Series 7 Top-off - Chapter 19 **copy**

Using dollar cost averaging and based on the information listed below, what is the average cost per share to this investor? Total Payments = $1000 Total shares purchased = 85.5 [A] $11.70 [B] $12.00 [C] $60.00 [D] $85.50

[A] $11.70 The Average Cost per share is $11.70 ($1,000 divided by 85.5)

The Dow Jones Composite Average is composed of [A] 65 common stocks from the industrial, transportation, and utility averages. [B] 500 common stocks from the industrial, transportation, and utility averages. [C] 30 selected common stocks divided by a constant. [D] 425 selected common stocks divided by a constant.

[A] 65 common stocks from the industrial, transportation, and utility averages. The Dow Jones Composite Average contains 65 common stocks from the industrial, transportation, and utility indices.

According to technical analysis, all of the following would track investor sentiment EXCEPT: [A] Investment advisory census surveys. [B] Amount of short selling. [C] Revisions of earnings estimates by a corporation. [D] Number of small investors trading on margin.

[C] Revisions of earnings estimates by a corporation. Revisions of earnings estimates by a corporation would not be a measure of investor sentiment. Earnings are fundamental.

Which of the following affect earnings per share? I. Changes in the method of inventory valuation. II. The acquisition of another corporation through the issuance of bonds (fixed obligations) of a subsidiary. III. The spin-off of a subsidiary. [A] I and II [B] II and III [C] I and III [D] All

[D] All All of these options will affect earnings per share. Number I could either increase or decrease them. II would decrease earnings per share and III would most likely increase them.

Assume that for the past week, the number and dollar value of shares purchased by odd-lotters have been approximately 25% less than the number and dollar value of shares sold by odd-lotters. If this trend continues according to the odd lot theory, it would be: [A] Bullish [B] Bearish [C] Meaningless [D] An indication that total trading volume has increased

[A] Bullish ** simple note - most of them are NOT buying (75%) which means they're bearish. People who adhere to the Odd Lot Theory will be purchase (be bullish)** The Odd Lot Theory believes that odd lot investors are always wrong; therefore, you should buy when odd lot investors are selling and sell when odd lot investors are buying. Using this philosophy the past weeks trend would be considered bullish.

Two of the most likely reasons for a corporation to increase financial leverage are? I. Growth in sales II. Increased income for debt security holders III. Profit improvement for the common investor IV. Increased number of common shares outstanding [A] I and III [B] I and IV [C] II and III [D] II and IV

[A] I and III Growth in sales would require more operating capital and leverage is directly reflected in growth of earnings.

Under which of the following conditions will the average cost per share to the investor, over a period of time, always be lower than the average price per share? I. If a fixed dollar amount is regularly invested. II. If he follows a constant dollar plan. III. If a fixed number of shares is regularly purchased. IV. If the price of the stock fluctuates. [A] I, II, and IV [B] I, III, and IV [C] II, III, and IV [D] All of the above

[A] I, II, and IV Under Dollar Cost Averaging the average cost per share to an investor over a period of time will always be lower than the average price per share if a fixed dollar amount is regularly invested and the price of the stock fluctuates.

The Net Earnings of a corporation would be found on which of the following? [A] Income Statement [B] Balance Sheet [C] Capital Structure Summary [D] Statement of Financial Condition

[A] Income Statement The Income Statement basically shows the amount the corporation earned, expenses that were paid, and the amount of earnings remaining after expenses. Therefore, the Net Earnings would be reflected on this statement.

Market momentum refers to: [A] The degree of strength or weakness in various industry groups. [B] Disintermediation [C] Money supply [D] The impact of fiscal and monetary policies on the market

[A] The degree of strength or weakness in various industry groups. Market momentum is the tendency of a security to continue movement in a single direction. Momentum is one of the most important factors in trend analysis of the stock prices. It also indicates the degree of strength or weakness for industry groups.

When measuring the expected risk and expected return on an investment, it is known as: [A] the Dow Theory [B] Capital Asset Pricing Model [C] Advance Decline Theory [D] Indexing

[B] Capital Asset Pricing Model The Capital Asset Pricing Model measures the expected risk and expected return on an investment considering that investors expect a greater return for a greater risk.

Indices and averages in the securities industry may be capitalization weighted or price weighted. All of the following indices and averages are capitalization weighted EXCEPT: [A] NYSE Composite Index [B] Dow Jones Industrial Average [C] S&P 500 Stock Index [D] Wilshire 5000 Equity Index

[B] Dow Jones Industrial Average The Dow Jones Industrial is a price weighted index and NOT capitalization weighted. All other choices represent indexes which are capitalization weighted.

Types of Asset Allocation include which of the following? I. Tactical II. Dynamic IV. Policy Specific [A] I only [B] I and II only [C] III only [D] I, II, and III

[B] I and II only Tactical and Dynamic are types of asset allocation, but Policy Specific is not a method of asset allocation.

Current common shareholders' interest would be diluted by: I. A 3 for 1 split of the common stock II. A sale of 500,000 shares of previously unissued stock by the company III. 20,000 debentures converted by their holders into common stock IV. A 25% stock dividend on common [A] I and IV [B] II and III [C] II, III, and IV [D] All of the above

[B] II and III Dilution occurs when new shareholders are added. Choices I and IV affect only existing shareholders and therefore would not cause dilution.

Which of the following would be used in the fundamental analysis of a security? I. Support and resistance levels II. Trading volumes III. Liquidity ratios IV. Historical earnings trends [A] I, II [B] III, IV [C] I, II, III [D] All of the above

[B] III, IV The following factors would be examined in a fundamental analysis of a security. Management Earnings Company outlook Company's annual report P/E Ratio Support levels, Resistance levels, and trading value are considered to be part of Technical Analysis.

A corporation's Net Earnings are found in which of the following? [A] Balance Sheet [B] Income Statement [C] Current Ratio [D] Net Working Capital

[B] Income Statement The Profit and Loss or Income Statement would show the corporation's Net Earnings.

Which of the following is a correct statement concerning the Dow Jones Industrial Average (DJIA)? [A] The stocks of two companies are added to the index each year. [B] It is considered by many investors to be an indication of market direction. [C] It is calculated by dividing the aggregate price of 30 selected industrial stocks by 30. [D] It includes transportation and utility stocks.

[B] It is considered by many investors to be an indication of market direction. The Dow Jones Industrial Average is the best known index. It is the market price of 30 selected common stocks divided using a formula which takes many factors into consideration (not simply by 30). It is the Dow Jones Composite Average that includes the transportation and utility stocks.

The Dow Jones Industrial Average is: [A] The market price of 60 selected common stocks divided by a constant. [B] The market price of 30 selected common stocks divided by a constant. [C] The market price of 500 industrial stocks divided by a constant. [D] The market price of 65 selected stocks divided by a constant.

[B] The market price of 30 selected common stocks divided by a constant. The Dow Jones Industrial Average is the market price of 30 selected common stocks divided by a constant.

Charting advances and declines in stock prices using technical analysis would be measuring which of the following: [A] Trading Volume [B] Short Interest [C] Breadth of the Market [D] Alpha Movement

[C] Breadth of the Market

When compared to other types of securities, small cap companies often will have a higher level of which of the following? [A] Small cap companies often will have a greater amount of timing risk to investors. [B] Small cap companies often will have a higher level of risk associated with inflation. [C] Small cap companies often will have a higher level of liquidity risk to investors. [D] Small cap companies often will have a higher level of risk associated with changes in interest rates.

[C] Small cap companies often will have a higher level of liquidity risk to investors. By nature and even by name, small cap companies (small capitalization companies) have a relatively low amount of capitalization. This would mean that relative to other companies, a small cap company will have fewer shares trading on the open market. This can lead to concerns with liquidity if an investor wants to buy or sell and there is not currently a market for the small cap security.

The technical market theory which states that the small investor is usually wrong, buying at market peaks and selling at market bottoms, is called: [A] The short interest theory. [B] The advance-decline theory. [C] The Dow Theory. [D] The odd lot theory.

[D] The odd lot theory.