Introduction to Business

In what units are corporate bonds usually issued?

$1,000

Which of the following are reasons bond interest rates may differ?

Interest rate for bonds of similar companies State of the economy Reputation of the issuing company

A(n) __________________ order tells a broker to buy or to sell a stock immediately at the best price available

Market

A(n) ___________________ order tells a broker to buy or to sell a stock immediately at the best price available

Market

Which of the following is on a bond?

Maturity date Face value Bond's interest rate

Which of the following statements is true?

Mutual funds permit investors to buy and sell shares at the close of the trading day

Which of the following statements about preferred stock is correct?

Preferred stockholders get company dividends before common stockholders are paid

Institutional investors are a powerful force in securities markets because of their vast _____________ power

buying

Bonds that give the issuing company the right to pay them prior to their maturity date are called?

callable bond

Mutual funds called _________________ funds limit the number of shares, once the fund reaches its target number, no new investors can buy into the fund

closed-end

A(n) _________________ is a registered representative who works as a market intermediary to buy and sell securities for clients

stockbroker

Mutual fund managers pick what they consider to be the best stocks and bonds available and help investors?

-Change investments more easily -Diversify their investments

What is the definition of the over-the-counter (OTC) market?

An exchange that provides a means to trade stocks not listed on the national exchanges

What is a stock?

A share or ownership of a company

The Securities and Exchange Commission is responsible for?

Regulating various stock exchanges

A(n) _________________________ fund is a reserve account in which the issuer of a bond periodically sets aside some of the bond principle prior to maturity, so that enough capital will be accumulated by the maturity date to pay off the bond

Sinking

List the steps in investing in stocks and bonds from beginning to end with the first step at the top of the list

Decide that you want to buy stocks and bonds Find a stockbroker The stockbroker negotiates a price and places an order The trade is reported to your broker, who then notifies you.

What does DJIA stand for?

Dow Jones Industrial Average

Where do companies such as Microsoft, Intel, Starbucks, and Cisco trade their stock?

NASDAQ

When comparing common stock to preferred stock which of the following statements is true?

Only preferred stock is callable

Preferred stockholders are given preference over common stockholders in?

The claim on company assets The payment of dividends

What are capital gains?

The positive difference between the purchase price of a stock and its sale price

A(n) _________________ fund may reflect a group of large companies, small companies, emerging countries, or real estate

index

Which Securities and Exchange Act created the SEC?

1934

Which of the following is a type of dividend?

A payment of additional shares or cash to stockholders

What initials are used by Moody's to show the highest quality of rated bonds?

AAA

A corporate certificate indicating that an investor has lent money to a firm is called a(n)?

Bond certificate

Which of the following are advantages of issuing bonds?

Bond interest is tax deductible to the firm Bondholders are creditors of the firm, not owners

Which of the following is an advantage of issuing bonds?

Bonds do not affect owners' control

When an investor places a limit order they tell the broker to?

Buy or sell stock at a specific price if that price becomes available

When an investor places a market order they tell a broker to?

Buy or sell stock immediately at the best price available

Which of the following are features that preferred stock has but common stock does not have?

Callable Fixed dividend Cumulative

What are the two classes of stock that companies can issue?

Common and preferred

If an investor wants to turn bonds into shares of common stock they should purchase?

Convertible bonds

What is it called if one or more dividends are not paid when promised, they accumulate, and the corporation must pay them later before it can distribute any common stock dividends?

Cumulative

Bonds that are unsecured are called ______________ bonds

Debenture

Bonds that are unsecured are called _____________________ bonds

Debenture

How do independent rating firms such as Standard & Poor's and Moody's Investors Service rate bonds?

Degree of risk

Which of the following are key benefits to investors in investing in a mutual fund or ETF?

It is managed by a financial specialist for a fee It offers investors a way to spread the risk of stock and bond ownership

Which of the following are advantages of mutual funds?

It is simple to change your investment objectives They provide professional investment management Investors can buy directly from the fund and avoid broker fees

Which of the following statements about common stock is correct?

It is the most basic form of ownership in a firm

Which of the following statements are part of the Securities and Exchange Act of 1934 guidelines?

It prevents insiders within the company from taking advantage of privileged information they may have A prospectus must be sent to prospective investors

A(n) __________________ order tells the broker to buy or sell a stock at a specific price, if that price becomes available

Limit

An organization that issues bonds is legally obligated to?

Make regular interest payments Repay the entire bond principal amount at a prescribed time

The _________________ is a telecommunications network that links dealers across the nation, so that they can buy and sell securities electronically rather than in person

NASDAQ

What does NASDAQ stand for?

National Association of Securities Dealers Automated Quotations

The dollar amount assigned to each share of stock which is included in the corporation's charter is called the?

Par Value

Preferred stock differs from common stock as it?

Pays a fixed dividend Pays dividends to preferred stockholders first Does not usually have voting rights

__________________ stocks sell for less than $2 and are considered risky investments

Penny

A stock's ______________ ______________ is a dollar amount assigned to each share of stock by the corporation's charter

Per value

Owners of ___________________ stock are given preference in the payment of company dividends and must be paid their dividends in full before any common stock dividends can be distributed

Preferred

_____________ markets handle the sale of new securities

Primary

Which of the following is a disadvantage to current stockholders of issuing additional shares of stock?

Profits are shared among more stockholders It can shift control of the firm

The purpose of the Securities Act of 1933 is to?

Protect investors by requiring full financial disclosers by firms selling bonds or stock

A corporation can issue two different classes of bonds, ______________ and __________________ bonds

Secured and unsecured bonds

A(n) ___________________ fund is a reserve account in which the issuer of a bond periodically sets aside some part of the bond principal prior to maturity, so that enough capital will be accumulated by the maturity date to pay off the bond

Sinking

Which of the following is specified on a stock certificate?

Specifies type of stock being issued, number of shares represented, and name of the company

The places where stocks and bonds are traded are called?

Stock exchanges

In order to reduce a stock's high per-share price, a company can declare a __________________ ____________________ in which they issue two or more shares for every one that's outstanding

Stock split

Who declares dividends?

The corporation's board of directors

Which of the following are disadvantages of issuing bonds?

The face value must be repaid on the maturity date If interest is not paid, bondholders can take legal action to force payment Bonds increase debt and may adversely affect the market's perception of the firm

Which of the following information is provided in a stock quote?

The highest and lowest price the stock traded for that day The dividend paid The stock's high and low over the past 52 weeks

What is diversification?

The spreading of investments across different areas to reduce risk

The bond interest is stated for an entire year, but paid to _________________ installments, and the rate generally cannot be changed

Two

Which of the following government bonds compete with U.S. corporate bonds in securities markets?

U.S. government bonds Treasury bonds Municipal bonds

_________________ bonds are not backed by any specific collateral, such as land or equipment

Unsecured

What is a bear market?

When the prices of stocks decline steadily

When do corporations make money on the sale of their securities (stock)?

When they sell it on the primary market

Another term for unsecured bonds is?

debentures

A key advantage of investing in mutual funds is that it allows small investors to?

diversify

_______________ are part of a firm's profits that the firm may distribute to stockholders as either cash payments or additional shares of stock

dividends

The length of time your money is committed to an investment is referred to as the?

duration

Today, bonds are registered to specific owners and changes in ownership are recorded?

electronically

What is a stock certificate?

evidence of stock ownership

Collections of stocks and bonds that are traded on exchanges but are traded more like individual stocks than like mutual funds are _____________________-____________________ funds

exchange-traded funds (ETFs)

Stocks of corporations in emerging fields such as technology and biotechnology or internet-related firms, whose earnings are expected to grow at a faster rate than other stocks, are referred to as ___________________ stocks

growth

What are stocks of public utilities that usually offer investors a high dividend yield that generally keeps pace with inflation?

income stocks

What is the first public offering of a corporation's stock?

initial public offering (IPO)

A bond's _________________ rate is sometimes called the coupon rate

interest

___________________ is the payment the bond issuer makes to the bondholders to compensate them for the use of their money

interest

Which of the following relate to a prospectus?

it is a condensed version of the registration statement it must be sent to prospective investors

A(n) __________________ order tells the broker to buy or sell at a specific price, if that price becomes available

limit

Buying stock on _______________________ means borrowing some of the stock's purchase cost from the brokerage firm

margin

The exact date the issuer of a bond must pay the principal to the bondholder is called the?

maturity date

A fund that buys stocks, bonds, and other investments and sells shares in those securities to the public is called a(n)?

mutual fund

______________ stock is identified by the letters "pf" on a stock quote

preferred

___________________ stockholders do not have voting rights in a firm

preferred

When investors give computer instructions to sell automatically to avoid potential losses if their stock price dips to a certain point, it is called?

program trading

The ______________________ market handles the trading of securities that have already been issued between investors, with the proceeds of the sale going to the investor selling the stock, not to the corporation whose stock has previously been sold in an IPO

secondary

Investment bankers are specialists who assist in the sale of new?

securities

The members of a stock exchange such as the NYSE?

sell securities for companies and individuals buy securities for companies and individuals

An organization whose members can buy and sell securities for companies and individual investors is called a(n)?

stock exchange

An action by a company that gives stockholders two or more shares of stock for each one they own is called a(n)?

stock split

A(n) _________________ market is when overall stock prices are rising

Bull

Which type of bond is the safest?

U.S. government bond

The _____________ of ______________ of the Federal Reserve System sets margin rates in the U.S. market

board of governors

Who in the Federal Reserve System sets the margin rates in the U.S. market?

board of governors

Which of the following refers to a prospectus?

It is a condensed version of the registration statement It must be sent to prospective investors

Which of the following is a function of securities markets?

Assist businesses in finding long-term funding to finance capital needs Provide private investors a place to buy and sell securities Provide a place to invest in stocks and bonds

Which of the following are key criteria for selecting investments?

Duration Investment risk Yield

Which of the following rights do common stockholders have?

Elect members of the company's board of directors and vote on important issues affecting the company Common stockholders have preemptive rights to purchase new shares of common stock Share in the firm's profits through dividends, if approved by the firm's board of directors

Liquidity is a measure of?

How fast it takes to recover your invested funds in cash

When choosing an investment an individual will take into consideration tax consequences which is?

How the investment affects your tax situation

Which of the following are penalties for insider trading?

Imprisonment Fines

________________ trading is issuing knowledge or information that individuals gain through their position that allows them to benefit unfairly from fluctuations in security prices

Insider

_________________ investors are large organizations, such as pension funds, mutual funds, and insurance companies, that invest their own funds or the funds of others

Institutional

Which of the following best describes no-load funds?

They do not charge extra fees to buy or sell shares

Which of the following statements best describe the role of investment bankers?

They help prepare for new stock issues They underwrite new issues of stocks or bonds

Sinking funds are attractive to both issuing firms and investors because?

They support the market price of the bond because they reduce the risk the bond will not be repaid They provide for an orderly repayment of a bond issue They reduce the risk the bond will not be repaid