Deck 16: Investment Opportunities in the Securities Market

Question 1

Of the following investments,which has the greatest risk?

A) savings accounts
B) bond mutual funds
C) corporate bonds
D) Treasury bills
E) futures

Answer 1

E

Question 2

A ________ stock comes from a company that makes consumer goods such as food and drugs that have fairly constant demand regardless of the state of the economy.

A) blue chip
B) growth
C) defensive
D) cyclical
E) valule stock

Answer 2

C

Question 3

Of the following,which is LEAST likely to buy stock in an IPO?

A) a mutual fund
B) a corporate pension plan
C) an insurance company
D) an individual investor
E) an institutional buyer

Answer 3

D

Question 4

Of the following investments,which has the lowest risk?

A) government bonds
B) bond mutual funds
C) corporate bonds
D) Treasury bills
E) cap stocks

Question 5

Of the following investments,which has the lowest risk?

A) government bonds
B) conservative mutual funds
C) futures
D) blue chip stocks
E) junk bonds

Question 6

An asset allocation of 50% stocks,45% bonds,and 5% cash is considered ________ risk.

A) conservative low
B) moderate
C) moderate high
D) aggressive high
E) zero

Question 7

________ stocks are issued by companies that produce goods or services that are affected by economic trends.

A) Cyclical
B) Value
C) Growth
D) Blue chip
E) Income

Question 8

Owning ten stocks rather than two illustrates the concept of ________.

A) asset allocation
B) the risk return relationship
C) diversification
D) money market funds
E) prospecting

Question 9

The ________ is a formal legal document that provides details about an investment.

A) prospectus
B) marketing plan
C) business section
D) dissertation
E) primary market report

Question 10

A(n)________ stock pays a large dividend and is unlikely to experience major appreciation.

A) blue chip
B) income
C) defensive
D) cyclical
E) growth

Question 11

Who acts as the intermediary between companies issuing stock and investors who purchase the stock?

A) a financial advisory firm
B) the Securities and Exchange Commission
C) a prospectus
D) an overwriter
E) the New York Stock Exchange

Question 12

Which federal agency oversees and regulates the buying and selling of stocks and bonds?

A) Federal Trade Commission
B) Commerce Department
C) Federal Reserve Board
D) Securities and Exchange Commission
E) New York Stock Exchange

Question 13

Blue chip stocks ________.

A) are issued by companies that pay large dividends
B) are issued by companies that generate sustained positive cash flow
C) are issued by utility companies
D) are issued by companies producing staples such as food, drugs, and insurance and usually maintain their value regardless of the state of the economy
E) are issued by companies that have a long history of consistent growth and stability

Question 14

An asset allocation of 95% stocks and 5% bonds is considered ________ risk.

A) conservative low
B) moderate
C) moderate high
D) aggressive high
E) zero

Question 15

A ________ stock will likely suffer the least amount of depreciation in a major recession.

A) cyclical
B) blue chip
C) growth
D) defensive
E) income

Question 16

________ is having a variety of investments in your portfolio,such as different types of companies in different industries.

A) An initial public offering
B) Compound interest
C) A risk-return relationship
D) Risk tolerance
E) Diversification

Question 17

An investor with a strong appetite for risk should purchase a(n)________.

A) cyclical stock
B) blue chip stock
C) growth stock
D) income stock
E) value stock

Question 18

An investor who wants a fairly reliable and large dividend would be best served by purchasing a(n)________.

A) defensive stock
B) growth stock
C) blue chip stock
D) income stock
E) value stock

Question 19

A(n)________ stock is issued by a young and expanding company and usually doesn't pay a dividend.

A) blue chip
B) income
C) defensive
D) growth
E) cyclical

Question 20

The first time a company issues stock,it does so through a(n)________.

A) primary market issuance
B) initial public offering
C) tertiary market sale
D) auction house
E) instant prospectus opportunity

Question 21

What is the cheapest way for you to buy a stock?

A) through a full-service stockbroker
B) through a discount broker
C) through your bank
D) through a New York Stock Exchange broker
E) through JP Morgan

Question 22

A corporate bond that can be exchanged for stock is called a(n)________.

A) debenture bond
B) secured bond
C) convertible bond
D) equity bond
E) IPO bond

Question 23

Which of the following bonds has the longest maturity date?

A) Treasury bills
B) Treasury bonds
C) Treasury notes
D) TIPS
E) All types of bonds have the same maturity date.

Question 24

An automobile company stock can best be characterized as being a ________ stock.

A) growth
B) cyclical
C) defensive
D) blue chip
E) value

Question 25

Which index does not include financial institutions but does include companies incorporated outside of the United States?

A) DJIA
B) NASDAQ 100
C) S&P 500
D) NYSE
E) TIPS

Question 26

In a bond offering,financial advisors MOST often buy bonds of the company ________.

A) at higher than face value
B) at face value
C) at lower than face value
D) at twice face value
E) at par value

Question 27

A state government would issue a ________ bond to finance the construction of a toll bridge and then use the tolls to pay for the bond.

A) general obligation
B) revenue
C) convertible
D) secure
E) T-note

Question 28

If the demand for a stock is high and the supply of the stock is low,the price of the stock will ________.

A) rise
B) decline
C) stay about the same
D) fluctuate randomly
E) halve

Question 29

If your retired grandmother had modest means,yet wanted to invest in stock,which type of stock would you advise her to buy?

A) blue chip stock
B) defensive stock
C) growth stock
D) income stock
E) cyclical

Question 30

Which of the following bond types is safest?

A) convertible bonds
B) debenture bonds
C) secured bonds
D) Treasury bonds
E) corporate bonds

Question 31

What reward do bond holders get for the risk they take?

A) honor of supporting a struggling company
B) security of government guarantee for their money
C) option to buy more bonds in the company
D) ability to receive interest payments on money lent
E) the fact that they are entirely risk free

Question 32

A bull market is distinguished by ________.

A) a declining stock market and increasing investor confidence
B) a declining stock market and decreasing investor confidence
C) an increasing stock market and increasing investor confidence
D) an increasing stock market and decreasing investor confidence
E) an increasing stock market and no investor confidence

Question 33

Which of the following bonds has the shortest maturity date?

A) Treasury bills
B) Treasury bonds
C) Treasury notes
D) TIPS
E) All four types of bonds have the same maturity date.

Question 34

A(n)________ stock's price is greatly affected by the state of the economy because the company makes a product that can have highly variable demand.

A) growth
B) income
C) defensive
D) cyclical
E) blue chip

Question 35

A corporate bond backed only by a company's promise to pay is called a ________.

A) debenture bond
B) secured bond
C) convertible bond
D) promissory bond
E) municipal bond

Question 36

If you want a bond that you can exchange into stock of a given company,you should buy a ________.

A) revenue bond
B) serial bond
C) convertible bond
D) secured bond
E) debenture bond

Question 37

Bonds issued by state and local governments are called ________.

A) municipal bonds
B) debenture bonds
C) treasury bonds
D) convertible bonds
E) T-bills

Question 38

A corporate bond backed by collateral is called a ________.

A) debenture bond
B) secured bond
C) convertible bond
D) treasury bond
E) treasury note

Question 39

A bear market is distinguished by ________.

A) a declining stock market and increasing investor confidence
B) a declining stock market and decreasing investor confidence
C) an increasing stock market and increasing investor confidence
D) an increasing stock market and decreasing investor confidence
E) an increasing stock market and no investor confidence

Question 40

With stock investing,when does a capital gain occur?

A) the stock owner is paid dividends without having to sell shares
B) the stock owner sells the stock for a higher price than he paid for it
C) the stock owner sells the stock for a lower price than he paid for it
D) the stock owner receives legal entitlement to physical property of the company
E) a capital gain is not possible with stock investing

Question 41

Which of the following Standard & Poor's bond rating categories denotes the lowest risk?

A) AAA
B) A
C) BBB
D) CCC
E) BB

Question 42

Buying an option is similar to buying ________.

A) real estate
B) mutual funds
C) an IPO
D) common stock
E) insurance policy

Question 43

Most companies that issue stock are legally required by the Securities and Exchange Commission to pay dividends to shareholders.

Question 44

Junk bonds ________.

A) are paid with the highest interest rates
B) are typically rated in the A or B category
C) are relatively safe investments
D) are backed by insurance policies
E) are not attractive to any investors

Question 45

What does NAV stand for?

A) new archive value
B) net asset value
C) net allocation variety
D) new asset venture
E) net allocation venture

Question 46

A bond's interest rate is termed its ________.

A) rating
B) face value
C) par value
D) coupon
E) maturity date

Question 47

A futures contract ________.

A) typically involves individual stocks
B) is usually held until it expires
C) is an obligation to purchase the underlying asset
D) is the same as an options contract
E) deals only with commodities

Question 48

In general,the riskier an investment,the greater the opportunity for a large return.

Question 49

The notable advantage to investing in ________ is diversification.

A) municipal bonds
B) mutual funds
C) blue chip stocks
D) T-bills
E) real estate

Question 50

Defensive stocks usually have a stock price that is greatly affected by the state of the economy.

Question 51

Which of the following Standard & Poor's bond rating categories denotes the highest risk?

A) AAA
B) A
C) BBB
D) CCC
E) BB

Question 52

Which of the following is NOT one of four main reasons why mutual funds are popular with investors?

A) government guarantees that minimize risk
B) professional management by experienced people
C) professional assurance of diversification
D) ease of buying into it with little money
E) high level of liquidity

Question 53

Both the New York Stock Exchange and the NASDAQ use only electronic methods for stock trading.

Question 54

A utility company that pays a good dividend can best be characterized as a growth stock.

Question 55

A retired person of modest means is best served by purchasing growth stocks.

Question 56

Preferred stockholders are more likely to be paid a dividend than are common stockholders.

Question 57

The first time a company sells stock,it does so through an initial public offering.

Question 58

Which of the following types of investments is best for money you may need in an emergency?

A) individual stocks
B) corporate bonds
C) money markets
D) real estate
E) government bonds

Question 59

A wise investor will practice either diversification or asset allocation,but not both.

Question 60

Money market funds ________.

A) are backed by the FDIC
B) are similar to corporate bonds
C) are very liquid
D) are risky investments
E) have lower interest rates than savings accounts

Question 61

Why would a 65-year-old likely be best served by owning an income stock rather than a growth stock?

Question 62

List the main types of stocks and discuss the important characteristics of each.

Question 63

What are the most important factors to consider when deciding which particular stock to purchase?

Question 64

An option requires that you purchase the asset in question unless you sell the option first.

Question 65

What factors can affect a person's risk tolerance,and how can risk tolerance change over time?

Question 66

A company issuing bonds is the same as a company getting a loan from an individual bank.

Question 67

What are the advantages and disadvantages to being a preferred stockholder as opposed to being a common stockholder?

Question 68

Trading stocks online yourself is less expensive than using a stockbroker.

Question 69

Is it possible to have money in a savings account and actually lose purchasing power in the long run?

Question 70

A bear market occurs when stocks have bottomed out and investor confidence is shifting from negative to positive.

Question 71

Discuss the important characteristics of three of the main types of stocks.Then identify which type of stock would most appeal to someone with a very high risk tolerance.Finally,identify the type of stock most likely to pay the highest dividend on a steady basis.

Question 72

A stockholder can receive a substantial amount of money in dividends,yet still wind up with a capital loss on a stock.

Question 73

When a company issues bonds,financial advisors buy the bonds at face value.

Question 74

Why is asset allocation important for an investor?

Question 75

Debenture bonds are safer than secured bonds.

Question 76

A company's capitalization or value is equal to the number of outstanding shares of stock times the price of one share of stock.

Question 77

What are the basic characteristics of a bull market and a bear market in terms of stock market performance and investor confidence?

Question 78

The S&P 500 tracks more companies than does the DJIA.

Question 79

What is the basic premise of the risk-return relationship?

Question 80

What is the prospectus that a company issues prior to an initial public offering? Why is it important?