Unit 14 Practice Test

Which of the following tools is most often used by the Federal Reserve Board to control the money supply? A. Engaging in open market operations B. Altering the reserve requirements C. Lowering the discount rate D. Changing margin requirements

A. Engaging in open market operations

A mother makes a gift of appreciated securities to her 10-year-old son. The son's cost basis in the stock is the A. original cost of the securities to the mother B. market value of the securities on the date of the gift C. market value of the securities on April 15 of the year the gift is made D. market value of the securities on December 31 of the year the gift is made

A. original cost of the securities to the mother

If XYZ Corporation sells an additional 1 million common stock with a par value of $1 for $10 per share, which of the following is TRUE? A. its EPS will increase B. Its paid-in surplus will increase C. its liquidity ratio will decrease D. Current ratio will decrease

B. Its paid-in surplus will increase

Which of the following is not part of M1? A. Traveler's checks B. Money market mutual funds C. Coins D. Consumer checking accounts

B. Money market mutual funds

Which organization or governmental unit sets fiscal policy? A. Federal Reserve Board (FRB) B. Government Economic Board C. Congress and the president D. Secretary of the Treasury

C. Congress and the president

A customer who earns more than $200,000 a year owns 200 shares of QRS. He bought it 10 years ago at 60 and it is now trading at 90. If he donates the stock to a not-for-profit corporation, how much can he claim as a tax deduction for this donation? A. 0 B. 6,000 C. 9,000 D. 18,000

D. 18,000 200 * 90 = 18,000

ABC, with 3 million shares outstanding, reports after-tax earnings of $7.5 million. Annual cash dividends total $1 per share. The dividend payout ratio is A. 20% B. 25% C. 33% D. 40%

D. 40% 3 / 7.5 = .4

A client in the highest tax bracket wants to minimize his tax burden. The interest on which of the following securities is exempt from federal, state, and local taxes? A. City of New York general obligation bonds B. GNMA pass-through certificates C. Treasury bills D. Bonds issued by the Commonwealth of Puerto Rico

D. Bonds issued by the Commonwealth of Puerto Rico

A customer has $12,000 of capital gain and $15,000 of capital losses. How much unused loss is carried forward to the following year? A. 0 B. 3,000 C. 12,000 D. 15,000

A. 0 15,000 - 12,000 = 3,000 3,000 - 3,000 = 0

All of the following situations could cause a fall in the value of the U.S. dollar in relation to the Japanese yen EXCEPT A. Japanese investors buying U.S. Treasury securities B. U.S. investors buying Japanese securities C. increase in Japan's trade surplus over that of the United States D. general decrease in U.S. interest rates

A. Japanese investors buying U.S. Treasury securities

Which of the following is a leading economic indicator? A. Stock market index B. Gross domestic product C. Duration of unemployment claims D. Industrial production

A. Stock market index

Stock market indexes such as the S&P 500 and the DIJA are declining daily, but the number of declining stocks relative to advancing stocks is falling. A technical analyst would conclude that the market is A. overbought B. oversold C. becoming volatile D. unstable

B. oversold

The dividend payout ratio of common stock is found by dividing the annual dividend per share by A. the book value B. the earnings per share C. the market price D. the capitalization per share

B. the earnings per share

Which of the following is a lagging economic indicator? A. S&P 500 B. Housing permits issued C. Corporate profits D. Hours worked

C. Corporate profits

Which of the following stocks is regarded as a defensive stock? A. aerospace stock B. Stock selling close to its support level C. Stock with a strong cash position and a low ratio of debt D. Electric utility stock

D. Electric utility stock

When the FOMC purchases T-bills in the open market, which of the following scenarios are likely to occur? I. Secondary bond prices will rise II. Secondary bond prices will fall III. Interest rates will rise IV. Interest rates will fall

I and IV

Which of the following statements regarding the economics of fixed-income securities are TRUE? I. Short-term rates are more volatile than long-term rates II. Long-term rates are more volatile than short-term rates III. Short-term bond prices react more than long-term bond prices given a change in interest rates IV. Long-term bond prices react more than short-term bond prices given a change in interest rates

I and IV

Disintermediation is a movement of funds which results when which of the following occurs? I. The money supply tightens II. The FRB increases reserve requirements III. Money market rates are higher than typical savings account rates IV. The discount rate is decreased by FRB

I, II, III

Which of the following are used by the Federal Reserve to control the money supply? I. Open market operations II. Setting reserve requirements for member banks III. Setting the discount rate IV. Setting the federal funds rate

I, II, III

In what order do the following economic phases typically occur? I. Recovery and expansion II. Trough III. Decline IV. Prosperity or peak

I, IV, III, II

Four of the best-known indexes and averages are listed below. How do they rank on the scale of most to fewest issues in the index? I. Dow Jones Industrial Average II. NYSE Composite Index III. Standard & Poor's 500 IV. Wilshire 5000

IV, II, III, I

To tighten credit during inflationary periods, the Federal Reserve Board may take any of the following actions EXCEPT A. raise reserve requirements B. change the amount of U.S. government debt held by major banks C. sell securities in the open market D. lower taxes

D. lower taxes

To tighten credit during inflationary periods, the Federal Reserve Board may take any of the following actions EXCEPT A. raise reserve requirements B. increase the amount of US government debt held by primary dealers C. sell securities in the open market D. lower taxes

D. lower taxes

Proponent's of which of the following technical theories assume that small investors are usually wrong? A. Breadth-of-market theory B. short-interest theory C. volume-of-trading theory D. odd-lot theory

D. odd-lot theory

A fundamental analyst is concerned with all of the following EXCEPT A. historical earnings trends B. inflation rates C. capitalization D. trading volumes

D. trading volumes

Which of the following statements regarding stock dividends are TRUE? I. They are taxable as ordinary income on receipt II. They are not taxable on receipt III. Cost basis per share is reduced IV. Cost basis per share remains the same

II and III

Which of the following statements regarding stock dividends are TRUE? I. They are taxable as ordinary income on receipt. II. They are not taxable on receipt III. Cost basis per share is reduced IV. Cost basis per share remains the same

II and III

Which of the following are taxable to an investor for the tax year in which the event occurs? I. Stock dividends II. Cash dividends III. Stock splits IV. Interest income on foreign bonds

II and IV

From a chartist's (technical analyst's) viewpoint, which of the following statements is TRUE? A. Once a trendline is established, the price movement of a stock usually follows the trendline B. More odd-lot buying than selling is bullish C. Heavy volume in a declining market is bullish D. Light volume in an advancing market is bullish

A. Once a trendline is established, the price movement of a stock usually follows the trendline

Working capital is A. current assets - current liabilities B. total assets - total liabilities C. only the cash and equivalents D. current assets - inventory

A. current assets - current liabilities

Disintermediation is most likely to occur when A. money is tight B. interest rates remain low across all savings institutions and investments C. margin requirements are high D. the interest ceilings on certificates of deposit have been raised

A. money is tight

Regarding economic indicators, which of the following turns ahead of or leads the economy? A. stock prices B. corporate profits C. industrial production D. gross domestic product

A. stock prices

The common stock of all of the following corporations is considered defensive stock EXCEPT A. the stock of an airplane manufacturer B. the stock of a retail grocery chain C. the stock of a utility D. the stock of a pharmaceutical company

A. the stock of an airplane manufacturer

Which of the following taxes is considered regressive? A. Income B. Sales C. Inheritance D. Estate

B. Sales

A support level is A. a point at which an upward trend is expected to stop B. a point at which a downward trend is expected to stop C. the point at which an investment banker purchases for his own account D. usually evidence of an overbought position

B. a point at which a downward trend is expected to stop

All of the following ratios are measures of the liquidity of a corporation EXCEPT A. acid-test ratio B. debt-to-equity C. current ratio D. quick ratio

B. debt-to-equity

A customer is selling inherited stock. The original cost of the stock was $50 per share, and on the date of the decedent's death, the stock was worth $60 per share. The customer sells the stock at $62 per share. What is the investor's cost basis in the stock? A. 50 B. 55 C. 60 D. 62

C. 60

Which of the following is the narrowest measure of the market? A. NYSE Composite Index B. Value Line Index C. DIJA D. Standard & Poor's 500

C. DIJA

Which of the following events is of the greatest importance to a technical analyst? A. The issuer's current book value increased B. Standard & Poor's raised the credit rating of the issuer C. The stock's price recently penetrated its resistance level D. The company announced the resignation of its chief financial officer

C. The stock's price recently penetrated its resistance level

Profits that are not distributed to shareholders are called A. capital surplus B. dividends C. retained earnings D. interest

C. retained earnings

When a technical analyst says that the market is consolidating, the trendline is moving A. upward B. downward C. sideways D. unpredictably

C. sideways

Which of the following is NOT affected by the issuance of a bond? A. assets B. total liabilities C. working capital D. Shareholders' equity

D. Shareholders' equity

An investor purchases a municipal bond at par to yield 5.5% to maturity. Two years later, he sells the bonds at a price equivalent to a 5% yield to maturity. The investor incurs A. no taxable result at this time B. tax-free income C. a capital loss D. a capital gain

D. a capital gain

The working capital of a corporation includes all of the following EXCEPT A. accounts receivable B. marketable securities of other companies C. cash D. convertible bonds

D. convertible bonds

A company has been experiencing increased earnings but has kept its dividend payments constant. As a result solely of this, the company's balance sheet would reflect A. decreased net working capital B. decreased net worth C. decreased retained earnings D. increased shareholders' equity

D. increased shareholders' equity

XYZ common stock has a $4 dividend, a yield of 4.2%, a PE of 12, and is trading at $96. XYZ's approximate earnings per share is A. $4 B. $8 C. $48 D. $50.40

B. $8 96 / 12 = 8

What is the basic corporate balance sheet equation? A. Assets = liabilities - shareholders' equity B. Assets = liabilities + shareholders' equity C. Assets = net worth D. Assets = shareholders' equity - liabilities

B. Assets = liabilities + shareholders' equity

In a rising price environment, which of the following methods for calculating cost basis will generally result in the greatest tax liability for an investor? A. LIFO B. FIFO C. Average Cost D. Identified

B. FIFO

Which of the following is considered the most volatile? A. Discount rate B. Federal funds rate C. Prime rate D. Broker call loan rate

B. Federal funds rate

Which of the following economists is considered a supporter of demand-side economics? A. Adam Smith B. John Maynard Keynes C. Arthur Laffer D. Milton Friedman

B. John Maynard Keynes

As a result of corporate transactions, a company's assets remain the same and its equity decreases. Which of the following statements is TRUE? A. prepaid expenses decrease B. total liabilities increase C. Accrued expenses decrease D. net worth increases

B. total liabilities increase

The difference between current assets and current liabilities is called A. net worth B. working capital C. cash flow D. quick assets

B. working capital

How long must a customer who sold a bond at a loss wait before he may buy back a substantially identical bond and not have the sale classified as a wash sale? A. 5 days B. 20 days C. 30 days D. There is no waiting period

C. 30 days

If the U.S. dollar depreciates in value, which of the following statements is NOT true? A. the same amount of yen would buy more dollars B. the balance of payments deficit probably would be reduced C. foreign goods would become more expensive in the united states D. travel abroad would be less expensive for Americans

D. travel abroad would be less expensive for Americans

Arrange the following economic phases in the normal order in which they occur. I. Recovery II. Trough III. Recession IV. Prosperity

I, IV, III, II