Question 1

Dividends represent a portion of a firm's profits that are distributed to bondholders first then stockholders.

Accepted Answer

A) True 
 B)False

Question 2

The market price and growth potential of a common stock depends heavily on the performance of the firm in meeting its objectives.

Accepted Answer

A) True 
 B)False

Question 3

The cost of a firm borrowing money is called the

Accepted Answer

A)   interest rate.
B)   dividend payment.
C)   prime charge.
D)   opportunity charge.E) A) and D)
F) A) and B)

Question 4

Samantha has a brokerage account with a large investment firm. This morning her broker called asking if she is interested in participating in an IPO. He went on to say that he could get her 300 shares for $33/share. If Samantha agrees to buy the IPO, the trade will take place in the

Accepted Answer

A)   fair trade market.
B)   outer market.
C)   primary market.
D)   secondary market.E) B) and D)
F) B) and C)

Question 5

The purpose of the SEC's circuit breakers rule is to

Accepted Answer

A)   prevent market disruption caused by a communication malfunction.
B)   halt trading for a short time following a dramatic drop in stock prices.
C)   allow floor traders to specialize in trading the securities of specific industries.
D)   prevent individuals from profiting from information not available to the general public.E) B) and C)
F) C) and D)

Question 6

If the firm should find itself in bankruptcy, preferred stockholders would have claim to the value of any remaining assets before common stockholders.

Accepted Answer

A) True 
 B)False

Question 7

Bonds represent a permanent source of funding for companies. The money firms acquire by issuing bonds does not need to be repaid.

Accepted Answer

A) True 
 B)False

Question 8

A mutual fund company buys securities from corporations and governments and packages them together into a mutual fund. It then

Accepted Answer

A)   sells shares of this packaged investment to interested investors.
B)   deposits the mutual fund into a pension fund for institutional investors.
C)   charges investors a fee to find out how these investments fared, so that investors can decide for themselves as to whether they want to own the investments.
D)   gives investors the option to bid on a share of this investment.E) B) and D)
F) B) and C)

Question 9

Applying what you have learned about investments as introduced to you in Chapter 19, put the following investments in order from least risky to riskiest. Which of following lists begin with the least risky investment and ends with the most risky? Least risky = 1; most risky = 5.

Accepted Answer

A)   1)  Bonds; 2)  Mutual Funds; 3)  ETFs; 4)  Preferred Stock; 5)  Common Stock
B)   1)  Preferred Stock; 2)  Common Stock; 3)  Mutual Funds; 4)  ETFs; 5)  Bonds
C)   1)  Common Stock; 2)  Bonds; 3)  Mutual Funds; 4)  ETFs; 5)  Preferred Stock
D)   1)  Bonds; 2)  Common Stock 3)  Mutual Funds 4)  ETFs 5)  Preferred StockE) B) and D)
F) All of the above

Question 10

The Dow Jones Industrial Average reflects the daily average price of all the stocks traded on the New York Stock Exchange.

Accepted Answer

A) True 
 B)False

Question 11

If you buy 100 shares of IBM for $120/share, and the margin on your account is 50%, the broker will float you an interest-free loan of $6,000, until the price of IBM sufficiently rises to the point where you are willing to sell. You pay the broker back its $6,000, and you enjoy the capital gain.

Accepted Answer

A) True 
 B)False

Question 12

Bonds offering a higher interest rate than other bonds of similar risk will likely sell at a

Accepted Answer

A)   secondary market.
B)   discount.
C)   premium.
D)   price equal to the face value of the bond.E) All of the above
F) None of the above

Question 13

A blue chip stock represents a highly speculative stock investment.

Accepted Answer

A) True 
 B)False

Question 14

Cumulative preferred stockholders enjoy the first right to purchase any new shares of stock issued by the firm.

Accepted Answer

A) True 
 B)False

Question 15

Issuing new stock increases the firm's outstanding debt on their balance sheet.

Accepted Answer

A) True 
 B)False

Question 16

Security markets assist businesses in performing their ________ function.

Accepted Answer

A)   long-term investing
B)   long-term planning
C)   long-term financing
D)   concurrent controllingE) A) and D)
F) B) and C)

Question 17

Preferred stock may include callable and convertible provisions.

Accepted Answer

A) True 
 B)False

Question 18

An investor who purchases stock in a company becomes a(n)

Accepted Answer

A)   creditor.
B)   owner.
C)   blue chip master.
D)   speculator.E) None of the above
F) C) and D)

Question 19

A bond represents a contract of indebtedness issued by a corporation that promises payment of a principal amount plus interest at a specified future date.

Accepted Answer

A) True 
 B)False

Question 20

A ________ certificate provides evidence of ownership in a specific corporation.

Accepted Answer

A)   stock
B)   bond
C)   debt
D)   capitalE) A) and D)
F) A) and B)

Exam 19: Using Securities Markets for Financing and Investing Opportunities

A ________ certificate provides evidence of ownership in a specific corporation.

Correct AnswerverifiedShow Answer

A bond represents a contract of indebtedness issued by a corporation that promises payment of a principal amount plus interest at a specified future date.

Correct AnswerverifiedShow Answer

Dividends represent a portion of a firm's profits that are distributed to bondholders first then stockholders.

Correct AnswerverifiedShow Answer

Samantha has a brokerage account with a large investment firm. This morning her broker called asking if she is interested in participating in an IPO. He went on to say that he could get her 300 shares for $33/share. If Samantha agrees to buy the IPO, the trade will take place in the

Correct AnswerverifiedShow Answer

The market price and growth potential of a common stock depends heavily on the performance of the firm in meeting its objectives.

Correct AnswerverifiedShow Answer

An investor who purchases stock in a company becomes a(n)

Correct AnswerverifiedShow Answer

A blue chip stock represents a highly speculative stock investment.

Correct AnswerverifiedShow Answer

Bonds represent a permanent source of funding for companies. The money firms acquire by issuing bonds does not need to be repaid.

Correct AnswerverifiedShow Answer

If the firm should find itself in bankruptcy, preferred stockholders would have claim to the value of any remaining assets before common stockholders.

Correct AnswerverifiedShow Answer

Issuing new stock increases the firm's outstanding debt on their balance sheet.

Correct AnswerverifiedShow Answer

Cumulative preferred stockholders enjoy the first right to purchase any new shares of stock issued by the firm.

Correct AnswerverifiedShow Answer

The Dow Jones Industrial Average reflects the daily average price of all the stocks traded on the New York Stock Exchange.

Correct AnswerverifiedShow Answer

Applying what you have learned about investments as introduced to you in Chapter 19, put the following investments in order from least risky to riskiest. Which of following lists begin with the least risky investment and ends with the most risky? Least risky = 1; most risky = 5.

Correct AnswerverifiedShow Answer

The purpose of the SEC's circuit breakers rule is to

Correct AnswerverifiedShow Answer

The cost of a firm borrowing money is called the

Correct AnswerverifiedShow Answer

A mutual fund company buys securities from corporations and governments and packages them together into a mutual fund. It then

Correct AnswerverifiedShow Answer

Bonds offering a higher interest rate than other bonds of similar risk will likely sell at a

Correct AnswerverifiedShow Answer

Preferred stock may include callable and convertible provisions.

Correct AnswerverifiedShow Answer

If you buy 100 shares of IBM for $120/share, and the margin on your account is 50%, the broker will float you an interest-free loan of $6,000, until the price of IBM sufficiently rises to the point where you are willing to sell. You pay the broker back its $6,000, and you enjoy the capital gain.

Correct AnswerverifiedShow Answer

Security markets assist businesses in performing their ________ function.

Correct AnswerverifiedShow Answer

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