FI 414 Chapter 3
) Which one of the following web sites should you utilize to review the financial information in a company's 10-K report? A) freeedgar.com B) valueline.com C) wsj.com D) finance.yahoo.com
A
14) Which one of the following statements is correct? A) The S&P 500 Index is based on 500 large companies that trade on U.S. exchanges. B) Because of mergers and bankruptcies, the S&P 500 Index no longer contains 500 stocks. C) The S&P 500 Index is carefully constructed to reflect the values of large, medium and small capitalization companies. D) The S&P 500 is based on the 500 largest U.S. companies as measured by market value.
A
Charting is the technique of A) plotting the performance of a security over time. B) sorting through databases of securities to select one based on certain parameters. C) monitoring a stock based on the underlying economic conditions. D) determining the amount of money that must be saved based on a given financial goal.
A
Current price information is found in which of the following? I. Dow Theory Letters II. Yahoo!Finance III. CNBC TV website IV. Hulbert Financial Digest A) II and III only B) I, II and III only C) II, III and IV only D) I, II, III and IV
A
Holding securities in street name A) makes the trading of securities easier and more efficient for individual investors. B) allows the brokerage firm to sell securities without the customers approval. C) enables the brokerage firm to collect the stock dividends as compensation for their services. D) means that the brokerage firm actually owns the securities.
A
Stock market averages reflect the arithmetic average price behavior of a group of stocks A) at a given point in time. B) relative to a base value set at an earlier point in time. C) relative to other indexes. D) relative to a base price of 100.
A
Subscription letters are A) sometimes geared to specific industries and companies. B) available free on the Internet. C) published on an annual basis. D) descriptive in nature but do not offer investment advice.
A
The Dow Jones Industrial Average (DJIA) is based on the prices of A) 30 stocks. B) 100 stocks. C) 500 stocks. D) 200 stocks.
A
Unless the investor has requested another arrangement, cash from dividends and the sale of stock is normally A) deposited in a Money Market Account offered by the brokerage. B) automatically reinvested in more stock. C) direct deposited to the investor's bank account. D) held in escrow by the brokerage until it is be reinvested.
A
Which of the following is a general rather a financial newspaper? A) The New York Times B) Investor's Business Daily C) The Wall Street Journal D) Barron's
A
Which of the following statements about the Dow Jones Industrial Average are correct? I. Higher-priced stocks tend to affect the average more than lower-priced stocks. II. A one-point change in the DJIA correlates to a $1 change in average share value. III. Changes in the DJIA are made to reflect company mergers and acquisitions. IV. The DJIA divisor was determined when the average was created and remains constant. A) I and III only B) II and IV only C) I, III and IV only D) I, II, III and IV
A
Which one of the following is a measure of the performance of small companies? A) Russell 2000 B) Russell 1000 C) Russell 3000 D) Value Line 1700
A
Which one of the following is the LEAST important when selecting a stockbroker? A) knowing the stockbroker personally B) selecting a stockbroker who best understands your investment goals C) considering the services offered and the related costs D) getting referrals from personal acquaintances with similar investment objectives
A
Whose responsibility is it to determine if a client can pay for the securities they purchase? A) the stockbroker who opens the account for the client B) the floor broker who places the trade on the floor of the exchange C) the dealer who acts as the seller in the trade D) the broker in charge of churning
A
) A brokerage firm which provides analyst reports, investment advice and information as well as online brokerage services is called a(n) A) premium discount broker. B) full-service broker. C) basic discount broker. D) electronic broker.
B
) Over-the-counter market activity is reflected in the A) Standard & Poor's composite index. B) NASDAQ index. C) AMEX composite index. D) financials index.
B
An individual investor who wishes to borrow money to buy stocks must open a A) signature account. B) margin account. C) joint account. D) custodial account.
B
Averages and indexes differ from one another in that an index A) is the arithmetic average price behavior of a group of stocks at a given point in time. B) measures the current price behavior of a group of stocks in relation to a base value set at an earlier point in time. C) is of value in-and-of itself, whereas an average must be compared to a historical figure to have any meaning. D) always moves up before a corresponding average moves up, and always moves down before a corresponding average moves down.
B
EAFE stands for A) Europe, Asia, Far East. B) Europe, Australia, Far East. C) England, America, Far East. D) England, America, France, European Community.
B
Excessively trading a customers account to increase a stockbrokers commission income is A) an acceptable method of timing the market to increase rates of return. B) called churning which is an illegal practice. C) probably unethical but yet is acceptable by the securities industry. D) permitted provided that the customer does not object.
B
Stock market averages and indexes are commonly used to measure the A) specific behavior of companies. B) general behavior of stock prices. C) specific behavior of alternative investments. D) specific behavior of the economy.
B
The Dow Jones Industrial Average (DJIA) consists of 30 stocks whose price behavior A) typically has little correlation with the rest of the stock market. B) broadly reflects the overall price behavior of the stock market. C) reflects the changes in value of manufacturing stocks only. D) leads the movements in the general economy by one to two weeks
B
Which of the following are characteristics of a wrap account? I. a flat amount of commission per transaction II. an increased probability of account churning III. a money manager IV. detailed performance reports A) I and II only B) III and IV only C) II, III and IV only D) I, III and IV only
B
Which of the following is published yearly by publicly-held corporations and provided free to their stockholders and other investors? A) brokerage reports B) annual reports C) back-office reports D) red herrings
B
Which of the following sites is especially valuable for information concerning mutual funds? A) www.investopedia.com B) www.morningstar.com C) www.moody's.com D) www.bondsonline.com
B
Which one of the following can be considered a negative aspect of on-line investing? A) On-line trading is fast and efficient. B) On-line investors tend to trade more frequently. C) On-line trading is available to the average investor. D) On-line investors pay lower costs per trade than investors using a broker.
B
Which one of the following statements about stockbrokers is correct? A) Stockbrokers act as dealers in the securities they trade. B) Stockbrokers must be licensed by the Securities and Exchange Commission. C) Stockbrokers are regulated by financial consultants. D) Stockbrokers execute trades on the floor of the New York Stock Exchange on behalf of account executives.
B
Which one of the following statements is true concerning bonds? A) A bond yield represents only the interest earned on a bond. B) Bond yield data is more useful to an investor when compared over time. C) A bond's yield remains constant even when a bond is sold prior to maturity. D) Bonds with similar characteristics generally have widely disparate bond yields.
B
) Which one of the following is NOT published by the U.S. Government? A) Federal Reserve Bulletin B) Survey of Current Business C) Kiplinger Washington Letter D) Economic Report of the President
C
A margin account A) can be opened by any investor who wants to purchase securities by charging them to his/her credit card. B) allows an investor to borrow one hundred percent of the cost of the securities purchased. C) allows an investor to borrow a portion of the purchase price at a reasonable rate of interest. D) is permitted only in wrap accounts.
C
A report describing the transactions in an account, listing the dividend and interest payments received, and detailing the current holdings is called a A) prospectus. B) red herring. C) statement. D) street certificate.
C
Advantages of a full-service brokerage include A) faster execution of trades. B) lower commissions on most trades. C) access to advice and research reports. D) the ability to place limit and stop-loss orders
C
America Online, Yahoo! Finance, and the Motley Fool are all classified as A) subscription services. B) comparative data sources. C) financial portals. D) institutional news sites.
C
Assume that the S&P 500 composite stock index closes at 1300. This means that A) the average stock in the index is selling for $130.00. B) an investor would have to pay $1,300 to purchase one share of each of the stocks represented in the index. C) The average value of a company reflected in the Index is up 30% from when the Index was at 1000. D) the share prices of the stocks in the index have risen 13 times since the 1941-1943 base period.
C
David opens a cash account with a brokerage firm. He buys 100 shares of GIA Co. stock at $30 a share. His broker charges a commission of $35. Which of the following statements concerning this transaction is correct? A) Daniel must have $3,035 in cash in his account on the day the trade is made. B) Daniel must have $2,965 in cash in his account on the day the trade is made. C) Daniel must have $3,035 in cash in his account within three business days. D) Daniel must have $2,965 in cash in his account within five business days.
C
Information that can be found on the Internet at no cost includes I. P/E ratios. II. recent news about a company. III. financial statements. IV. future earnings and stock prices. A) I and IV only B) II and III only C) I, II and III only D) I, II, III and IV
C
Regulation FD requires simultaneous disclosure of critical information simultaneously to investment professionals and the general public with the exception of A) brokerage firms. B) hedge funds. C) securities rating service such as Moody's Investor Services and Standard & Poor's. D) mutual fund managers.
C
The Value Line Investment Survey includes which of the following reports? I. Selection and Opinion II. The Outlook III. Ratings and Reports IV. Summary and Index A) I and II only B) I, II and IV only C) I, III and IV only D) II, III and IV onl
C
The published analysis and recommendations of an individual brokerage firm is called a A) prospectus. B) comparative data source. C) back-office research report. D) broker's subscription report.
C
Which of the following is published yearly by publicly-held corporations and provided free to their stockholders and other investors? A) brokerage reports B) annual reports C) back-office reports D) red herrings
C
Which one of the following indexes is the most comprehensive measure of financial market performance? A) NYSE composite B) DJIA C) Wilshire 5000 D) Value Line composite
C
Assume you wanted to find yesterday's closing stock price for the XYZ Corporation. You would be most likely to find this information in A) Kiplinger's Personal Finance Magazine. B) The Investor's Resource Manual. C) The Granville Market Letter. D) The Wall Street Journal.
D
Bond yields are A) quoted as the average monthly rate of return and assume the bond is purchased today at the quoted price and held for twelve months. B) quoted as annual rates of return and assume the bond is purchased today at the stated price and sold one year from today. C) stated as a percentage of the maturity value and assume the bond is held to maturity. D) stated as an annual rate of return and assume the bond is purchased today and held until maturity.
D
Individuals can now use the Internet to buy and sell I. stocks. II. bonds. III. mutual funds. IV. stock options. A) I and IV only B) II and III only C) I, II and III only D) I, II, III and IV
D
Individuals can use the Internet to I. analyze individual securities. II. search for stocks that meet specific investment criteria. III. organize their financial information. IV. track the performance of their portfolio. A) I and IV only B) II and III only C) I, III and IV only D) I, II, III and IV
D
Most brokerage firms will invest surplus cash, dividends and interest received, proceeds from the sale of stock and the like in A) additional securities of the same type. B) certificates of deposit. C) a non-interest bearing account. D) a money market mutual fund.
D
The Internet provides I. educational sites for financial investing. II. the ability to trade securities on-line. III. current information on stocks and bonds. IV. analysts reports on individual stocks. A) II and III only B) III and IV only C) I, II and III only D) I, II, III and IV
D
The documents signed when a customer opens a brokerage account A) serve as an informal relationship between the customer and the stockbroker. B) limit the customer to dealing only through that brokerage firm. C) may be signed by a minor child provided that the money being invested belongs to the child. D) establish a legal relationship between the customer and the brokerage firm.
D
The value of a Standard & Poor's Index is computed by A) dividing the sum of the closing share prices by an adjusted divisor. B) dividing the sum of the closing share prices by a divisor and then multiplying the quotient by 100. C) dividing the sum of the current market value of all the stocks in the index by a divisor adjusted for changes in the companies composing the Index. D) dividing the sum of the current market value of all the stocks in the index by 1 million.
D
Which is the correct order of events when an individual buys a stock through a brokerage firm? I. The order is transmitted to the main office of the brokerage firm. II. The customer places the order with their local stockbroker. III. The confirmation of the order is sent to the broker placing the order. IV. The order is sent to the floor of the exchange. A) I, II, III, IV B) II, I, III, IV C) II, IV, I, III D) II, I, IV, III
D
Which of the following indexes would best reflect the performance of a large, diversified portfolio with equal amounts of money invested in each company. A) the S&P 500 Index B) the Russell 3000 C) the NASDAQ 100 D) the Value Line Composite Index
D
Which of the following types of information will NOT be found in major urban newspapers? A) price quotations for stocks of local interest B) stories concerning local business leaders C) interest rates offered by local and national banks D) real time price quotes for widely held stocks and exchange traded funds
D
Which one of the following statements about back-office research reports is FALSE? A) They frequently include buy or sell recommendations. B) They include analyses of current and future prospects for the securities markets. C) They look at specific companies as well as industries. D) They are only available to high-profile clients who maintain large accounts with the brokerage firm.
D
Which one of the following statements concerning stock trades is correct? A) Brokerage firms send customer orders to a market maker on the floor of the NYSE. B) Confirmation of a trade is transmitted directly from the NYSE to the customer who placed the order. C) A broker transmits OTC orders from a customer directly to a floor broker in the OTC market. D) Brokerage firms generally hold securities in street name so they can be transferred without the customer's signature.
D
Which one of the following web sites does NOT offer bond ratings? A) Standard & Poor's B) Fitch C) Mergent's Manuals D) Financial Times
D
A limit order is an order to sell at the limit price or less.
False
An investor who mistakenly buys the wrong stock because the symbols are similar has 24 hours to undo the trade.
False
Both the Dow Jones Industrial Average and the Standard & Poor's 500 Index are constructed to reflect the value of shares in large, mid-size and smaller companies.
False
Brokerage firms are not allowed to make specific buy or sell recommendations to their clients.
False
Chemical Week and the Oil and Gas Journal are considered to be general business periodicals.
False
Descriptive information might include estimates of future demand for a company's products and future stock prices.
False
Earnings on securities held in street name by the brokerage are not reported to the Internal Revenue Service.
False
For most stocks, charts and tables of historical prices are only available through subscription services.
False
In addition to the Dow Jones Industrial Average, there are Dow Jones Averages for transportation and bond prices.
False
Investors are protected from market losses by the SIPC insurance offered by some full-service brokers.
False
Most brokers charge higher commissions for on-line trades than for telephone transactions.
False
Regulation FD requires that brokerage firms share buy and sell recommendations with all clients simultaneously.
False
Small investors normally have a negotiated commission schedule while large investors benefit from a fixed-commission schedule.
False
Stop orders are used only when selling a stock.
False
The Securities Investors Protection Corporation protects investors from brokers who offer incompetent advice.
False
The Value Line Index is a value weighted index based on a small sample of the 1700 stocks covered by the Value Line investment reports.
False
The tools and calculators available on the FINRA website are useful, but quite expensive to use.
False
Traders who hold stocks for less than a full day can reduce the tax burden on their profits.
False
Trading stocks is much faster and less complicated if an individual investor has possession of the actual stock certificates.
False
A "pump and dump" scheme involves buying shares of stock, hyping that stock via the Internet and then quickly selling the shares at a profit.
True
A limit order is an order to buy at the limit price or less.
True
A stop-loss order is activated once the stock reaches the specified price.
True
All the Standard & Poor's indexes are based on the total market values of the companies rather than on the price of a single share.
True
An index measures the current value of a group of stocks in relation to a base value established previously.
True
Analytical information would include such information as estimates of growth in sales and future earnings.
True
Commission structures vary with the type of security being traded, the type of broker involved and the size of the order.
True
Current price information on shares of a company's stock is often accompanied by statistics on the recent price behavior of that stock.
True
Descriptive information might include the company's lines of business, a list of major competitors, and recent changes in management.
True
If the market moves rapidly, an on-line trader may experience difficulty placing a trade.
True
Investing online is usually less expensive than traditional methods.
True
Investors can usually find the financial statements of a firm on the firm's website.
True
Investors who are aware of current economic, political, and market events tend to make better investment decisions.
True
It is generally a good idea to use limit orders when trading after hours.
True
Many brokerage firms require that disputes between individual investors and brokers be settled through arbitration.
True
Many day traders are also margin traders.
True
On-line trading has greatly lowered greatly lowered the cost of buying and selling stock as well as greatly increasing the speed of transactions.
True
Placing your trades with a discount broker can save you as much as 80% of the commission charged by a full-service broker.
True
Reviewing industry and company information may provide guidance on the future outlook of a particular firm.
True
Shares of stock owned by an individual but held in a brokerage firm's name for ease of trading are said to be held in street name.
True
Standard & Poor's and Mergent both publish extensive data on bonds
True
Stocks held in street name can be quickly sold online or by telephone.
True
The basic function of stockbrokers is to execute client orders at the best possible price.
True
When placing an order on-line, an individual investor should always double check the ticker symbol prior to submitting the order.
True
You can utilize the Internet to develop financial plans and goals, analyze and select individual investments and organize your portfolio.
True
