Chapter 11 - Investment Planning

5) How do transactions work in the securities markets? Suppose you are a serious investor with large amounts of capital and prefer to deal directly with an in-person stockbroker. Which of the following statements regarding your options are true? Check all that apply.

- Active traders can generally negotiate reduced fees. - Full service broker is a better option than online brokers for those who want services beyond simply executing trades.

6) Recognizing Different Types of Orders Juanita: Suppose the price of the stock falls for the rest of the day, eventually closing at a price of $249.07. In this case, the total value of the shares she purchased __________________ between the time of her purchase and the end of the day. If she had instead placed a _____________ order at 12:21 PM and obtained the same number of shares at $251.36 per share, she would have ______________________________ by the end of the day instead.

- fell by $53 - market - lost $229 in value

7) Understanding How Trade Orders Work Carlos purchased 100 shares of an exchange traded fund (ETF) specializing in energy for $90.24 per share. Carlos is comfortable holding on to his shares in the face of minor fluctuations, but does not want to risk the share value falling far below his purchase price. He therefore considers placing a _______ order so that all 100 shares would be sold if the share price falls to $88.

stop

7) Understanding How Trade Orders Work Jack purchased 300 shares of an exchange traded fund (ETF) specializing in consumer staples for $90.24 per share. Jack is comfortable holding on to his shares in the face of minor fluctuations, but does not want to risk the share value falling far below his purchase price. He therefore considers placing a ____________ order so that all 300 shares would be sold if the share price falls to $88.

stop

1) Day trader

This type of investor uses the online investing platform to trade securities on a daily basis to reap profits from fluctuations during or within the trading day. the name given to an investor who does not use the strategy of buying and holding a security. This type of investor buys and sells securities throughout the day mostly through an online platform trying to reap quick profits from price fluctuations.

7) Understanding How Trade Orders Work True or False: If instead the stock price had declined for the majority of the period and ended up at a price of $82, placing the order would have limited his losses.

True

3) What are the different ways you can invest? Becky's friend John has a lower tolerance for risk and prefers guaranteed interest payments. Therefore, he should purchase ________________________, which guarantees fixed interest payments in addition to the return of the principal value at the end of the investment period.

bonds

8) Understanding How Indexes Report Data The following table lists stock quotes from four of the most widely cited indexes: the Dow Jones Industrial Average (DJIA), the NASDAQ-100, the S&P 500, and the AMEX. In interpreting these numbers, it is most important to consider ____________________________.

how they have changed over a period

1) Prospectus

is a formal legal document that confirms the sale of a security to the buyer and contains important information about the issuing company's business, personnel etc. This document is filed with the Securities Exchange Commission (SEC) and contains all the necessary material an investor needs to know about the issuing company.

5) How do transactions work in the securities markets? Transactions involving buying and selling securities are conducted through stockbrokers, who are also known as account executives or financial consultants. When choosing a stockbroker, investors have three primary options: full-service brokers, discount brokers, and online brokers. Brokers who offer services at low commissions and allow investors to execute trades themselves electronically are called ___________________________.

online brokers

1) Investment plan

This document helps you identify which investment opportunities will help you in achieving your financial goals in a particular time frame with specified risk tolerance. is documented statement that is prepared to create a strategy for your investments to be distributed in the investment vehicles helping you achieve your financial goals in the desired time frame.

1) Capital accumulation plan

This is a statement that helps you in identifying how you can cut down some expenses to save money to invest. helps in finding opportunities that can result in net addition to your personal wealth or help you redistribute your wealth so that you can achieve your financial goals. This plan guides you on how to improve your savings ratio in order to accumulate capital for investments.

1) Securities Investors Protection Corporation (SIPC)

a nonprofit corporation with the responsibility of providing investors protection if the brokerage firm they invest with, fails. The SIPC was created by Congress after the Securities Investors Protection Act of 1970 and is subject to SEC and congressional oversight.

3) What are the different ways you can invest? Ginny is a slightly more confident investor than Eric. She thinks that the technology sector is going to perform particularly well in the stock market in the coming months. Consequently, she chooses to buy shares of a particular technology-centered __________________ because, like Eric's purchase, this option also offers diversification, but it tends to be concentrated in a certain industry.

exchange traded fund

9) Interpreting Stock Market Data The following table displays hypothetical stock quotations. Use the information in the table to answer the questions that follow. *** Insert graph where MarkMin's P/E Ratio is 47 *** You can calculate that Realtime had per-share earnings for the most recent 12-month period of _____________.

$2.39

7) Understanding How Trade Orders Work The following graphs depict two hypothetical paths for the share value of Carlos's ETF over the course of the next six months. Complete the sentences below each graph to describe what would happen if Carlos placed the preceding order under each of the two circumstances. *** Shows graph that decreases until 1.5 months, and increases after 1.5 months *** In the preceding scenario, his order would be activated _____________________ and executed at ________________; thus the order would _____________________________ over the six month period.

- after 1 month - the best available price - prevent him from earning large gains

5) How do transactions work in the securities markets? Because the fees charged for broker-assisted trades _______________________________, it is __________ shopping around before choosing a broker.

- can vary considerably - worth

9) Interpreting Stock Market Data The following table displays hypothetical stock quotations. Use the information in the table to answer the questions that follow. *** Insert graph where MarkMin's P/E Ratio is 32 *** If you had purchased 100 shares of TStar stock yesterday at the last price of the day, you would have _____________________ of $_______________ if you sold all 100 shares at the last price today.

- earned a profit - $1,120.00

9) Interpreting Stock Market Data The following table displays hypothetical stock quotations. Use the information in the table to answer the questions that follow. *** Insert graph where MarkMin's P/E Ratio is 39 *** If you had purchased 100 shares of SWElec stock yesterday at the last price of the day, you would have _____________________ of $___________ if you sold all 100 shares at the last price today.

- suffered a loss - -$100.00

3) What are the different ways you can invest? Use your knowledge of different investment features and the information about the individuals below to complete the following paragraphs: Eric is an inexperienced investor with a relatively small amount of capital that he would like to invest in a wide variety of securities. _________________________ is his best investment option because of the diversification it offers to smaller investors and bigger investors alike.

A mutual fund

1) Risk averse

An average investor who is willing to take on higher risk only if he/she is compensated more than what would be adequate for the risk and is likely to prefer an investment with lowest risk

1) Short Sale

transaction involves the sale of securities not owned by the seller who hopes to buy them at a time when the price of the security declines.

4) Understanding Securities Markets Within the arena of security trading, the secondary market plays an extremely important role. The secondary market can be divided into the broker market and dealer market. For each of the following statements, indicate by checking the appropriate boxes, whether each statement is true of broker markets, dealer markets, both markets, or neither market. 1) Trades take place on a physical trading floor. 2) Ask and bid prices are posted electronically. 3) The NYSE and NYSE/MKT are a part of this market. 4) This market involves trades in securities for big-name companies.

1) Broker 2) Dealer 3) Broker 4) Broker, Dealer

3) Real estate

An investment in this can yield returns in the form of rents, capital gains, and certain tax benefits. Investments range from raw land speculation to limited-partnership shares in commercial property. The returns on real estate investments come in the form of rents, capital gains, and certain tax benefits.

1) Bid price

This is a term used to describe the price that a seller receives when selling the security. the quoted price at which the seller is willing to sell a security. In effect, this becomes the lowest price at which the seller is willing to sell the security.

1) Arbitration

This term describes the process used to settle disputes between brokerage firms and its clients. The process used to settle disputes between the client and the brokerage firm outside of court and in front of a qualified panel is called arbitration. The decision made by the arbitration panel is often binding and the investor cannot go to court for an appeal if he is unhappy with the decision.

3) What are the different ways you can invest? Use your knowledge of different investment features and the information about the individuals below to complete the following paragraphs: Paolo believes that housing prices are likely to rise rapidly in the near future and wants to profit by investing in real estate. He is considering buying individual properties, but he has little practical knowledge of real estate. A friend suggests that he buy ________________________________________________ the real estate sector, because this type of investment vehicle offers diversification within a particular sector.

a mutual fund concentrated in

6) Recognizing Different Types of Orders Kenji is another investor who currently owns shares of ESolver stock. He would like to place a particular kind of limit order, in which the order is not filled unless a certain quantity is available at the specified price. This type of order is known as _________________________________.

an all-or-none order

3) What are the different ways you can invest? Another friend advises that Paolo stay away from real estate entirely and instead consider buying stock with a fixed stated dividend rate, known as a preferred stock. Holders of this kind of stock receive dividends _____________ holders of common stock receive theirs.

before

5) How do transactions work in the securities markets? Transactions involving buying and selling securities are conducted through stockbrokers, who are also known as account executives or financial consultants. When choosing a stockbroker, investors have three primary options: full-service brokers, discount brokers, and online brokers. Brokers who offer a complete array of services such as advisory services along with executing client's transactions are called ______________________________.

full-service brokers

1) Bull market

refers to the securities markets where investors are optimistic about growth, economic recovery and the expectation that the prices of securities will increase.

4) Understanding Securities Markets All the investment vehicles that you can use in your investment plan are traded in the securities markets in the form of stocks, bonds, and other financial instruments. There are physical places such as the NYSE (New York Stock Exchange) or the electronic networks such as NASDAQ (National Association of Securities Dealers Automated Quotations) where investors trade these securities. Securities markets can be divided into primary and secondary markets. When securities are bought and sold by investors who did not originally purchase the issued security, the transactions take place in the __________________ market.

secondary

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Sam is a 25-year-old database designer whose primary long-term financial goal is to save enough money to comfortably retire. Therefore, he wants to begin an investment plan that will make this a reality within 40 years. He currently has $10,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 10%, and he would like to save a total of $600,000. Suppose instead that Sam had no capital saved and thus needed to accumulate the entire $600,000 in the next 40 years. In this case, his annual contribution would have to be $_________________.

$1,355.69

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Jake is a 28-year-old dietician whose primary long-term financial goal is to own a home. Therefore, he wants to begin an investment plan that will make this a reality within 10 years. He currently has $5,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 8%, and he would like to save a total of $250,000 for the down payment. Suppose instead that Jake had no capital saved and thus needed to accumulate the entire $250,000 in the next 10 years. In this case, his annual contribution would have to be $__________________.

$17,256.85

9) Interpreting Stock Market Data The following table displays hypothetical stock quotations. Use the information in the table to answer the questions that follow. *** Insert graph where MarkMin's P/E Ratio is 32 *** You can calculate that NewLfeMutual had per-share earnings for the most recent 12-month period of __________

$3.47

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Steve is a 23-year-old financial consultant whose primary long-term financial goal is to save enough to take a year off and travel. Therefore, he wants to begin an investment plan that will make this a reality within 5 years. He currently has $3,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 5%, and he would like to save a total of $30,000 to cover his expenses for the year. Suppose instead that Steve had no capital saved and thus needed to accumulate the entire $30,000 in the next 5 years. In this case, his annual contribution would have to be $______________.

$5,428.88

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Jake is a 28-year-old dietician whose primary long-term financial goal is to own a home. Therefore, he wants to begin an investment plan that will make this a reality within 10 years. He currently has $5,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 8%, and he would like to save a total of $250,000 for the down payment. If he invests the $5,000 today, the terminal value of this initial investment in 10 years (earning an average 8% return) will be $_____________. This means that he must accumulate the remaining $________________ through his annual savings plan to obtain the full $250,000 for the down payment. Still assuming an average return on investment of 8%, the additional yearly investment required to reach Jake's targeted financial goal within 10 years is $___________________.

- $10,795 - $239,205 - $16,511.70

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Jake is a 28-year-old dietician whose primary long-term financial goal is to own a home. Therefore, he wants to begin an investment plan that will make this a reality within 10 years. He currently has $5,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 8%, and he would like to save a total of $250,000 for the down payment. When Jake starts with an initial investment of $5,000, the total amount that he ends up contributing to accumulate $250,000 is equal to the initial investment plus the additional yearly payments, for a total of $___________________. When he starts with no initial capital contribution, the amount he ends up contributing is equal to the sum of all annual contributions you calculated in the no-initial-capital scenario, for a total of $_________________________.

- $170,117.00 - $172,568.50

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Sam is a 25-year-old database designer whose primary long-term financial goal is to save enough money to comfortably retire. Therefore, he wants to begin an investment plan that will make this a reality within 40 years. He currently has $10,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 10%, and he would like to save a total of $600,000. When Sam starts with an initial investment of $10,000, the total amount that he ends up contributing to accumulate $600,000 is equal to the initial investment plus the additional yearly payments, for a total of $_____________________. When he starts with no initial capital contribution, the amount he ends up contributing is equal to the sum of all annual contributions you calculated in the no-initial-capital scenario, for a total of $_______________________.

- $23,323.60 - $54,227.60

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Steve is a 23-year-old financial consultant whose primary long-term financial goal is to save enough to take a year off and travel. Therefore, he wants to begin an investment plan that will make this a reality within 5 years. He currently has $3,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 5%, and he would like to save a total of $30,000 to cover his expenses for the year. When Steve starts with an initial investment of $3,000, the total amount that he ends up contributing to accumulate $30,000 is equal to the initial investment plus the additional yearly payments, for a total of $_________________. When he starts with no initial capital contribution, the amount he ends up contributing is equal to the sum of all annual contributions you calculated in the no-initial-capital scenario, for a total of $__________________.

- $26,680.80 - $27,144.40

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Steve is a 23-year-old financial consultant whose primary long-term financial goal is to save enough to take a year off and travel. Therefore, he wants to begin an investment plan that will make this a reality within 5 years. He currently has $3,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 5%, and he would like to save a total of $30,000 to cover his expenses for the year. If he invests the $3,000 today, the terminal value of this initial investment in 5 years (earning an average 5% return) will be $__________. This means that he must accumulate the remaining $_____________ through his annual savings plan to obtain the full $30,000 to cover his expenses for the year. Still assuming an average return on investment of 5%, the additional yearly investment required to reach Steve's targeted financial goal within 5 years is $_________________.

- $3,828 - $26,172 - $4,736.16

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Sam is a 25-year-old database designer whose primary long-term financial goal is to save enough money to comfortably retire. Therefore, he wants to begin an investment plan that will make this a reality within 40 years. He currently has $10,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 10%, and he would like to save a total of $600,000. If he invests the $10,000 today, the terminal value of this initial investment in 40 years (earning an average 10% return) will be $_________________. This means that he must accumulate the remaining $_________________ through his annual savings plan to obtain the full $600,000. Still assuming an average return on investment of 10%, the additional yearly investment required to reach Sam's targeted financial goal within 40 years is $___________________.

- $452,580 - $147,420 - $333.09

9) Interpreting Stock Market Data The following table displays hypothetical stock quotations. Use the information in the table to answer the questions that follow. Of the three stocks listed, a retiree who lives partially off of investment income would be best off holding __________________ because of its _______________________________. *** Insert graph where MarkMin's P/E Ratio is 39 ***

- Doxxon - high dividend yield

9) Interpreting Stock Market Data The following table displays hypothetical stock quotations. Use the information in the table to answer the questions that follow. Of the three stocks listed, a retiree who lives partially off of investment income would be best off holding __________________ because of its _______________________________. *** Insert graph where Realtime's P/E Ratio is 47 ***

- MarlRedBiro - high dividend yield

9) Interpreting Stock Market Data The following table displays hypothetical stock quotations. Use the information in the table to answer the questions that follow. Of the three stocks listed, a retiree who lives partially off of investment income would be best off holding __________________ because of its _______________________________. *** Insert graph where NewLfeMutual's P/E Ratio is 32 ***

- NamurKa - high dividend yield

10) Managing Your Investment Assets The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on such factors as your time horizon, risk tolerance, and investment philosophy. *** Insert graph where Low Risk/Conservative, 11+ Years has 60% Equities *** Suppose that Heidi is a single parent who would like to save some money for her daughter's college education. Her daughter is currently 10 years old and will begin college in approximately 8 years. Although Heidi would like her daughter's college savings to grow, she is also concerned about investing an entire portfolio into the stock market. However, she is comfortable with a medium level of risk for the sake of achieving some level of growth. Heidi is ______________________ investor with a time horizon of

- a moderate - 6 to 10 years

7) Understanding How Trade Orders Work The following graphs depict two hypothetical paths for the share value of Jack's ETF over the course of the next six months. Complete the sentences below each graph to describe what would happen if Jack placed the preceding order under each of the two circumstances. *** Shows graph that increases until 1 month, decreases after 1 month, increases after 2.5 months *** In the preceding scenario, his order would be activated ____________________ and executed at __________________; thus the order would ___________________________ over the six month period.

- after 2 months - the best available price - prevent him from earning large gains

7) Understanding How Trade Orders Work The following graphs depict two hypothetical paths for the share value of Carlos's ETF over the course of the next six months. Complete the sentences below each graph to describe what would happen if Carlos placed the preceding order under each of the two circumstances. *** Shows graph that increases until I month, decreases until 2 months, increases until 3 months, and decreases after 3 months *** In the preceding scenario, his order would be activated ______________________ and executed at _____________________; thus the order would _______________________________________________ over the six month period.

- after 4 months - the best available price - limit his losses

7) Understanding How Trade Orders Work The following graphs depict two hypothetical paths for the share value of Jack's ETF over the course of the next six months. Complete the sentences below each graph to describe what would happen if Jack placed the preceding order under each of the two circumstances. *** Shows graph that decreased until 1 month and increases after 1 month *** In the preceding scenario, his order would be activated _____________________ and executed at ________________________________; thus the order would ________________________________________ over the six month period.

- at no point in this period - no point in this period - act as a safeguard but have no real effect

5) How do transactions work in the securities markets? While some brokers still operate exclusively in person or online, the distinction between the three types has become increasingly _______________ over the years. The chart that follows shows fees imposed by different discount brokers; as you can see, _______ of them offer both online and broker-assisted trades.

- blurred - all

9) Interpreting Stock Market Data The following table displays hypothetical stock quotations. Use the information in the table to answer the questions that follow. *** Insert graph where MarkMin's P/E Ratio is 47 *** If you had purchased 100 shares of NuMode stock yesterday at the last price of the day, you would have _______________________ of $____________ if you sold all 100 shares at the last price today.

- earned a profit - $490.00

10) Managing Your Investment Assets In general, if you have a longer time horizon and a higher risk tolerance, then a higher percentage of your portfolio should be in ____________. If you are investing for a shorter time horizon, or if you have a more conservative investment philosophy, then you should invest a greater percentage of your portfolio in _______________.

- equities - bonds

11) Rebalancing Your Portfolio Portfolio rebalancing is the process of bringing your different asset classes (stocks, bonds, and cash) back into proper relationship following a significant change in the value of one or more of them. You should monitor your investments and normally rebalance your portfolio about once a year to return your investments to their proper balance when they no longer conform to your investment plan. Suppose that you begin an investment program with a portfolio having an asset allocation of 40% bonds, 25% equities, and 35% cash investments. One year later, you find that some investments have performed better than others. After a year, the portfolio now consists of 40% bonds, 40% equities, and 20% cash investments. To rebalance this portfolio back to its original asset allocation, you should sell some of your ______________ and use the proceeds to purchase additional _______________________________.

- equities - cash investments

6) Recognizing Different Types of Orders Juanita is an experienced investor who enjoys researching and investing in individual stocks that appear promising. On August 12 she is reviewing the trading information for a new smart-phone company MobileRover, presented in the following table. She would like to buy 100 shares of stock at some point during the day if the price falls to $249.60, therefore she places a ________ order at 12:21 PM EDT. When she places a day order, if the price does not reach $249.60 by the end of the day, her order will be ___________________. Her broker is able to execute the trade two hours later, obtaining her 100 shares at $249.60 each.

- limit - canceled

6) Recognizing Different Types of Orders Caroline is an experienced investor who enjoys researching and investing in individual stocks that appear promising. On August 12 she is reviewing the trading information for a new home security system company SecureYou, presented in the following table. She is extremely confident in the future performance of SecureYou and wants to buy 100 shares of stock regardless of the price, therefore she places a _________________ order at 2:32 PM EDT. She knows that the execution price for this type of order ________________________________________ the last-trade price at the time she places the order. Her broker is able to execute the trade within minutes, obtaining her 100 shares at $157.57 each.

- market - could vary substantially from

6) Recognizing Different Types of Orders Lucia is an experienced investor who enjoys researching and investing in individual stocks that appear promising. On August 12 she is reviewing the trading information for a new educational technology company ESolver, presented in the following table. She is extremely confident in the future performance of ESolver and wants to buy 100 shares of stock regardless of the price, therefore she places a _____________ order at 1:45 PM EDT. She knows that the execution price for this type of order ________________________________________ the last-trade price at the time she places the order. Her broker is able to execute the trade within minutes, obtaining her 100 shares at $77.84 each.

- market - could vary substantially from

6) Recognizing Different Types of Orders Lucia: Suppose the price of the stock rises for the rest of the day, eventually closing at a price of $85.35. In this case, the total value of the shares she purchased ___________________ between the time of her purchase and the end of the day. If she had instead placed a ___________ order at 1:45 PM to buy the same number of shares only if the price fell to $74.55, she would have ___________________________________ by the end of the day instead.

- rose by $751 - limit - not purchased any shares

6) Recognizing Different Types of Orders Caroline: Suppose the price of the stock rises for the rest of the day, eventually closing at a price of $166.41. In this case, the total value of the shares she purchased _________________________ between the time of her purchase and the end of the day. If she had instead placed a ___________ order at 2:32 PM to buy the same number of shares only if the price fell to $154.51, she would have ________________________________ by the end of the day instead.

- rose by $884 - limit - not purchased any shares

10) Managing Your Investment Assets The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on such factors as your time horizon, risk tolerance, and investment philosophy. *** Insert graph where Low Risk/Conservative, 11+ Years has 60% Equities *** Using the model portfolios provided, what is the ideal asset allocation for Samantha's portfolio, based on her time horizon and investment philosophy? If no funds are recommended to be allocated toward an asset, enter "0" into the numeric entry box for that asset. 1) Cash: 2) Bonds: 3) Equity:

1) 0% 2) 0% 3) 100%

10) Managing Your Investment Assets The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on such factors as your time horizon, risk tolerance, and investment philosophy. *** Insert graph where Low Risk/Conservative, 11+ Years has 60% Equities *** Using the model portfolios provided, what is the ideal asset allocation for Heidi's portfolio, based on her time horizon and investment philosophy? If no funds are recommended to be allocated toward an asset, enter "0" into the numeric entry box for that asset. 1) Cash: 2) Bonds: 3) Equity:

1) 10% 2) 30% 3) 60%

8) Understanding How Indexes Report Data Complete the table by indicating the number of stocks tracked by each index, as well as the composition of the stocks it tracks. *** Can be shown finding the "Index", or the numbered ones below. Switches turns. *** 1) DJIA size 2) DJIA composition 3) NASDAQ-100 size 4) NASDAQ-100 composition 5) S&P 500 size 6) S&P 500 composition 7) NYSE Index composition

1) 30 2) Primarily stocks from the NYSE, but a few NASDAQ stocks as well 3) 100 4) The biggest (non-financial) firms traded on NASDAQ 5) 500 6) All large NYSE stocks, as well as major AMEX and NASDAQ stocks 7) All stocks listed on the "big board"

10) Managing Your Investment Assets The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on such factors as your time horizon, risk tolerance, and investment philosophy. *** Insert graph where Low Risk/Conservative, 11+ Years has 60% Equities *** Using the model portfolios provided, what is the ideal asset allocation for Roxanne's portfolio, based on her time horizon and investment philosophy? If no funds are recommended to be allocated toward an asset, enter "0" into the numeric entry box for that asset. 1) Cash: 2) Bonds: 3) Equity:

1) 35% 2) 40% 3) 25%

4) Understanding Securities Markets Within the arena of security trading, the secondary market plays an extremely important role. The secondary market can be divided into the broker market and dealer market. For each of the following statements, indicate by checking the appropriate boxes, whether each statement is true of broker markets, dealer markets, both markets, or neither market. 1) The party buying the security directly transacts with the party selling the security. 2) Market orders are posted electronically and are filled immediately at the best available price. 3) This market facilitates the sale of new stock from corporations to private investors. 4) Trades take place on a physical trading floor.

1) Broker 2) Dealer 3) none 4) Broker

4) Understanding Securities Markets Within the arena of security trading, the secondary market plays an extremely important role. The secondary market can be divided into the broker market and dealer market. For each of the following statements, indicate by checking the appropriate boxes, whether each statement is true of broker markets, dealer markets, both markets, or neither market. 1) The NYSE and NYSE/MKT are a part of this market. 2) Buyers and sellers are linked via a mass telecommunications network. 3) This market involves trades in securities for big-name companies. 4) This market facilitates the sale of new stock from corporations to private investors.

1) Broker 2) Dealer 3) Broker, Dealer 4) none

3) Preferred stocks

An investment that has some characteristics of both a stock and a bond. represents an equity position in a corporation. Unlike common stock, preferred stock has a stated (fixed) dividend rate that is paid before the dividends to holders of common stock are paid. Like bonds, preferred stocks are usually purchased for the current income (dividends) they pay.

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Sam is a 25-year-old database designer whose primary long-term financial goal is to save enough money to comfortably retire. Therefore, he wants to begin an investment plan that will make this a reality within 40 years. He currently has $10,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 10%, and he would like to save a total of $600,000. Once Sam has determined the annual amount he needs to save, the next step toward achieving his goal is coming up with an investment plan. True or False: The appropriate investment plan depends only on the total amount of money he intends to save, not on the investment objective.

False

8) Understanding How Indexes Report Data True or False: Based on the numbers not in parentheses in the previous table, you can tell that NASDAQ-100 stocks were performing roughly one-third as well as NYSE Index stocks at the time this data was collected. *** Insert graph where DJIA says "10,773.03 (+132.33)" ***

False

8) Understanding How Indexes Report Data True or False: Based on the numbers not in parentheses in the previous table, you can tell that NYSE Index stocks were performing roughly three-fourths as well as DJIA stocks at the time this data was collected. *** Insert graph where DJIA says "10,993.90 (+133.09)" ***

False

3) Convertible Bonds

Interest-bearing, negotiable certificates of long-term debt issued by a corporation that can be exchanged for common stock in the issuing company. are interest-bearing, negotiable certificates of long-term debt issued by a corporation that can be exchanged for common stock in the issuing company.

3) Common Stocks

Shares of ownership in the assets and earnings of a business corporation. are investments in the form of equity that represent an ownership interest in a corporation. Each share of stock symbolizes a fractional ownership position in a firm. A share of stock typically entitles the holder to equal participation in the corporation's earnings and dividends as well as an equal vote to elect the management of the corporation. From the investor's perspective, the return to stockholders comes from dividends and/or appreciation in share price. Common stock has no maturity date and, as a result remains outstanding indefinitely.

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Jake is a 28-year-old dietician whose primary long-term financial goal is to own a home. Therefore, he wants to begin an investment plan that will make this a reality within 10 years. He currently has $5,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 8%, and he would like to save a total of $250,000 for the down payment. Once Jake has determined the annual amount he needs to save, the next step toward achieving his goal is coming up with an investment plan. True or False: The appropriate investment plan depends on the investment objective.

True

2) How Much Capital Do You Need to Start Investing? The motivation for making investments is largely driven by the goals you have. These goals could be short-term such as buying a new car, saving for a down payment or save enough to take a year off and travel. In any situation, the first step is to identifying the amount of capital you need and how much risk are you willing to take for the return you expect. Steve is a 23-year-old financial consultant whose primary long-term financial goal is to save enough to take a year off and travel. Therefore, he wants to begin an investment plan that will make this a reality within 5 years. He currently has $3,000 saved for this purpose, and he wants to determine the appropriate monthly savings amount that will allow him to reach his goal. He estimates that he can earn an average annual return of 5%, and he would like to save a total of $30,000 to cover his expenses for the year. Once Steve has determined the annual amount he needs to save, the next step toward achieving his goal is coming up with an investment plan. True or False: The appropriate investment plan depends on the investment objective.

True

4) Understanding Securities Markets All the investment vehicles that you can use in your investment plan are traded in the securities markets in the form of stocks, bonds, and other financial instruments. There are physical places such as the NYSE (New York Stock Exchange) or the electronic networks such as NASDAQ (National Association of Securities Dealers Automated Quotations) where investors trade these securities. Securities markets can be divided into primary and secondary markets. When new securities created by the issuer are sold to the public usually with the involvement of an investment bank, the transactions take place in the _________________ market.

primary

3) Mutual funds

An investment company that combines the funds of investors who have purchased shares of ownership in it and then reinvests that money in a diversified portfolio of stocks and issued by other corporations or governments. invests in and professionally manages a diversified portfolio of securities. A mutual fund sells shares to investors, who then become part owners of the fund's securities portfolio. Most mutual funds issue and repurchase shares at a price that reflects the underlying value of the portfolio at the time the transaction is made.

7) Understanding How Trade Orders Work True or False: If instead the stock price had risen steadily and never fallen below $88, placing the order would have acted as a safeguard but would have had no real effect.

False

8) Understanding How Indexes Report Data True or False: Based on the numbers not in parentheses in the previous table, you can tell that NASDAQ-100 stocks were performing roughly one-third as well as NYSE Index stocks at the time this data was collected. *** Insert graph where DJIA says "10,736.58 (+132.41)" ***

False

6) Recognizing Different Types of Orders Gilberto is another investor who currently owns shares of MobileRover stock. He would like to place a particular kind of limit order, in which the order is canceled if it cannot be executed immediately at the specified price or better. This type of order is known as _____________________________________.

a fill-or-kill order

6) Recognizing Different Types of Orders Antonio is another investor who currently owns shares of SecureYou stock. He would like to place a particular kind of limit order, in which the order remains in effect indefinitely, unless it is filled or canceled. This type of order is known as

a good-till-canceled order