Deck 3: Participating in the Market

Question 1

The Value Line average is an equal-weighted index.

Answer 1

True

Question 2

The Dow Jones composite index combines the Dow Jones Industrial Transportation,and Utility averages into an index of 65 stocks.

Answer 2

True

Question 3

The Value Line Average contains stocks from several exchanges or markets.

Answer 3

True

Question 4

A value-weighted index tends to give more importance to large companies than small companies.

Question 5

The Wilshire 5000 index includes all stocks on the New York and American Stock Exchanges and most active Nasdaq issues.

Question 6

The S&P Indexes are often used by professionals because they are weighted by total market value of the companies in the index.

Question 7

The Value Line Average reflects changes in stock prices rather than value of shares outstanding.

Question 8

The Standard and Poor's 500 stock index is widely followed by professional money managers as a measure of broad stock market activity.

Question 9

The Standard and Poor's Indexes are price-weighted indexes.

Question 10

The indexes of The New York Stock Exchange,American Exchange,and Nasdaq are all price-weighted.

Question 11

The Standard and Poor's Midcap Index is composed of 500 middle sized firms.

Question 12

The base period for the Standard and Poor's stock indexes is 1957-58.

Question 13

The Dow Jones Industrial Average is not adjusted for stock splits.

Question 14

Good 'till canceled orders expire automatically after a set period of time.

Question 15

The Russell 2000 measures performance of the 2000 largest stocks based on market value.

Question 16

A change in a high price stock's value has a greater impact on the Dow Jones Industrial Average than a change in a low price stock.

Question 17

Large,established companies make up the Dow Jones Industrial average.

Question 18

Korean stock prices are measured by the Nikkei 225 average.
The cost of borrowing in a margin account is usually equal to the prime rate.

Question 19

The Dow Jones Industrial average is a value weighted index.

Question 20

The division in the Dow Jones Industrial average equals 30.

Question 21

The Dow Jones Industrial Average is not the most accurate market measure,because of its blue chip stock composition,and its bias toward high priced stocks.

Question 22

The margin requirement is used in selling stock.

Question 23

Stocks may be used to satisfy margin requirements rather than cash.

Question 24

For investors putting their funds in tax deferred accounts,the capital gains provisions of the Taxpayer Relief Act of 1997 are irrelevant.

Question 25

All of the S&P measures are indexes in that they are linked to a base value.

Question 26

You can write-off up to $5,000 in investment losses in any one year.

Question 27

Long-term capital gains are taxed at a higher tax rate than dividends.

Question 28

Securities must be kept in street name if a margin account is used.

Question 29

When you "short" a security you are actually selling a security that no one owns.

Question 30

A limit order can ensure that you will not pay above a given price in purchasing a stock or sell below a given price in selling a stock.

Question 31

The margin requirement on stock is currently 30 percent.

Question 32

The NYSE sets margin requirements.

Question 33

Different mutual funds are judged by different measures,depending on their investment objectives.

Question 34

If you short a stock and the price goes up,your net equity value will go up.

Question 35

Novice investors should consider using full-service brokers.

Question 36

If a stock is held for less than 12 months,any gain in value is taxed as ordinary income.

Question 37

Tax rates that apply to income within a given tax bracket are referred to as marginal tax rates.

Question 38

You are said to be long in a security if you purchase the security.

Question 39

Trading through an online broker is generally cheaper than trading through a discount broker.

Question 40

Long-term capital gains are taxed as ordinary income.

Question 41

Commissions charged by stock brokers tend to vary among different classes of brokers.

Question 42

The Securities and Exchange Commission publishes a list of approved securities that may be borrowed against.

Question 43

Online brokers have become popular because

A)They offer discounts on stock research reports
B)Their commissions are lower than full-service or discount brokers
C)They specialize in the stock of low priced securities
D)Only online brokers can service self-directed individual retirement accounts

Question 44

The Nasdaq 100 includes high tech firms such as

A)IBM,Oracle,Cisco Systems
B)Microsoft,Intel,Cisco Systems
C)Hewlett Packard,Cisco Systems,Compaq
D)All of the above

Question 45

Companies having the greatest impact on the computation of the Dow Jones Averages and the Standard and Poor's Indexes have the ____________ and the _____________,respectively.

A)Highest price; highest total market value
B)Highest total market value; highest price
C)Highest price; lowest liquidity
D)Greatest number of shares outstanding; highest price

Question 46

Minimum maintenance standards requires that a margined investor always maintains the initial margin position.

Question 47

The success of a "short" investment position depends on

A)A level stock price
B)A declining stock market
C)An increasing stock price
D)Declining interest rates
E)More than one of the above

Question 48

The index which gives equal weight to every company included and is therefore not dominated by any single company is the

A)Dow Jones Composite Average
B)Standard and Poor's 400 Index
C)The Value Line Average
D)American Stock Exchange Index
E)Dow Jones World Index

Question 49

Margin percentages are set by the Board of Governors of the Federal Reserve System.

Question 50

________________ represents 75 percent of the total value of firms listed on the NYSE,while ____________________ includes 1700 individual firms.

A)The Dow Jones Industrial Average; Value Line Average
B)Wilshire 5000 Russell 2000
C)The Value Line Average; Standard and Poor's Composite
D)The Dow Jones Composite Average; the Standard and Poor's Industrials
E)The Standard and Poor's 500 Index; Value Line Average

Question 51

A stop order is similar to a limit order except that the order turns into a market order once the stop price is hit.

Question 52

Which of the following is NOT a characteristic of the Dow Jones Industrial Average?

A)It includes only very high quality common stock
B)It generally follows the trend of the market
C)The companies included,comprise over 25 percent of the companies listed on the New York Stock Exchange
D)It is a value weighted average
E)Dividends require adjustments to the divisor

Question 53

Margin represents the amount of money an investor may borrow to purchase securities.

Question 54

Lipper Analytical Services measures the performance of mutual funds.

Question 55

A stop order is similar to a limit order,except that once the set price is reached the stop order

A)Is executed after all limit orders at the same price
B)Becomes a limit order
C)Goes to the end of the execution cue
D)Immediately becomes a market order.

Question 56

Which of the following is NOT a characteristic of the Wilshire 5000 Equity Index?

A)It is most frequently used by individual investors
B)It represents the total dollar value of 5000 stocks on a value weighted basis
C)It contains all NYSE and AMEX issues,and most active NASDAQ issues
D)It is used as a measure of the broadest market performance index
E)It is a value-weighted index

Question 57

Which of the following are features of margin accounts?

A)They leverage returns,i.e.magnify the size of a gain or loss
B)You must put up part of the purchase price in cash or other securities
C)Purchased securities are not delivered to the investor
D)The percentage of the total cost the investor must pay is set by the Federal Reserve Board
E)All of the above are features

Question 58

If a stock is sold short,the equity in the investor's account will go up if the stock

A)Price goes down
B)Price goes up
C)Is split 2 for 1
D)A and c

Question 59

A __________ order sets the price at which an investor is willing to buy or sell and assures the investor that he/she will pay no more or receive no less than the agreed upon price.

A)Limit
B)Stop
C)Good 'til canceled
D)Market

Question 60

A ____________ requires full payment for the purchase of securities while a _____________ allows the investor to borrow a portion of the purchase price from the brokerage firm.

A)Money market account; cash account
B)Cash account; charge account
C)Cash account; margin account
D)Type 5 account; a type 2 account

Question 61

The difference between a cash account and a margin account is:

A)A margin account allows the investor up to five days to pay for the entire purchase
B)A cash account gives the investor a 2% discount if they pay with in 10 days,or the investor has to pay the entire amount with in thirty days (2/10 net 30)
C)A margin account allows the investor to borrow a percentage of the purchase price from the brokerage firm
D)A margin account is less risky to the investor
E)a cash account requires the stock be kept registered in street name,a margin account allows the securities to be delivered to the customer.

Question 62

When an investor establishes a position in a security:

A)They are said to be long if they purchase the security for their account
B)They are said to be long if they sell the security for their account
C)They are said to be short if they sell the security for their account
D)They are said to be short if they purchase the security for their account
E)Both a and c

Question 63

The tax rate that is simply the amount of taxes paid divided by taxable income is

A)Marginal tax rate
B)Average tax rate
C)Short-term capital gains tax rate
D)Long-term capital gains tax rate

Question 64

You buy 100 shares of stock at $40 per share on margin of 40 percent.If the price of the stock rises to $60 per share what is your percentage gain in equity? Disregard interest costs.

Question 65

The following are all value-weighted indexes,except:

A)The S&P 500
B)The Dow Jones Industrial Average
C)Midcap 400
D)The S&P Industrials (400 stocks)
E)Wilshire 5000

Question 66

Performance in the bond market is usually gauged by

A)Indexes and averages
B)Interest rate movements
C)Yield curve changes
D)B and C

Question 67

Assume the following five companies are used in computing an index

Question 68

Long-term capital gains treatment serves as encouragement for investors to buy

A)High yield stocks
B)Municipal bonds
C)U.S.government bonds
D)Growth stocks

Question 69

A type of index that weighs each company by its total market value as a percentage of the total market value for all firms is:

A)An equal-weighted index
B)A value-weighted index
C)An equally-weighted index
D)A price-weighted index

Question 70

Margin accounts are mostly used by:

A)Traders who think their long-run returns will be greater than the cost of borrowing
B)Speculators who think their long-run returns will be greater than the cost of borrowing
C)Investors who think their long-run returns will be greater than the cost of borrowing
D)All of the above

Question 71

You buy 100 shares of stock at $50 per share on margin of 40 percent.If the price of the stock declines to $35,what is your percentage loss?

Question 72

The tax rate that specifically applies to each new dollar of income is the:

A)Marginal tax rate
B)Average tax rate
C)Short-term capital gains tax rate
D)Long-term capital gains tax rate

Question 73

The amount of taxes paid divided by taxable income is called

A)The marginal tax rate
B)The average tax rate
C)The implied tax rate
D)None of the above

Question 74

Lipper Analytical Services is a leading publisher of indexes related to

A)Bonds
B)Foreign equities
C)Small firms
D)Mutual funds
E)Real estate values

Question 75

The Nikkei 225 average relates to stock movements in what market?

A)Korea
B)Japan
C)Austria
D)Australia
E)China

Question 76

Using the excerpt from Table 3-1,assume a single person has a taxable income of $40,000
Excerpt for Table 3-5

Question 77

The minimum holding period to qualify for the long-term capital gains treatment is

A)1 month
B)12 months
C)18 months
D)24 months
E)36 months

Question 78

You sell 100 shares of PGD short at a price of $50 per share.How much is your initial margin given margin requirements of 40%? If the stock declines to $30 per share what is your percentage gain or loss on the initial equity?

Question 79

If an investor is in a 34 percent tax bracket and has held a stock for two years,the applicable tax rate that will apply to dividends is

A)15 percent
B)20 percent
C)28 percent
D)34 percent

Question 80

An example of an equal weighted index or average is the

A)Russell 2000
B)Dow Jones Industrial Average
C)Value Line Average
D)Russell 1000
E)S&P 500