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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 101

Multiple Choice

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When retained earnings are not enough to meet their long-term funding needs,businesses may be able to raise funds by:

A) selling common stock.
B) petitioning the government for a loan.
C) purchasing additional assets.
D) decreasing their accounts payable.

E) All of the above
F) A) and B)

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Question 102

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____________ means that the mutual fund company does not show a fee or commission for investing in the fund.

A) Front load
B) Back load
C) Double load
D) No load

E) A) and D)
F) A) and B)

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Question 103

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A bull market occurs when overall stock prices increase.

An initial public offering IPO)represents the first time a corporation's stock is offered and sold to persons outside of the company.

A company with cash flow shortages must pay common stockholders their dividends before paying preferred stockholders their dividends.

A preferred stock's par value establishes the base used for calculating the preferred stockholders' dividend.

Small investors can spread the risk of investing by purchasing shares of mutual funds or ETFs.

Raising long-term funds through the sale of bonds requires the firm to make debt repayment when and if the organization has sufficient cash flow.

An executive secretary at a major investment banking firm is asked to copy documents that detail a major merger that's going to be finalized in the next two weeks.This merger will be a positive outcome for one of the companies in this deal.The secretary is thrilled to read about the merger,plans to call her broker immediately and buy stock in the company,and suggests that you should also act on her stock tip.Since you are not employed at her firm your purchase is legal.

As interest rates increase,bond prices fall.

Last year Alexis landed her first professional job after graduating from college.She also started her first investment account.Having met with several brokers before choosing someone to work with,Alexis wanted to make certain that her investment choices would provide for long-term growth,yet satisfy her concern for diversification.The person who won her business prepared an asset allocation plan that would start her account by investing in several index funds.Her adviser has offered her a sound way to combine the concern for diversification since index funds are a sensible way for Alexis to start.

Demetrius recently bought a bond with face value of $1000.He paid $1,150 for the bond.Demetrius' bond investment undoubtedly pays a higher interest rate than the going rate for similar bonds currently out on the market.

If you want to buy the stocks of largely capitalized companies companies with millions,and even billions worth of assets),your broker will need to make the trade through the NYSE Euronext.

Describe four different types of common stock that an investor may consider,depending upon the investor's strategy and risk tolerance.

Most mutual funds provide investors an opportunity to buy shares directly without using a stockbroker.

Although the interest rate is fixed when the bond is issued,the interest rate that one firm must pay compared to another may vary depending upon risk factors such as the reputation of the firm.

Corporations issuing ________ bonds pledge a tangible asset as collateral to reduce the risk incurred by a bondholder.

Before the announcement of a three-for-one stock split,the selling price for a share of stock in Olympia Oil Refineries was $150 per share.Immediately after the stock split,the probable price per share is:

Changes in investor trust and confidence strongly influence stock market prices.

What agency sets the margin rates for purchasing stock in the U.S.?