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Test questions

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Test questions

  1. 1. Chapter 11—Investment Planning TRUE/FALSE 1. Investing is considered a short-term activity that involves the buying and selling of securities. ANS: F PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 2. Investing and speculating are two entirely different activities. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 3. Mutual funds provide professional management and diversification that individual investors - especially those with limited resources - can rarely obtain on their own. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 4. A systematic investment routine involves investing similar sums in regular intervals. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 5. When completed, an investment plan is a way of translating an abstract investment target into a specific investment program. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 6. The term "investment' refers to money placed in some medium where value and level of return are totally unpredictable. ANS: F PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 7. Two prerequisites to investing are above average risk and clear understanding of market direction. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 8. A statement specifying how investment capital will be invested in order to reach targeted goals is called a marketing plan.
  2. 2. ANS: F PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 9. Your goals tend to set the tone for your investment program, and they play a major role in determining how conservative or aggressive you're likely to be in making investment decisions. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 10. The major reason most people invest is to shelter current income from taxes. ANS: F PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 11. Owning common stock represents a debt investment. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 12. Common stock pays interest payments on a quarterly basis. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 13. Common stock generally allows the stockholder to vote on issues of corporate governance. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 14. Long-term securities are traded in the primary market. ANS: F PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 15. Newly issued securities are sold to the public in the secondary market. ANS: F PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 16. A prospectus describes the firm and the issue of a new security. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments
  3. 3. KEY: Bloom's: Knowledge 17. An individual is more likely to use the secondary markets than the primary market. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 18. Listed securities are traded on organized exchanges. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 19. If a company's shares are traded on the New York Stock Exchange, the company is a member of the exchange. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 20. Preferred stocks are the common stocks of ultra blue-chip companies. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 21. Preferred stock combines the fixed income features of bonds with the same price appreciation potential as common stocks. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 22. Mutual funds often sell directly to investors. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 23. A retail stockbroker buys and sells securities on behalf of clients. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 24. The Securities Investor Protection Corporation insurance guarantees the dollar value of your securities will not dip below a certain level. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge
  4. 4. 25. A round lot consists of multiples of 100 shares of stock. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 26. A sale of 450 shares of stock would involve the trade of an odd lot. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 27. All OTC stocks are part of NASDAQ. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 28. The over-the-counter market is not an organized security exchange. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 29. The bid price would be the price paid by an investor for an OTC stock. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 30. NASDAQ is now the second largest securities market in the U.S. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 31. The federal government regulates securities markets through the Securities and Exchange Commission. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 32. Prices are rising in bear markets, indicating economic optimism. ANS: F PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 33. When a brokerage house holds your securities for you, they hold them in a street name.
  5. 5. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 34. According to recent legislation, under the FDIC each brokerage account is insured up to $250,000. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 35. An odd lot transaction is generally more expensive than a round lot transaction. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 36. There are 50 shares in a round lot. ANS: F PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 37. Brokers charge a commission on security purchases as well as on security sales. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 38. Discount brokers discount the price of securities to below the prevailing market price. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 39. A market order to sell would be filled at the highest price available that day. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 40. A limit order may be used either to buy or to sell. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 41. Buying on margin would allow you to purchase securities using borrowed funds. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge
  6. 6. 42. The Securities and Exchange Commission sets margin requirements on security purchases. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 43. The Federal Reserve Board (Fed) has the power to raise and lower the margin requirements for stock purchases. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 44. A short sale transaction will be profitable when prices are falling. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 45. The federal margin requirement for common stock is 50%. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 46. Trading on margin can magnify losses or profits. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 47. A corporation's annual stockholders' report provides financial data and other information related to both past and planned activities. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 48. The most popular average/index covering stocks listed on the New York Stock Exchange is the New York Stock Exchange Index. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 49. The Standard and Poor's Index includes 30 industrial stocks. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 50. Stockbrokerage firms often do industry analysis.
  7. 7. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 51. On-line trading is the only valuable investment service available through the Internet. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 52. An annual stockholder report will contain audited financial statements of the company. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 53. The NYSE index includes all stocks listed on the "Big Board." ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 54. The first step in asset allocation is selecting the securities that should go into your portfolio. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 55. A portfolio is a collection of investment assets assembled to meet your investment objectives. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 56. A diversified portfolio should be less risky than putting your money into a single security. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 57. Diversification increases risk. ANS: F PTS: 1 DIF: Easy OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 58. A retired couple can probably bear more risk in their portfolio than a young investor with a secure job. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis
  8. 8. 59. There is a trade-off between earning a high current income from an investment and obtaining significant capital appreciation from it. ANS: T PTS: 1 DIF: Challenging OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 60. Once one's asset allocation plan is developed and securities are selected, these decisions do not have to be made again until there is a major life change. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 61. A portfolio is a collection of investment vehicles assembled to meet an investment goal. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 62. The total return of a portfolio is influenced far more by specific security selection than asset allocation. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 63. Portfolio rebalancing refers to buying and selling activities intended to return a portfolio to its target allocation levels. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 64. The single most important reason for investing is for retirement. ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 65. NYSE Euronext is a part of the broker market accounting for 40% percent of global transactions. ANS: T PTS: 1 DIF: Challenging OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 66. The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 included several reforms aimed at reforming banks and insurance companies. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 67. In terms of market capitalization, Apple is the biggest company in the world.
  9. 9. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 68. Retired people often choose investments offering high current income with high risk. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills KEY: Bloom's: Analysis 69. Exchange traded notes face both market risk and the risk of the issuing bank defaulting. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills KEY: Bloom's: Analysis MULTIPLE CHOICE 1. ____ is a short-term investment activity. a . Buying life insurance b . Buying bonds c . Investing in common stock d . Speculating in common stock e . Saving ANS: D PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 2. Which of the following is least likely to be an investment objective? a . enhance current income b . save for a major purchase c . pay monthly bills d . accumulate funds for retirement e . seek shelter from taxes ANS: C PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 3. Which of the following is a characteristic of an organized securities exchange? a . they facilitate trading unlisted securities
  10. 10. b . municipal bonds are primarily traded in organized exchanges c . pink sheets are commonly used in these markets d . the NASDAQ is an example of an organized exchange e . trading in securities is carried out in a physical location ANS: E PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 4. Which of the following is not a securities market a . capital market b . money market c . primary market d . secondary market e . Dow Jones market ANS: E PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 5. Which of the following types of brokers is most likely to involve an investor trading electronically from his or her personal computer? a . Full service broker b . Bank broker c . Futures broker d . Online broker e . Market maker ANS: D PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 6. The Securities Investor Protection Corporation insures brokerage firm accounts up to a . $500,000 per account and $250,000 in cash b $250,000 per account and $100,000 in cash
  11. 11. . c . $1,000,000 per account and $500,000 in cash d . $500,000 per account and $250,000 in cash e . $500,000 per account and $100,000 in cash ANS: E PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 7. Which of the following securities/investment acts regulates the sale of mutual fund shares? a . The Securities Act of 1933 b . the Securities and Exchange Act of 1934 c . The Investment Company Act of 1940 d . The Sarbanes/Oxley Act of 2002 e . The Securities and Protection Act of 1970 ANS: C PTS: 1 DIF: Challenging OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 8. During a bull market a . prices go up b . prices go down c . prices remain stable d . investments are pessimistic e . cattle futures perform well ANS: A PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 9. The most important investment prerequisites are a . adequate income and savings. b . adequate income and insurance. c adequate insurance and liquidity.
  12. 12. . d . an investment plan and professional advice. e . consistency and risk awareness. ANS: C PTS: 1 DIF: Challenging OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 10. The most common reason given for investing is a . enhancing current income. b . saving for retirement. c . sheltering earnings from taxes. d . paying for an expensive vacation. e . saving for college education. ANS: B PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 11. During a bear market, security prices generally a . hold value b . rapidly increase in value c . remain neutral d . decline in value e . consolidate in value ANS: D PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 12. There are a variety of investment vehicles including which of the following: a . common stock b . bonds c . preferred and convertible securities d real estate
  13. 13. . e . all of the above are investment vehicles ANS: E PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 13. You have been offered an opportunity to buy shares of a diversified collection of securities. You will be investing in a . bonds. b . common stock. c . mutual funds. d . real estate. e . stock opt ions. ANS: C PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 14. Securities markets include a . capital and money markets. b . primary and secondary markets. c . stock exchanges. d . all of these. e . none of these. ANS: D PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 15. Securities sold in the primary markets are usually handled by a(n) a . commercial banker. b . broker. c . investment banker. d . dealer.
  14. 14. e . none of these. ANS: C PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 16. Which of the following is an order to sell a stock when the market price drops to or below a specified level? a . Market order b . limit order c . stop loss order d . fill or kill order e . day order ANS: C PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 17. The SEC requires corporations to issue ____ describing the firm and the security issue it wishes to sell. a . an advertisement b . a prospectus c . an underwriting journal d . a dealer newsletter e . none of these ANS: B PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 18. Which of the following is a true statement about the Dow Jones Industrial Average? a . it is based on 30 industrial stocks b . it is based on 50 transportation stocks c . it is a composite index for the 500 largest industrial publicly traded companies d . it is based on 100 utilities stocks e it contains 50 blue chip stocks
  15. 15. . ANS: A PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 19. If a company's common stock is traded on an exchange, the company is said to be a . an exchange member. b . seated on the exchange. c . marketed on the exchange. d . listed on the exchange. e . licensed by the exchange. ANS: D PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 20. The ____ is not an organized security exchange. a . New York Stock Exchange b . American Stock Exchange c . Midwest Stock Exchange d . Pacific Stock Exchange e . Over-the-Counter Exchange ANS: E PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 21. Unlisted securities are traded on the a . SEC market. b . SIPC. c . OTC market. d . AMEX. e . NYSE.
  16. 16. ANS: C PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 22. Which of the following are characteristics of an effective portfolio strategy? a . level and stability of income b . investment time horizon c . investment experience and age d . disposition toward risk e . all of the above ANS: E PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 23. When you sell a security OTC, you will receive the a . offering price. b . market price. c . ask price. d . selling price. e . bid price. ANS: E PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 24. The securities market which you could not locate on the map is the a . New York Stock Exchange. b . American Stock Exchange. c . Midwest Stock Exchange. d . Pacific Stock Exchange. e . Over the Counter Market. ANS: E PTS: 1 DIF: Moderate OBJ: LO: 11-2
  17. 17. NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 25. The federal government regulates securities markets through the a . Department of Commerce. b . Federal Reserve System. c . National Association of Securities Dealers. d . Securities and Exchange Commission. e . Federal Securities Agency. ANS: D PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 26. A bull market is characterized by a . investor optimism. b . governmental stimulus. c . economic slowdown. d . falling stock prices. e . investor pessimism. ANS: A PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 27. Stockbrokers are also known as a . market makers. b . account executives. c . broker-dealers. d . commission sellers. e . traders. ANS: B PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge
  18. 18. 28. ____ is not a normal brokerage service. a . Providing investment information b . Buying and selling securities c . Managing your portfolio d . Storing security certificates e . Providing market quotations ANS: C PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 29. The SIPC provides protection to the investor from a . declining security prices. b . low or missing dividend payments. c . brokerage firm failure. d . using margin requirements. e . none of these. ANS: C PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 30. When you buy 300 shares of a company you have purchased a . an odd lot. b . a round lot. c . both an odd lot and a round lot. d . a combined lot. e . none of these. ANS: B PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 31. Discount brokers will
  19. 19. a . execute orders. b . give advice. c . watch portfolios. d . do all of these. e . do none of these. ANS: A PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 32. A market order would be transacted at the a . lowest price of the day. b . highest price of the day. c . best price when the order is entered. d . limit price. e . none of these. ANS: C PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 33. An immediate order to buy or sell common stock at the best price is a a . stop order. b . market order. c . limit order. d . stop-loss order. e . discount order. ANS: B PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 34. Instructing your broker to buy or sell a stock at a particular price is a a . limit order.
  20. 20. b . market order. c . margin order. d . regular order. e . stop order. ANS: A PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 35. Buying on margin is buying a . at the lowest price. b . at the market price. c . with borrowed funds. d . by trading currently-owned stock. e . with a short sale process. ANS: C PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 36. The margin required on the purchase of common stock is currently set at a . 30%. b . 40%. c . 50%. d . 60%. e . 70%. ANS: C PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 37. Minimum margin requirements that brokers must observe are set by the a . brokerage firm. b . corporation issuing stock.
  21. 21. c . Securities and Exchange Commission. d . Securities Investor Protection Corporation. e . Federal Reserve System. ANS: E PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 38. Which of the following are characteristics of a limit order? a . the order that provides the quickest way to have an order filled b . buy orders are filled at the lowest available price c . stock is purchased at the current market price d . the order is executed as soon as the specified price is reached e . securities are always bought on margin. ANS: D PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 39. In investment terminology, selling stock that you have borrowed is known as a a . margin sale. b . short sale. c . limit sale. d . stop-loss sale. e . none of these. ANS: B PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 40. Selling equities you don't own and buying them back to cover the sale is a . short selling in anticipation of a bear market in that security b . going long. c . discounting the market averages.
  22. 22. d . a very safe investment activity. e . considered wise in a bull market. ANS: A PTS: 1 DIF: Challenging OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 41. The Internet allows individual investors to legally a . perform investment research and screening b . make trades without using a brokerage firm c . participate in pump and dump schemes d . obtain information that is always completely accurate from chat rooms e . more than one of the above ANS: A PTS: 1 DIF: Moderate OBJ: LO: 11-5 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 42. The most widely followed stock average is the a . Dow Jones Industrial Average. b . Standard & Poor's Index. c . New York Stock Exchange Index. d . American Stock Exchange Index. e . Wall Street Journal Index. ANS: A PTS: 1 DIF: Easy OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 43. The ____ Index reflects the total market value of over 98% of all publicly traded stock in the US. a . Dow Jones Industrial Average b . S & P 500 c . NASDAQ d . Wilshire 5000
  23. 23. e . New York Stock Exchange ANS: D PTS: 1 DIF: Moderate OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 44. How much would it cost to purchase a round lot (the smallest number you can get and still be a round lot) of Stock A at the closing price for the day? YTD 52 weeks Yld Vol Net % CHG Hi Lo Stock Div % P/E 100s Last Chg + 9.6 29.60 22 A .60 3 12 790 19.50 +0.13 - 3.8 17.33 15 B 1.20 8.6 10 510 13.25 +0.25 +1.7 32 17 C -- -- 15 465 24.70 +0.38 a . $ 790 b . $ 1,950 c . $ 2,960 d . $19,500 e . $29,600 ANS: B PTS: 1 DIF: Challenging OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 45. How many shares of Stock A traded on this day? YTD 52 weeks Yld Vol Net % CHG Hi Lo Stock Div % P/E 100s Last Chg + 9.6 29.60 22 A .60 3 12 790 19.50 +0.13 - 3.8 17.33 15 B 1.20 8.6 10 510 13.25 +0.25 +1.7 32 17 C -- -- 15 465 24.70 +0.38 a . 2,000 b . 79,000 c . 51,000 d . 10,000 e . 12,000
  24. 24. ANS: B PTS: 1 DIF: Challenging OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 46. What was the closing price of Stock C on the previous trading day? YTD 52 weeks Yld Vol Net % CHG Hi Lo Stock Div % P/E 100s Last Chg + 9.6 29.60 22 A .60 3 12 790 19.50 +0.13 - 3.8 17.33 15 B 1.20 8.6 10 510 13.25 +0.25 +1.7 32 17 C -- -- 15 465 24.70 +0.38 a . $24.00 b . $23.63 c . $24.32 d . $23.00 e . Cannot tell from the information given ANS: C PTS: 1 DIF: Challenging OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 47. The smallest round lot of stocks quoted at 23.25 would cost you (ignoring commissions) a . $ 23.25. b . $ 232.50. c . $ 2,325.00. d . $23,250.00. e . none of these ANS: C PTS: 1 DIF: Challenging OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 48. A collection of investments is called a . a letter of exposure. b . a diversification. c . a grouping.
  25. 25. d . an envelope. e . a portfolio. ANS: E PTS: 1 DIF: Easy OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 49. A diversified securities portfolio is characterized by a . dissimilar risk and return characteristics of the securities. b . concentrating on a single industry. c . minimal loss potential. d . stable earnings. e . formula timing. ANS: A PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 50. ____ is a portfolio characteristic which leads to reduced risk with good return. a . Maturity b . Price-earnings ratio c . Diversification d . Stratification e . Duration ANS: C PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 51. An essential ingredient of an effective investment strategy is a . enough money to diversify. b . a good broker. c . blue-chip stock selections. d . high-income securities.
  26. 26. e . a bull market. ANS: A PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 52. An unmarried investor with few responsibilities should be able to accept ____ better than two people who are married with young children. a . return b . risk c . maturity d . diversification e . balance ANS: B PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 53. A long term investment strategy includes all of the following except a . stock and bond selection. b . diversification. c . immediate financial needs to pay current bills. d . risk-return behavior. e . investor education. ANS: C PTS: 1 DIF: Easy OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 54. Portfolio management involves making decisions in order to a . buy low and sell high. b . maximize risk and return. c . accept risk. d . own stocks in bear markets. e meet your investment needs and objectives.
  27. 27. . ANS: E PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 55. In addition to a description of any investments owned, the worksheet listing your investments should include a . the purchase price. b . the original amount of the investment. c . the current annual income. d . the latest market value. e . all of the above. ANS: E PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 56. Assume that the price of ABC common stock fell from in a short period of time from $105 to $84. Which of the following investors probably made the most money, if all of these transactions occurred prior to the drop in price? a . Abe took a long position in 1000 shares of ABC b . Bert took a short position in 1000 shares of ABC c . Carrie kept her money in CDs at the bank d . Darren shorted 2000 shares of ABC using a margin loan e . Earl used a margin loan to finance a 2000 share long position in ABC ANS: D PTS: 1 DIF: Challenging OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 57. Which of the following terms best describes a day trader a . Speculator b . Long-term investor c . Money market maker d . Buy and hold mentality
  28. 28. e . Illegal gambler ANS: A PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 58. A stock portfolio containing 80% common stocks is most likely to be appropriate for a . a retired couple who needs a high return b . a divorced middle-aged mother who needs a high return c . a blue-collar, two-income family with five kids d . a young single worker putting money aside for retirement e . a portfolio with 80% in common stocks is not suitable for anyone under any circumstances ANS: D PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 59. The single most important reason for investing is for a home purchase down payment d college fund b auto purchase down payment e ensuring a sufficient emergency fund c . retirement ANS: C PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 60. NYSE Euronext is a part of the broker market accounting for what percent of global equities? a 20 d 70 b 40 e 80 c . 60 ANS: B PTS: 1 DIF: Challenging OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 61. Which of the following was not an intention of The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010? a improve accountability d protect consumers from exploitation
  29. 29. b discontinue the “too big to fail” approach e Recapitalize banks c . improve transparency ANS: E PTS: 1 DIF: Challenging OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge COMPLETION INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement. 1. [Speculating | Investing] is considered to be a long term activity. ANS: b PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 2. [Investing | Speculating] is viewed as a short-term activity that involves the buying and selling of securities in which future value and expected return are highly uncertain. ANS: b PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 3. Before you start investing, you should plan to have a minimum of [$1,000 | $15,000] available. ANS: a PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 4. The first thing you need to determine in order to reach an investment goal is the [rate of return you can receive | the amount of money you need to set aside periodically]. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 5. [Depositing a lump sum and letting it grow | Making monthly deposits to your investment] would be the least costly way to reach a financial goal. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills
  30. 30. STA: DISC: Investments KEY: Bloom's: Analysis 6. An investment offering a high current income would likely be more desirable for [a young couple | a retired couple]. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 7. Ownership in a corporation would be represented by [stock | bonds]. ANS: a PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 8. The owner of a bond would expect to receive [steady | variable] annual income. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 9. [Common stocks | Bonds] have no maturity date. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 10. A fixed dividend would be received with [common | preferred] stock. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 11. A convertible bond would let the investor exchange it for [preferred | common] stock. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 12. Short term securities are traded in the [money | capital] market. ANS: a PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge
  31. 31. 13. The issuer of the security would get no money from a trade in the [primary | secondary] market. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 14. The [primary | secondary] market is where new securities are sold to the public. ANS: a PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 15. An IPO is be sold in the [primary | secondary] market many times. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 16. A(n) [underwriting | prospectus] is a document made available to prospective security buyers that describes the firm and a new security issue. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 17. A [broker | investor] can be a member of a "syndicate" when taking orders for a new IPO. ANS: a PTS: 1 DIF: Challenging OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 18. The [broker | dealer] market is made up of both the NASDAQ market and the OTC market. ANS: b PTS: 1 DIF: Challenging OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 19. Listed securities would be purchased from [a securities exchange | the over the counter market]. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 20. The [bid | ask] price for a stock sold on the OTC market represents the price you would receive when you sold the stock.
  32. 32. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 21. The majority of the securities laws were enacted [before | after] 1930. ANS: b PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 22. The Securities and Exchange Commission was established as a result of the [Securities Act of 1933 | Securities Exchange Act of 1934]. ANS: b PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 23. A [bull | bear] market is characterized by falling stock prices. ANS: b PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 24. A [bull | bear] market is characterized by rising stock prices. ANS: a PTS: 1 DIF: Easy OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 25. Stockbrokers prefer clients who [buy and hold | trade actively.] ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 26. A deep discount broker will execute orders as well as [pick the stocks for you to buy | provide extensive information about various securities | offer little to no other services]. ANS: c PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 27. The Securities Investors Protection Corporation would make payment to you if [the corporation in which you bought stock | the brokerage firm holding your stock] went bankrupt.
  33. 33. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 28. Most brokerage agreements [will | will not] permit you to sue your broker for malpractice. ANS: b PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 29. Fifty shares of stock would constitute [an odd lot | a round lot]. ANS: a PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 30. Two hundred shares of stock would constitute [an odd lot | a round lot]. ANS: b PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 31. On a percentage basis, commissions will be higher if you are buying a [large | small] number of shares. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 32. Brokerage commissions on [stock | bond] transactions are likely to be a flat fee per unit. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 33. An order to buy or sell a security at the best price available at the time the order is received is a [market | limit] order. ANS: a PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 34. If you want to set a specific price in your order, you will use a [market | limit] order.
  34. 34. ANS: b PTS: 1 DIF: Easy NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 35. You are going to buy stock on margin. You will be required to put up a minimum of [50 | 60] percent of the money needed to make the purchase. ANS: a PTS: 1 DIF: Easy OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 36. Margin requirements are set by the [SEC | Federal Reserve]. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 37. Using margin will magnify [only gains | only losses | gains and losses]. ANS: c PTS: 1 DIF: Challenging OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 38. You are selling short; you anticipate the price of the stock will [rise | fall]. ANS: b PTS: 1 DIF: Challenging OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 39. When you sell short, the proceeds of the sale will be [held until the sale is covered | given to you immediately after the sale]. ANS: a PTS: 1 DIF: Challenging OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 40. The maximum amount of money you could lose in a short sale is [known | unknown] at the time of the transaction. ANS: b PTS: 1 DIF: Challenging OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 41. Publicly traded corporations [are required to | may choose to] provide annual reports to their stockholders.
  35. 35. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 42. The Dow Jones Industrial Average is based on [all stocks traded on the NYSE | 50 large stocks | 30 large stocks]. ANS: c PTS: 1 DIF: Easy OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 43. The [DJIA | S&P Index] is based on 500 different stocks. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 44. The high price for ABC stock over the past 52 weeks was [29 | 23.98]. YTD % CHG 52 HI WEEKS LO STOCK (SYM) DIV YLD % PE VOL 100S LAS T NET CHG + 14.1 29 19.44 ABC .16 .7 20 1488 23.98 -0.27 ANS: a PTS: 1 DIF: Challenging OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 45. You would expect to receive an annual dividend of [$0.16 | $0.70] per share. YTD % CHG 52 HI WEEKS LO STOCK (SYM) DIV YLD % PE VOL 100S LAS T NET CHG + 14.1 29 19.44 ABC .16 .7 20 1488 23.98 -0.27 ANS: a PTS: 1 DIF: Challenging OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 46. [2,000 | 148,800] shares of ABC stock were traded on this day. YTD % CHG 52 HI WEEKS LO STOCK (SYM) DIV YLD % PE VOL 100S LAS T NET CHG
  36. 36. + 14.1 29 19.44 ABC .16 .7 20 1488 23.98 -0.27 ANS: b PTS: 1 DIF: Challenging OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 47. The closing price of this stock on the previous day was [higher | lower] than today's close. YTD % CHG 52 HI WEEKS LO STOCK (SYM) DIV YLD % PE VOL 100S LAS T NET CHG + 14.1 29 19.44 ABC .16 .7 20 1488 23.98 -0.27 ANS: a PTS: 1 DIF: Challenging OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 48. ABC stock is [up 14.1% | down 27%] since the beginning of the year. YTD % CHG 52 HI WEEKS LO STOCK (SYM) DIV YLD % PE VOL 100S LAS T NET CHG + 14.1 29 19.44 ABC .16 .7 20 1488 23.98 -0.27 ANS: a PTS: 1 DIF: Challenging OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 49. Day trading is [illegal | risky]. ANS: b PTS: 1 DIF: Easy OBJ: LO: 11-5 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Comprehension 50. The collection of investments you select to meet your investment goals is called your [portfolio | allocation]. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Knowledge 51. The axiom that explains diversification is [Don't cry over spilt milk | Don't put all of your eggs in one basket].
  37. 37. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 52. Diversification should [reduce the possibility of losing all your money | have little impact on the risk of losing money]. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 53. Asset allocation is another term for [selecting the stocks you want to buy | deciding what percentage of your investment you want in stocks]. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Application 54. Investments with high current income typically have [high | low] potential capital appreciation. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Analysis 55. The single most important reason for investing is for [home purchase down payment | retirement]. ANS: b PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 56. The single most important reason for investing is for [a down payment on a home | a down payment on an automobile | retirement]. ANS: c PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 57. NYSE Euronext is a part of the broker market totaling about [40% | 80%] of world equity markets. ANS: a PTS: 1 DIF: Challenging OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 58. The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 included provisions to improve [accountability | sustainability].
  38. 38. ANS: a PTS: 1 DIF: Challenging OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 59. In terms of market capitalization, [Apple | IBM] is the biggest company in the world. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-4 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 60. Retired people often choose investments offering [high current income | low current income]. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills KEY: Bloom's: Analysis 61. Exchange traded funds face the risk of [market fluctuations | default]. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills KEY: Bloom's: Comprehension PROBLEM 1. Monte wants to save for his daughter's college education. He would like to have $85,000 in 15 years. If Monte can earn an average of 8.5% on this fund, how much would he need to deposit in the account today to meet his goal? If Monte has no money to set aside now but wants to save at the end of each month for this goal, how much would he need to add to the account each month? ANS: Lump sum Monthly Payments FV = 85,000 FV = 85,000 N = 15 N = 15 × 12 I = 8.5 I = 8.5/12 PV = 25,002 PMT = 235 PTS: 1 DIF: Challenging OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation
  39. 39. 2. Abe owns 1000 shares of Amazon, which he purchased for $12 per share 3 months ago. Abe just checked the price of Amazon and found that it is selling for $19 per share. He is so excited about his gain that he has booked a $6,000 20-day trip to Hawaii for he and his wife. He wants to be sure that the trip will be paid for entirely from gains in his Amazon shares because his wife has been nagging him about his frequent stock trading habit and he feels that this trip will demonstrate to her once and for all that he has the skills, acumen and instincts to get rich trading stocks. He feels strongly that the price of Amazon stock will go through the roof in the intermediate term but is concerned about short- term volatility. Abe's plan is to sell the shares only if the value of his shares either declines below $18,000 or if the value climbs to $30,000. He would like to submit his stock orders right now, because for the next three weeks it is very important to his marriage that he not trade or even follow the market (maybe just a peek at CNBC while his wife is in the shower). Which of the following set of stock orders would accomplish his pathetic goals? ANS: A GTC stop-loss order to sell 1000 shares at $18 and a GTC limit order to sell 1,000 shares at $30. PTS: 1 DIF: Challenging OBJ: LO: 11-3 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 3. You have just bought (on margin) 100 shares of IBM Corp. common stock for $108 per share. One year from now you expect to sell the stock for $140. The interest charge will be 9%. What return do you expect to earn on your investment? (Show all work. Ignore commissions.) ANS: Amount invested $ 5,400 Amount borrowed $ 5,400 Total purchase $10,800 1 year gross proceeds $14,000 Less interest (.09 × $5,400) 486 Net proceeds $13,514 Less total invested 10,800 Net profit $ 2,714 Return on investment = = .503 or 50.3% PTS: 1 DIF: Challenging OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 4. You have inherited $250,000. You have decided that since you don't need the money currently, you should invest for the long-term. After seeking advice, you decide on an asset allocation plan that puts 10% in short-term securities, 75% in equities, and 15% in bond funds. How much money would you put in each category? (Show all work.) ANS: Short-term Securities (.10 × $250,000) $ 25,000 Equities (.75 × $250,000) 187,500 Bond funds (.15 × $250,000) 37,500 Total invested $250,000
  40. 40. PTS: 1 DIF: Moderate OBJ: LO: 11-6 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation 5. You have just bought 100 shares of ABC Corporation common stock at 70.50. The commission is calculated as 1.5% of the total value of the transaction plus $30. What commission will you be charged and how much must you pay the broker for the entire transaction? (Show all work.) ANS: Market transaction = 100 × $70.50 = $7,050 Commission = (.015 × $7,050) + $30 = $105.75 + $30 = $135.75 Total payment = $7,050 + 135.75 = $7,185.75 PTS: 1 DIF: Moderate OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills STA: DISC: Investments KEY: Bloom's: Evaluation

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