Deck 24: Stocks,bonds,futures,and Options

Question 1

When an investor buys shares of stock,those stocks must be held for a specified period of time before they can be sold.

Answer 1

False

Question 2

Unlike the New York Stock Exchange,NASDAQ is an electronic stock market with trades executed through a sophisticated computer and telecommunications network.

Answer 2

True

Question 3

Treasury bonds are so safe (risk-free)that they often pay relatively low returns.

Answer 3

True

Question 4

Applied to any investment,the phrase "there's no such thing as a free lunch" means that higher returns come with lower risks,and lower returns come with higher risks.

Question 5

Another term for stocks is equity.

Question 6

Another term for a stockbroker is an account representative.

Question 7

A stock is purchased either for the expected gain in the price of the stock,for the dividends that the stock may pay,or both.

Question 8

The term after the bell means after the closing of the stock market.

Question 9

A futures contract is a contract in which the seller agrees to provide a given good to the buyer on a predetermined future date at an agreed-upon price.

Question 10

If the stock market quote in the newspaper reads 752 in the column headed "Vol 00s",it means that 752 shares of this stock were traded on this particular day.

Question 11

The interest paid on corporate bonds is not subject to federal taxes.

Question 12

The issuer of a bond is a lender.

Question 13

A low price-earnings ratio usually indicates that people believe that this corporation will have lower than average growth in earnings.

Question 14

The longer you hold stocks in the stock market,the more likely you will earn a positive return,ceteris paribus.

Question 15

The Wilshire 5000 stock index is made up of the stocks of 5,000 of the largest U.S.companies.

Question 16

Bonds that are rated in the D category are of higher quality than bonds that are rated in the A category.

Question 17

The three major components of a bond are the bond price,maturity date,and coupon rate.

Question 18

A stock with a price-earnings ratio of 11.2 means that the stock is selling for a closing share price that is 11.2 times its latest available net earnings per share.

Question 19

If the bid value of a Treasury bond is listed as "112:16",it means that the buyer is willing to pay $1,125 for the bond.

Question 20

If you are buying a bond that is newly issued by the corporation,you are buying it in the primary market.

Question 21

Refer to Exhibit 38-1.The coupon rate for bond E is

A) 37.5 percent.
B) 0.38 percent.
C) 0.45 percent.
D) 9.0 percent.
E) none of the above

Question 22

Refer to Exhibit 38-1.The yield on bond B is approximately

A) 9.5 percent.
B) 15.8 percent.
C) 0.15 percent.
D) 17 percent.

Question 23

Refer to Exhibit 38-1.The coupon rate for bond A is

A) 6.0 percent.
B) 10.0 percent.
C) 7.5 percent.
D) 0.075 percent.

Question 24

Refer to Exhibit 38-1.The yield on bond D is approximately

A) 11 percent.
B) 3 percent.
C) 6.4 percent.
D) 0.064 percent

Question 25

A bond is

A) a claim on the assets of a corporation such that the purchaser has an ownership right in the corporation.
B) anything of value to which the firm has a legal claim.
C) a means of assuring that the business firm will pay its debts or fulfill other legal obligations.
D) a promise to pay for the use of someone else's money.

Question 26

Refer to Exhibit 38-1.The yield on bond C is approximately

A) 11.0 percent.
B) 4.8 percent.
C) 3.6 percent.
D) 100 percent.

Question 27

The typical face value of a corporate bond is $1,000.

Question 28

Refer to Exhibit 38-1.The yield on bond A is approximately

A) 7.5 percent.
B) 0.06 percent.
C) 6.0 percent.
D) 0.075 percent.

Question 29

Refer to Exhibit 38-1.The coupon rate for bond C is

A) 0.25 percent.
B) 11 percent.
C) 3.6 percent.
D) 100 percent.

Question 30

When a person buys a bond of the XYZ Corporation,he or she can expect to

A) pay the corporation a certain amount of money each quarter of the year.
B) receive the face value of the bond each year and the face value of the bond when the bond matures.
C) receive the coupon rate times the face value of the bond each year and the face value of the bond when the bond matures.
D) receive the face value of the bond each year in perpetuity.

Question 31

Refer to Exhibit 38-1.The coupon rate for bond B is

A) 0.09 percent.
B) 16.7 percent.
C) 9.5 percent.
D) 11 percent.

Question 32

Those who think that a popular investment is necessarily a good investment often find themselves earning low returns.

Question 33

Which of the following statements is true?

A) A person who buys a bond always pays the face value for the bond.
B) If a corporation issues a bond and Dennis buys it,Dennis becomes one of the owners of the corporation.
C) A stockholder of Firm X is one of the owners of Firm X.
D) The owner of the bond receives periodic payments equal to its coupon rate times the price he paid for the bond.

Question 34

The major components of a bond include all of the following except its

A) maturity date.
B) face value.
C) price.
D) coupon rate.

Question 35

An IOU that promises to pay a certain amount at maturity,and also to pay periodic fixed amounts until that date,is called a(n)

A) stock.
B) equity.
C) bond.
D) futures contract.

Question 36

The face value of a bond is

A) the dollar amount that a person would receive if he or she were to sell the bond.
B) the dollar amount that a person would receive if he or she were to buy the bond.
C) the total value of payments that will be made over the course of the bond's life.
D) the dollar amount of the bond's final payment at maturity.

Question 37

A private equity firm is a group of investors that buys up the publicly traded stock of a large corporation and then takes the corporation private.

Question 38

Refer to Exhibit 38-1.The coupon rate for bond D is

A) 11 percent.
B) 6.4 percent.
C) 3 percent.
D) 0.07 percent.

Question 39

A bear market is one in which prices are expected to rise.

Question 40

Refer to Exhibit 38-1.The yield on bond E is approximately

A) 37.5 percent.
B) 0.38 percent.
C) 0.45 percent.
D) 5.0 percent.

Question 41

The coupon rate is equal to the annual coupon payment

A) divided by the face value of the bond.
B) divided by the price paid for the bond.
C) multiplied by the price paid for the bond.
D) divided by the current market value of the bond.

Question 42

The acronym NASDAQ (one of the stock exchanges)stands for

A) National Academy of Stock Dealers Automated Quotations
B) New American Securities Dealers Automated Quotations
C) National Association of Securities Dealers Automated Quotations
D) North American Stock Dealers Automated Quotations

Question 43

The beginnings of the New York Stock Exchange can be traced back to a small group of men who bought and sold stock in New York in

A) 1792.
B) 1866.
C) 1892.
D) 1929.

Question 44

Suppose that the annual dividend per share of stock is $5.40 and the closing price of the stock is $72.50,the yield of the stock would be

A) 13.43%
B) 7.45%
C) 23.62%
D) 8.38%

Question 45

Which of the following statements is false?

A) The list of stocks that are included in the Dow Jones Industrial Average changes from time to time,and is determined by the editors of the Wall Street Journal.
B) The Dow Jones Industrial Average first appeared on the scene in 1896.
C) When the Dow Jones Industrial Average was first computed,prudent investors bought bonds,not stocks.
D) The Dow Jones Industrial Average is computed by summing the prices of the thirty stocks included in the average and dividing by 30.

Question 46

Which of the following statements is false?

A) The Wilshire 5000 is a stock index that consists of the stocks of about 6,500 firms.
B) Instead of buying a mutual fund that consists of various stocks picked by a fund manager you can buy a mutual fund that consists of the stocks that make up a particular stock index.
C) The term Sypders stands for "Standard & Poors Direct Receipts."
D) When an investor buys Spyders they are said to "buy the market."

Question 47

When you purchase a share of stock,you are

A) borrowing funds from the corporation.
B) lending funds to the corporation.
C) selling an ownership right in the corporation.
D) acquiring an ownership right in the corporation.
E) b and d

Question 48

The original Dow Jones Industrial Average (DJIA)contained ____________ stocks,while the DJIA now consists of ____________ stocks.

A) 10; 500
B) 11; 30
C) 15; 50
D) 20; 60

Question 49

Jessica paid $2,300 for a bond with a face value of $2,000.She will be paid $300 annually as long as she holds on to the bond,until the bond's maturity date.The coupon rate of the bond is

A) 15.0 percent.
B) 7.5 percent.
C) 13.0 percent.
D) 80.0 percent.

Question 50

When you buy a corporate bond,you are

A) borrowing funds from the corporation.
B) lending funds to the corporation.
C) selling an ownership right in the corporation.
D) acquiring an ownership right in the corporation.
E) b and d

Question 51

Suppose that the annual dividend per share of stock is $1.40 and the closing price of the stock is $22.00,the yield on the stock would be approximately

A) 6.36%
B) 15.71%
C) 21.60%
D) 9.70%

Question 52

Today,the Dow Jones Industrial Average

A) consists of 30 stocks.
B) is a set group of stocks that remains constant over time.
C) contains stocks that are widely held by institutional investors and individuals.
D) contains both stocks and bonds of large American companies.
E) a and c

Question 53

Refer to Exhibit 38-1.For which bond is the yield and the coupon rate the same?

A) Bond A
B) Bond B
C) Bond C
D) Bond D
E) Bond E

Question 54

The yield of a stock is the

A) dividend divided by the closing price per share.
B) dividend divided by the average daily price of the stock.
C) closing price divided by the 52-week low price.
D) dividend divided by the opening price per share.

Question 55

A person buys a bond with a face value of $10,000 for $9,325.Each year until the maturity date the bond buyer receives a coupon payment of $650 from the issuer of the bond.The coupon rate on the bond is

A) 9.11 percent.
B) 6.5 percent.
C) 7.0 percent.
D) 6.75 percent.

Question 56

The coupon rate is the percentage of

A) profits distributed to bondholders.
B) profits distributed to stockholders.
C) the face value of the bond that is paid out regularly to the bondholder.
D) the assets of the corporation that is paid out regularly to each stockholder.

Question 57

A bond purchaser bought a bond from which she receives $800 a year from the issuer.If the face value of the bond is __________ then the coupon rate is __________.

A) $10,000; 10 percent
B) $8,000; 8 percent
C) $10,000; 8 percent
D) $8,000; 12 percent
E) none of the above

Question 58

A bond is

A) a claim on the assets of the corporation that gives the purchaser an ownership right in the corporation.
B) the share of profits distributed to bondholders.
C) a promise to pay for the use of someone else's money.
D) a promise of ownership of the government.
E) c and d

Question 59

A share of stock is

A) a claim on the assets of the corporation that gives the purchaser an ownership right in the corporation.
B) the share of profits distributed to stockholders.
C) a promise to pay for the use of someone else's money.
D) a promise to loan money to someone.
E) a and b

Question 60

Which of the following statements is false?

A) The Dow Jones Industrial Average went down by 40 percent during the decade of the 1930s.
B) Based on data from the period between 1926 and 2004,the probability of having a positive return on an investment in the stocks contained in the Dow Jones Industrial Average would have been 97.1 percent if the stocks had been held for 10 years.
C) When reading the stock market page of a newspaper,if the column marked "Div." is blank,it means that the company does not currently pay out dividends.
D) A stock that yields 4 percent is better than a stock that yields 5 percent,all else being the same.

Question 61

Which of the following is false?

A) For bond buyers,the higher the yield the better it is for them.
B) For bond buyers,the higher the price of the bond the better it is for them.
C) For bond buyers,the lower the yield the worse it is for them.
D) The term yield on a bond is the same as the term interest rate on a bond.

Question 62

Which of the following statements is false?

A) The issuer of a bond is a borrower.
B) The person who buys a bond is a lender.
C) Interest earned on corporate bonds is exempt from federal income taxes.
D) The coupon rate on a bond is the percentage of the face value that the bondholder receives annually until the bond matures.

Question 63

Refer to Exhibit 38-2.If the closing price of Vixen's stock on the previous day was $65.50,what value goes in blank (D)?

A) 64.00
B) 65.15
C) 65.75
D) 65.00
E) There is not enough information given to answer this question.

Question 64

Refer to Exhibit 38-2.If the closing price of Dancer's stock on the previous day was $34.25,what value goes in blank (B)?

A) 34.85
B) 34.00
C) 34.75
D) 34.50
E) There is not enough information given to answer this question.

Question 65

The yield on a bond is the

A) annual coupon payment divided by the price paid for the bond.
B) coupon rate divided by the price paid for the bond.
C) annual coupon payment divided by the face value of the bond.
D) same as the interest rate on the bond.
E) a and d

Question 66

In reading the stock market quotes in the newspaper,the column with the heading "Ticker" gives the

A) number of shares of the stock traded that day.
B) the full name of the company whose stock is being studied.
C) stock symbol for the company.
D) highest price the stock has sold for in the past year.

Question 67

Bond prices and bond yields have a(n)______________ relationship.

A) direct
B) inverse
C) independent
D) positive

Question 68

Which of the following is false?

A) Even if a corporation is not currently issuing bonds,you could still buy a bond directly from the corporation.
B) Bonds that are rated AAA from Standard and Poor's have received the highest rating possible.
C) A bond that is rated in the D category indicates that the bond issuer cannot pay off the bond.
D) It is possible to buy a bond from someone who purchased and still holds the bond he bought from the corporation at an earlier date.

Question 69

Municipal bonds

A) are issued by state and local governments.
B) pay interest that is fully taxable.
C) are issued by corporations.
D) are issued by the federal government.

Question 70

Which of the following statements is false?

A) Another term for a Treasury bill is a T-bill.
B) Treasury notes mature in 2 to 10 years.
C) Treasury bonds are considered very safe investments,but Treasury bills are considered to be a more risky investment.
D) It is unlikely the federal government will default on its bond obligations.

Question 71

A person buys a bond with a face value of $10,000 for $9,325.Each year until the maturity date the bond buyer receives $750 from the issuer of the bond.The yield on the bond is

A) 8.04 percent.
B) 7.5 percent.
C) 10.0 percent.
D) 6.75 percent.
E) There is not enough information to answer the question.

Question 72

You turn to the bond market page of a newspaper and look under the column headed "Bonds" and see that it says,"Alpha 7 1/2 25" this information indicates that

A) the coupon rate on this bond is 7.5 percent.
B) the year this bond matures is 2025.
C) the current yield on this bond is 7.5 percent.
D) the current yield on this bond has risen 0.25 percent since the previous trading day.
E) a and b

Question 73

Jessica paid $7,000 for a bond with a face value of $6,000.She will be paid $400 annually as long as she holds on to the bond,until the bond's maturity date.The yield on the bond is

A) 6.67 percent.
B) 5.71 percent.
C) 15.0 percent.
D) 80.0 percent.

Question 74

In reading the stock market quotes in the newspaper,the column with the heading "P/E" gives the

A) number of shares of the stock traded that day.
B) dividend per share divided by the closing price per share.
C) stock symbol for the company.
D) latest closing price per share divided by the latest available earnings per share.

Question 75

Which of the following statements is true?

A) Treasury bills mature in 2 to 10 years.
B) Treasury notes mature in 13 or 26 weeks.
C) Treasury bills,notes,and bonds are considered to be very safe investments.
D) Municipal bonds are issued to help the federal government build new projects such as highways and stadiums.

Question 76

Which of the following can issue bonds?

A) the government
B) corporations
C) government agencies
D) all of the above

Question 77

Which of the following statements is false?

A) A corporate bond typically has face value of $1,000.
B) Corporate bonds typically sell for a price that is equal to the bond's face value.
C) The interest that corporate bonds pay is fully taxable.
D) State and local governments issue municipal bonds.

Question 78

Which of the following statements is false?

A) As the price paid for a bond rises,the yield declines.
B) If you purchase stock from an individual that currently owns the stock,you are buying it in the secondary market.
C) The yield on a bond is another term for the coupon rate on a bond.
D) A rating of Aaa from Moody's is the highest bond rating given by that rating agency.

Question 79

Refer to Exhibit 38-2.If the closing price of Dasher's stock on the previous day was $17.50,what value goes in blank (A)?

A) -0.50
B) +0.50
C) -0.25
D) -0.75
E) There is not enough information given to answer this question.

Question 80

Refer to Exhibit 38-2.If the closing price of Prancer's stock on the previous day was $55.50,what value goes in blank (C)?

A) +0.75
B) -0.50
C) +0.50
D) +0.25
E) There is not enough information given to answer this question.