chapter 15- personal finical planning
Financial Statements. List the characteristics of a firm that investors analyze by using the balance sheet and income statement. Investors can use the __________ to analyze the firm's sources of funds and how it has invested those funds. The balance sheet shows the firm's _______________ and its __________. The _________ shows the firm's _____________ over a particular period of time. Investors use the income statement to determine how much income the firm generated and what expenses it incurred. (Select from the drop-down menus.)
(1) balance sheet (2)assets (3)liabilities and shareholders equity (4)income statement (5)revenues, expenses, and earnings
Stock prices tend to _________________ when inflation is expected to _____________________. (Select from the drop-down menus.)
(1)decrease (2)increase
ECNs. What are Electronic Communications Networks (ECNs)? How are ECNs used? Electronic Communication Networks (ECNs) are: (Select the best answer below.) A. computer systems that match up desired purchases and sales of stocks. B. federal systems of communications required to be used by all brokers. C. networks that link bankers and brokers. D. computer systems that match up desired purchases and sales of real property.
A
If the value of the stock bought on margin declines: (Select the best answer below.) A. the investor may get a margin call from the brokerage firm to put additional cash in his account to back the loan. B. the brokerage firm loses. C. the loss is limited to the margin paid. D. a higher return is realized since the cash investment was less than the total price of the stock.
A
Inflation is measured by the: (Select the best answer below.) A. consumer price index. B. calculated price index. C. consumer purchase index. D. calculated purchase index.
A
Interest Rates. How do interest rates affect economic growth? Why do interest rates affect some stock prices more than others? Which federal agency influences interest rates? Interest rates affect economic growth and thus have: (Select the best answer below.) A. an indirect impact on stock prices. B. no impact on stock prices. C. a direct impact on stock prices. D. an unpredictable impact on stock prices.
A
Round versus Odd Lot. What do the terms round lot and odd lot mean in stock transactions? A round lot is an order for: (Select the best answer below.) A. shares of stock sold in multiples of 100. B. less than 100 shares of stock. C. shares of stock from companies in different industries. D. shares of stock from several similar companies.
A
Stock prices are more sensitive in industries where: (Select the best answer below.) A. borrowing is used by consumers. B. brokers are heavily invested. C. there is a large volume of transactions. D. there is little need to borrow.
A
Stock exchanges facilitate: (Select the best answer below.) A. purchases of futures by having investment banks available to provide financing. B. commodity purchases by having one location for bankers and borrowers. C. the trading of stocks in the secondary market by providing a physical location for trading. D. the trading of stocks in the primary market by providing a physical location for trading.
c
Floor traders:
execute trades on the floor for themselves or someone else.
To set up and use an online brokerage account, an investor would: (Select the best answer below.) A. set up the account online, then send a check, and could make trades once the check clears. B. call the brokerage firm to set up an account, then send a check, and could make trades once the check clears. C. call the brokerage firm to set up an account, pay with a credit card, and begin to make trades. D. set up the account online, pay with a credit card, and begin to make trades.
A
An annual report contains: (Select the best answer below.) A. firm history and management vision. B. standardized financial information that can be used to analyze a firm's performance. C. information on all the managers and executives. D. the names of all the employees.
B
Higher economic growth: (Select the best answer below.) A. decreases stock prices. B. increases stock prices. C. increases the volatility of stock prices. D. does not affect stock prices.
B
If the U.S. government's fiscal policy involves raising taxes, corporate earnings will: (Select the best answer below.) A. be affected in an unpredictable way. B. be negatively affected. C. be positively affected. D. not be affected.
B
Industry Analysis. Why is an industry analysis of stocks important? List some sources of information about firms and their industry. A firm's stock price: (Select the best answer below.) A. is set by the shareholders. B. is susceptible to industry conditions. C. increases at a fixed percent. D. fluctuates according to executive decisions.
B
Interest rates are influenced by the monetary policy of the: (Select the best answer below.) A. Executive Branch. B. Federal Reserve Board. C. New York Stock Exchange. D. Treasury Department.
B
Managers may be able to boost the reported earnings of their firm by: (Select the best answer below.) A. using forecasted information. B. using a specific accounting method. C. using old information. D. persuading accountants to report what they ask.
B
Margin sales benefit the brokerage firm because: (Select the best answer below.) A. the investment is less than the price of the stock. B. they earn interest. C. stock prices usually rise. D. stock prices have been relatively steady.
B
Investors who trade stock have accounts at a ____________ firm. To buy or sell a stock listed on the NYSE, the investor contacts the brokerage firm, which electronically sends the request to buy or sell to the NYSE. There a computer matches up ___________________ orders and communicates the executed order to the brokerage firm. In the traditional method, which is still used for some transactions, the brokerage firm submits a message to one of its _____________ who negotiates a price with another trader who is trying to sell or buy the stock. Once the trade is complete, the floor trader sends a confirmation to the brokerage, which forwards it to the investor.
BROKERAGE FIRM. BUY AND SELL. FLOOR TRADERS
Buying on Margin. What is buying a stock on margin? What may happen if the value of the stock bought on margin declines? What are the advantages to investors and brokerage firms when stocks are bought on margin? When buying a stock on margin, an investor borrows a portion of the funds to buy the stock from: (Select the best answer below.) A. the Federal Reserve. B. any willing lender. C. the brokerage firm. D. a commercial bank.
C
Economic Growth. Explain how economic growth is measured. How does economic growth affect stock prices? What are some popular indicators of economic growth? How does the government's fiscal policy affect economic growth? Economic growth is measured using: (Select the best answer below.) A. growth domestic product. B. gross domestic production. C. gross domestic product. D. growth domestic production.
C
Electronic Communication Networks: (Select the best answer below.) A. make up 80% of all trading of NASDAQ stocks. B. allow brokers to recoup fees, avoiding transaction costs. C. are used to execute some transactions on the NYSE and NYSE MKT LLC. D. can only be used while the exchange is open.
C
Investors can obtain information about firms and their corresponding industry from: (Select the best answer below.) A. financial web sites and bankers. B. bankers and published sources. C. financial web sites and published sources. D. financial web sites and word of mouth.
C
Misleading Information. Why may the top managers of a firm be tempted to use misleading estimates of revenues and expenses? How may managers be able to boost the reported earnings of their firm? Top managers of a firm may be tempted to use misleading estimates of revenues and expenses because: (Select the best answer below.) A. the stock value influences reported earnings, and this is a component of managers' evaluation and compensation. B. reported earnings influence the stock value, and this is a component of managers' evaluation and compensation. C. reported earnings influence the stock value and the firm value, and this is a component of managers' evaluation and compensation. D. the stock value influences reported earnings and the firm value, and this is a component of managers' evaluation and compensation.
C
Stock Exchanges. What are stock exchanges? How do they facilitate the trading of stocks? Stock exchanges are facilities that: (Select the best answer below.) A. are used to buy and sell farm animals. B. are used to buy and sell commodities. C. allow investors to purchase or sell existing stocks. D. allow investors to purchase or sell existing mutual funds.
C
The abbreviated term that is used to identify the stock for trading purposes is called the: (Select the best answer below.) A. stock code. B. code name. C. ticker symbol. D. nickname.
C
Types of Orders. Discuss the difference between a market order, a limit order, and a stop order. A limit order: (Select the best answer below.) A. does not ensure that the stock price will not change before the order is executed. B. does not allow brokerage trades. C. will specify what portion of the desired shares you are willing to accept. D. is a special form of limit order to execute a transaction when the stock price reaches a specified level.
C
What other exchange trades stocks in a similar manner to the NYSE? (Select the best answer below.) A. National Stock Exchange B. North American Stock Exchange C. NYSE MKT LLC D. California Stock Exchange
C
An odd lot is an order for: (Select the best answer below.) A. shares of stock from several similar companies. B. shares of stock from companies in different industries. C. shares of stock sold in multiples of 100. D. less than 100 shares of stock.
D
Annual Report. Why is it necessary to analyze a firm? What is an annual report? What information does it contain to aid the analysis? An analysis of the firm is: (Select the best answer below.) A. important because there are regulations that apply to various firms. B. useful but not really important because there is little variation in management skills and firm performance. C. useful but not really important because all firms report to the Internal Revenue Service. D. important because there are variations in management skills and firm performance.
D
Economic Analysis. When performing an economic analysis of stocks, what economic factors are most closely watched? When performing an economic analysis of stocks, the three economic factors that are most closely watched are: (Select the best answer below.) A. economic growth, interest rates, and the money supply. B. economic growth, the money supply, and inflation. C. the money supply, interest rates, and inflation. D. economic growth, interest rates, and inflation.
D
Inflation. What is inflation? How is inflation measured? How does inflation affect stock prices? Inflation is: (Select the best answer below.) A. an increase in the level of stock prices over a specific period. B. a change in the level of stock prices over a specific period. C. a change in the general level of prices of products and services over a specific period. D. an increase in the general level of prices of products and services over a specific period.
D
Online Brokerage Services. What are some advantages of using online brokerage services? Describe how an investor would set up and use an online brokerage account. The two main advantages of using online brokerage services are the: (Select the best answer below.) A. wider range of stocks available and the investment advice. B. investment advice offered and the convenience. C. ability to program investment decisions and the wider range of stocks available. D. convenience and the low cost per transaction.
D
Placing Orders. What information must you provide when placing an order to buy or sell stock? What is a ticker symbol, and why is it important? When placing an order to buy or sell stock, you must provide: (Select the best answer below.) A. the code of the stock, whether the order is a primary or secondary order, the number of shares of stock, and whether it is a full order or a brokerage order. B. the code of the stock, whether the order is a primary or secondary order, the number of shares of stock, and whether it is a market order or a limit order. C. the name of the stock, whether the order is to buy or sell the stock, the number of shares of stock, and whether it is a full order or a brokerage order. D. the name of the stock, whether the order is to buy or sell the stock, the number of shares of stock, and whether it is a market order or a limit order.
D
Which of the following is a popular indicator of economic growth? (Select the best answer below.) A. new home sales B. personal income level C. the level of employment D. All of the above.
D