to earn a higher return on your investment
Brittany has learned in her research that ________ are issued by the FNMA and the FHLB.
agency bonds
Which of the following investment options is not affected by a change in the market rates of interest?
all are
What are the benefits of a well-diversified portfolio?
all but protection from systematic risk
A bond with a speculative rating will have which of the following characteristics?
all of the above
A buy-and-hold investment strategy
all of the above
Asset allocation has to do with how your money should be divided among which of the following?
all of the above
Fundamental analysis looks at which of the following?
all of the above
Many people never consider or think of the sources of risk that affect their investments. Which of the following is a risk associated with investing?
all of the above
what are proxy fights?
battles for proxy votes between rival groups of share holders in the same company
During the economic downturn that occurred between the fall of 2007 and spring of 2009, stocks declined in price. This period is known as a(n)
bear market
You and a group of your friends have been discussing your portfolios at the company water cooler. Your discussion has centered on how your stocks are moving up or down in price relative to the market as a whole. Each stocks ________ is likely the best measure of the relationship.
beta
If you purchase stock of big companies like Proctor & Gamble, General Electric, and Texaco you would be buying shares of ________ stocks.
blue chip
If you were to purchase common stocks issued by large, nationally known companies with sound financial histories with solid dividend and growth records you would own what are called
blue chip stock
For an investor who is retired, which category of stocks would be more appropriate for a portion of their portfolio?
blue chip; income stocks
Karyn wants to evaluate some bonds she is contemplating buying. In order to adequately evaluate them, she should check the bond yields, read the bond quotes in a paper, and check the
bond ratings
Bonds enjoy all but one of the following advantages. Which is it?
bonds may be called when interest rates drop
A(n) ________ account represents the money or investments you have at a brokerage firm.
brokerage
You are considering the purchase of a stock with a current market price of $50.25 per share. It is expected to pay a dividend of $5.25 next year. Historically the stock has grown at 5%, and based on its risk, you desire to earn a 15% return. Which of the following is true?
buy the stock, since your estimated price is higher than the market price
Principle 8, Risk and Return go hand in hand, tells us that you ________ as the length of the investment horizon ________.
can afford to take on additional risk; increases
Returns from shares of stock come in the form of
capital appreciation and dividends
Suppose that you purchased a machine several years ago for your company. You recently sold the machine for more than you paid. This is an example of a
capital gain
One should keep in mind that when it comes to tax advantages, ________ is/are better than ________.
capital gains; ordinary income
Investors with ________ accounts pay in full for their security purchases.
cash
Examples of political and regulatory risk include
changes in the tax deductibility of interest on municipal bonds; changes in the capital gains tax rate
Your next-door neighbor, a kind, elderly lady, just discovered that her stock account had been excessively traded in an inappropriate manner, mainly to generate excess commissions. This is an example of
churning
Which feature of common stock ownership allows a stockholder to share in the companys earnings after the creditors are paid?
claim on income
You are really keen on stocks. However, you do not like stocks with regard to ________. This means that if a company you have invested in goes bankrupt, the creditors are paid first and you will be out of luck.
claims on assets
A ________ is a trading order that expires at the end of the trading day during which it was made.
day order
Investors who trade with a very short time horizon, generally holding onto stocks for only a few hours, are called
day traders
An unsecured long-term bond is known as a(n)
debenture
The long-term bond you own was issued by IBM Corporation and used no collateral. This is an example of a(n)
debenture
The ________ is the date on which the board of directors announces the amount of the dividend.
declaration date
reg Jewell read about several companies that were performing relatively well despite the current recession. Stocks like these, that in some cases actually perform better during downturns in the economy, are called ________ stocks.
defense
A security whose value is based solely on the value of other assets is called a ________ security.
derivative
A(n) ________ account represents the money over which you give a broker power to trade for you.
discretionary
The ________ plays on the fear of regret and the seeking of pride, resulting in selling winning stocks too soon and keeping losing stocks too long.
disposition effect
Bruce Lee owns stocks, bonds, real estate, gold coins, T-Bills, and gemstones. He has a(n)
diverse portfolio
The acronym DRIP stands for
dividend reinvestment plan
The ratio of the annual dividend to the market price of the stock is called the
dividend yield
________ bonds are sold electronically, and they are now sold at face value; that is, you pay $50 for a $50 bond.
electronic series ee
Bond issuers may do something very important for the bondholder that increases the probability the debt will be successfully paid off at maturity. The issuer
establishes a sinking fund
What point marks the purchase of common stock without a right to a declared dividend?
ex-dividend
The ________ date is the date the stock begins trading without dividend, meaning that if you buy it after this date you will not get the dividend for that year.
ex-dividend date
You have just purchased a large number of Italian bonds, and you reside in the United States. The variability in earnings that you might experience as the relationship between the euro and the U.S. dollar fluctuates is called
exchange rate risk
A stock market characterized by ________ prices is termed a bear market.
falling
A 60-year-old investor should not be too concerned about liquidity and market risk in their retirement portfolio.
false
A bonds yield is always exactly the same as its coupon interest rate.
false
A buy-and-hold investment strategy means that an investors gains will be taxed as short -term capital gains.
false
A catastrophic loss is less critical to an older investor than it is to a younger investor since younger investors typically have less money to lose.
false
A circuit breaker protects individual investors from losing money on their investments.
false
A company that doesn't make a dividend payment is insolvent and may be forced into bankruptcy by the stockholders.
false
A corporation that issues preferred stock will mostly likely call the stock when the market rates of interest increase.
false
A day trader is an individual who trades with a very long-term investment horizon.
false
A debenture is a long-term bond secured by collateral.
false
A firm can only have one issue of preferred stock available at any one point in time.
false
A full service broker will always get you a lower share price on your purchases of stock.
false
A growth stock is known for its high dividend yields.
false
A technical analysis is the framework for analyzing a security in which you look at a firms internal strengths and weaknesses and external opportunities and threats in order to gain an understanding of what the future holds for that firm and its stock.
false
According to the Keown book, overconfidence afflicts women more often than men, and it also leads women to trade too often.
false
According to the risk-return relationship, commercial paper usually has a higher risk and return than long-term corporate bonds.
false
According to your text, falling in love with your stock is a good idea.
false
American Depository Receipts are receipts given by American banks for deposits in foreign countries.
false
An IPO is the sale of previously issued shares to the general public.
false
An indenture is an unsecured long-term bond.
false
An individual selling previously issued shares to another individual is a transaction that would be traded in the primary market.
false
An over-the-counter market has a physical location where trading occurs.
false
Any company can have its securities listed on the NYSE.
false
As the owner of a corporate bond this means I hold an ownership position within that corporation.
false
Asset allocation and diversification are not related concepts.
false
Because the Dow Jones Index Average is based on the movement of 500 large, well-established stocks, many investors believe it reflects price movements for large firms rather than for the general market.
false
Bonds are always a safe investment if held to maturity.
false
Bonds that do not pay interest are known as no-load bonds.
false
Both capital gains and dividends are guaranteed with common stock.
false
Coca-Cola is an example of a red-chip stock.
false
Because of her childrens immediate financial needs, your aunt Marsha has decided to switch some of her money to high-grade utility company stocks. Her reasoning is that these ________ stocks generally pay relatively high dividends that she will be able to give to her children as they need assistance.
income
Peter must read the ________, or legal agreement between the firm issuing the bond and the bond trustee who represents the bondholders.
indenture
You hold in your hands a legal document that provides the specific terms of the loan agreement, including a description of the bond, as well as the rights of the bondholder. You have a(n)
indenture
Acting upon assumed good advice, your brother buys stock in I-Link, an upcoming communications firm. Since this is the first time I-Link is trading its stock, your brother will be involved in a(n)
initial public offering
The two types of securities offerings in the primary markets are ________ and ________.
initial public offering; seasoned new issues
Because the DJIA weights stocks based on their relative prices, when a high priced stock moves a small amount on the DJIA, it has a(n) ________ impact on the index.
inordinately large
Albert just purchased a $1,000, 5.4%, 10-year bond when he heard about his friend Charlie who just bought a similar bond at $1,000; 9.5%, 10 -year bond. What kind of risk did Albert just experience?
interest rate
Louise Rogers knows that several factors affect the price of a share of common stock. The one that says there is an inverse relationship between interest rates and the value of a share of common stock is the ________ factor.
interest rates and stock valuation
It is a fact that there is a(n) ________ relationship between interest rates and bond values in the secondary market. When interest rates ________, bond prices ________, and when interest rates ________, bond prices ________.
inverse; rise; drop; drop; rise
IBM went to a(n) ________ who served as a(n) ________ to sell an IPO in the primary markets.
investment banker; underwriter
Securities are generally sold in the primary markets with the help of a(n) ________ serving as a(n) ________.
investment banker; underwriter
herd behavior
is a kind of self−fulfilling behavior.
Because every company is almost certain to experience a bad year or two, holding on to stock for only one year
is not a very sound investment decision
The invoice price of a bond
is the price you pay if the bond is in the secondary market and is the stated price of the bond plus the bonds accrued interest
The largest single player and payer in the bond market
is the us gov
Which of the following statements regarding risk in investing is most correct?
it is hard to achieve a positive real return by avoiding risk all together
What is the purpose of a circuit breaker for the market?
it temporarily stops computerized trading to allow investors to analyze the extraordinary market swings
All of the following are true about the American Stock Exchange except
its dollar volume is larger than all the regional exchanges
Which of the following starts off with the highest risk bond and ends with the lowest risk bond?
junk, corporate, municipal, treasury
Which of the following best describes preferred stock?
like a common stock and bond
A ________ is an order that specifies a securities trade is to be made only at a certain price or better.
limit order
All of the following are ordering alternatives that specify the timeframe within which you want your order filled except
limit order
You specify that your trade is to be made only at a certain price or better. You are placing a(n)
limit order
The risk that you will not be able to find a buyer at a fair market price, and will wind up having to sell for less than an assets worth is called ________ risk.
liquidity
Alice just inherited an antique wood burning stove. While she appreciates the sentimental value of the stove she is concerned that an investment such as this might not be able to be converted into cash quickly at a fair market price. Alice is worried about ________ on this as an investment.
liquidity risk
Herman Melville never thought of a bond as being a ________ and that he would be a ________ when securing one until he read about it in his personal finance text.
loan; lender
In addition to your own investment, you borrowed money from your broker to purchase shares of a stock. Your broker called to tell you that the price of your stock has fallen and you now need to contribute more of your own money to keep the account at the minimum level. This is termed a(n)
magin call
Amy and Bob have decided to borrow a portion of the purchase price of stocks from their broker. They will then have a ________ account.
margin
A ________ is an order to buy or sell a set number of securities immediately at the best price available.
market order
Which of the following purchase orders indicates that you want to buy or sell immediately?
market order
Large-caps, mid-caps, and small-caps refer to the size of the firm issuing the stock, more specifically, to its
market value
The ________ date is the date at which the bond issuer must repay the loan or borrowed funds.
maturity
The corporate bond that you own is backed by the corporations Houston, Texas real estate holdings. If the company defaults, these holdings could be liquidated to repay the debt. This is an example of a ________ bond.
mortgage
If you were considering the purchase of a bond issued by a state, county, or city you would be considering the purchase of a ________ bond.
municipal
The ________ rate of return earned on an investment is unadjusted for lost purchasing power.
nominal
While studying the chapter on investments in Personal Finance, Becky Hargrith found out that the ________ is equal to the real rate of return plus the rate of inflation.
nominal interest rate
What type of broker can protect your investments from systematic risk?
none
As the number of stocks in your portfolio increases
none of the above
Sally is attempting to purchase 88 shares of Googles stock. Sally is purchasing a(n) ________ lot of stocks.
odd
Common stockholders are entitled to elect the companys board of directors. Usually one share of stock is equal to ________ vote(s).
one
You want to buy stock in a dynamic electronics firm. You place an order that cannot be completely filled the first day, so you ask for a(n)
open order
you just concluded a stock purchase transaction via a computer hookup rather than in an organized exchange. This trade took place in the
over the counter market
Why should a younger investor, saving for the long term, have most of their money in common stocks?
over time, common stocks generate the largest average returns; investors with lots of time ahead of them have the opportunity to recover from a serious investment set-back
Which statement is true regarding overconfidence?
overconfidence leads to trading too often and overconfident investors think they can beat the market
Changes in the capital gains tax rate, or in the tax deductibility on municipal bonds are examples of ________ risk.
political and regulatory
An investor owns stock from seven different companies, two rental houses, and three government bonds. Together these assets are considered to be the investors
portfolio
What is an advantage to being a preferred stock holder?
preferred stock holders receive dividend payouts before common stock holders do
Marian read in a financial magazine that the discounted dividends valuation model of common stock defines the value of a share of common stock as the ________ value of the infinite stream of future ________.
present; dividends
ABC Corporation is selling additional shares of common stock. These are new shares of stock, and have never been sold or traded previously. The selling of these shares would take place in the ________ market.
primary
Jordan has a few thousand dollars to invest. He wants to find newly issued stock of a fast - growing new company. He will contact an underwriter and attempt to purchase the shares in the ________ market.
primary
Jeffery is an underwriter and sells shares on the ________ market for his job. However, in his personal investment life, he will purchase his stocks through the ________ market.
primary; secondary
A(n) ________ is a legal document that describes a securities issue and is made available to potential investors.
prospects
Brokerage firm reports
provide access to research reports prepared by the firm's securities analysts.
A(n) ________ is a legal agreement signed by a stockholder allowing someone else to vote on his or her behalf at the corporations annual meeting.
proxy
Lawrence Wright is slow in math. He has before him the equation of (ending value minus beginning value) and income return totalled, then divided by beginning value. This is used to find the
rate of return
The nominal rate of return minus the inflation rate is called the
real rate of return
As compared to growth stocks, income stocks pay ________ dividends with ________ growth in earnings.
relatively high, relatively little
Jacqueline is attempting to determine the value of her preferred stock. She needs to form a fraction with the annual preferred stock dividend on the top and ________ on the bottom.
required rate of return
State or municipal bonds that have interest and par value paid for with funds from a designated project or specific tax are known as ________ bonds.
revenue
The city of Houston passed a bond issue to build a bridge over the bay. The bond was to have the interest paid by the income generated by charging drivers a toll to cross the bridge. This is an example of a ________ bond.
revenue
Your dad said that he was curious to know why there is so much fluctuation in the value of common stocks. In 1997 the prospects for Sun Industries became more uncertain and investors began to view it as a more risky investment than they had previously. To compensate for this added risk, investors increased their required rate of return on Sun Industries stock, resulting in a decline in its market value. This explains the factor of
risk and stock valuation
A group of 100 shares of common stock is referred to as a(n)
round lot
Nathan noticed that a company that has great potential just declared a ________ because its stock price was getting too high for the small investor to buy the stock. The company will substitute more shares for the existing shares of stock without increasing the market value of the firm.
stock split
Securities include both ________ and ________.
stocks; bonds
A(n) ________ order is an order to sell if the price drops below a specified level or buy if the price climbs above a specified level.
stop
A ________ is an order to sell a security if the price drops below a specified level or to buy if the price climbs above a specified level.
stop loss order
The book value of a company is calculated by
subtracting the value of all the firms liabilities from the value of its assets
Which of the following is not risk that can be diversified out of a portfolio of stocks?
systematic
In October 2008, most of the major stock indices around the world plummeted in value. The most likely cause for these dramatic events were
systematic risk
The difference between an organized exchange and an over-the-counter market is that the transactions that occur on an organized exchange ________ and the over-the-counter transactions ________.
take place in a physical building; are conducted over the phone or via computer
Principle #4, taxes affect personal finance decisions, tells us that several points hold true regardless of what we invest in. Jason found a point that was included on the list in error. Which of the following is it?
tax free investments should be compared on a before tax basis
You can make investments on a ________ basis, which means that not only does your investment grow free of taxes, but the money you invest isn't taxed until you liquidate your investment.
tax-deferred
Treasury bonds are generally viewed as being risk-free, given the governments ability to ________ and ________.
tax; print money
The dividend yield on a share of common stock is
the amount of annual dividends divided by the market price of the stock.
As a shareholder in Titanic Shipping, Inc., James Blue is one of the many actual owners. In case of the bankruptcy of the corporation, his liability would be limited to
the amount of his investments
You are considering the purchase of one of two different bonds, a muni, which currently yields 6%, and a corporate, which currently yields 10%. If you are trying to maximize your return and you are in a 38% tax bracket, which of the following is true?
the corporate bond has a better yield for you
Your investment goal is to receive a stream of income from your investment. Which of the following would be important information to determine whether a particular stock purchase would suit your plan?
the dividend yield
Which of the following determines what the annual interest payment on a bond will be?
the par value and the coupon rate
Alice learned that the difference between the real rate of return and the nominal or quoted rate of return is that
the real rate is adjusted for inflation.
Why should investors with a short investment horizon invest less money in common stocks?
the stock market is very volatile and a catastrophic market event can happen at any time; investors won't have enough time available to effectively recover from a loss of their investment principle
the diva weights stocks based on
their relative prices
The letters or characters that represent a stock is known as the stocks
ticker
As a young college graduate, your biggest investment ally is
time
When there are changes in the consumer price index, there is a corresponding change in the par value of
tips
What is the purpose of the sinking fund?
to force the issuing company to save money to retire the bonds at maturity
A(n) ________ advertisement provides a listing of the underwriting syndicate involved in a new offering.
tombstone
Particularly, during election years, investors should make themselves aware of the risk resulting from unanticipated changes in the tax or legal environment. This is classified as political and regulatory risk.
true
Placing a market order exposes the buyer to more risk than placing a limit order.
true
Preferred stock is similar to bonds in that its dividends are of a fixed size and are paid before common stock dividends are paid.
true
Proctor and Gamble is an example of a blue-chip stock.
true
Purchasing derivatives is a form of speculating.
true
Reggie believed that the price of his stock was going to drop in the near future his strategy was to short sell that stock to make a profit.
true
Seasoned new issues are stock offerings by companies that already have common stock traded in the marketplace.
true
Some companies distribute earnings per share in the form of dividends and some retain these earnings for future investment in the firm.
true
Some firms have negative earnings per share numbers.
true
Some types of investments expose you to multiple sources of risk.
true
Specialists maintain a fair and orderly market by buying and selling stock from their inventory to keep the market from fluctuating more than it would otherwise.
true
Speculative stocks are often traded through the OTC Bulletin Board.
true
Stocks are initially sold in the primary markets with the help of an investment banker serving as the underwriter.
true
TIPS are treasury bonds for which the par value changes with the consumer price index.
true
Technical analysis focuses on supply and demand, using charts and computer programs to project stock trends.
true
The P/E ratio approach is a type of fundamental analysis.
true
The S&P 500 is a much broader index than the Dow.
true
The Securities Act of 1934 created the SEC to enforce trading laws.
true
The biggest single payer in the bond market is the U.S. Government.
true
The collateral an investor must put up when conducting a short sale is known as a margin requirement.
true
The current yield, the coupon rate, and the yield to maturity are equal if the bond sells at par value.
true
The discounted dividends valuation model states that the value of a share of stock is the present value of its future dividends.
true
The dividend yield tells investors how much in the way of a return they would receive if the stock price and the dividend level remain constant.
true
The face value of a bond, or the amount that is returned to the bondholder at maturity is also known as the bonds denomination.
true
The market price of preferred stock is inversely related to the market rates of interest.
true
The market price of the stock is a reflection of the potential earnings per share of the firm.
true
The more efficient the market, the faster prices react to new information.
true
The nominal rate of interest that investors demand will increase with an increase in the expected rate of inflation.
true
The price at which an individual investor is willing to buy a security is the bid price.
true
The price/earnings ratio is an indication of how much investors are willing to pay for a dollar of the companys earnings.
true
The primary sources of information about the stock market and individual stocks are Moodys Investors Service, Standard & Poors Stock Reports, Morningstar Investment Reports, and the Value Line Investment Survey.
true
The rate of return on an investment is calculated by dividing the capital gain or loss plus the cash flows by the initial investment amount.
true
There is an inverse relationship between interest rates and bond values.
true
To begin your savings plan it is a good idea to set aside your savings first and only spend what is left over.
true
That portion of a stocks risk or variability that can be eliminated through investor diversification is called ________ risk.
unsystematic
______ risk is simply the variability in the returns of an investment that is due to events that are unrelated to the overall market.
unsystematic
Cretia Robritti discovered that the purpose of asset allocation is to ensure that the investor is ________, generally with holdings in several different ________ of investments.
well diversified; classes
You and your spouse have decided to incorporate bonds into your newly-formed retirement portfolio. You will most likely purchase them
with your broker acting as an intermediary
You have just purchased 10 shares of a stock selling at $50 per share. Since that time, the company was found to be in violation of several environmental laws and has several major lawsuits outstanding. Which of the following statements is most correct?
you could lose up to your $500 investment
You are considering purchasing one of two stocks. Stock A is expected to pay a $2.50 dividend, and has historically grown at 6%. Stock B is expected to pay a $3.00 dividend and has historically grown at 4%. Both are the same risk, and you desire to earn a 16% return. Which of the following is true?
you should buy either stock A or B, since the estimated prices are the same
You have just discovered one reason not to invest in stocks. What do you think it is?
your tolerance of risk is low
The bond that you own does not pay any interest. Instead, it is sold at a discount from its maturity value. This is a ________ bond.
zero coupon
