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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 231

True/False

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The over-the-counter market utilizes an electronic securities trading system.

A) True
B) False

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Question 232

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Diversification means:

A) allocating all your investment funds into one type of investment.
B) buying investments on margin.
C) being knowledgeable about the various types of investment opportunities.
D) allocating your investment funds to several types of investments.

E) All of the above
F) C) and D)

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Question 233

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Erica invests $5,000 in five ABC Corporation bonds that mature in ten years.Unexpectedly just the week after she invests,she has the opportunity to work abroad,which she has always wanted to do,but she needs cash.Which of the following most likely applies to Erica?

Securities markets represent the financial marketplaces for stocks and bonds.

Mini-Case Penny Stock is the chairperson of Pirate Recording Company Inc.She is the person responsible for the tremendous growth this company has enjoyed over the past three years.It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli.These groups have generated profits of over $25 million. The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording.This incredible growth has delighted everyone at the company,but it has also created a major problem for Penny.Pirate Recording has never been a major player in the recording industry,primarily because of limited capital.In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment.The amount of new funds required to finance this needed expansion is $150 million.Penny has started to consult with others about how to finance this major expansion of the company. -If Pirate Recording elects to offer an IPO (Initial Public Offering) ,it will involve preparing full financial disclosure with the ___________.The firm is advised to solicit the services of an investment banker/underwriter,who will analyze the market and determine the best price for the new issue of Pirate Recording stock.The offering will then be sold on the ____________.

A company often exercises the call provision of a bond if it's available when prevailing interest rates fall below the interest rate currently being paid to bondholders.

An investor places a ________ order with a broker to buy a particular stock at a specific price,if and when that price becomes available.

Having just returned from the Iraq war,David,a young soldier has $25,000 in his savings account.His girlfriend suggested that he talk with an investment advisor and let his money "make more money".David has his eye on a new Ford truck,but he knows that his old Jeep Cherokee will probably last another four years,at which time he will definitely need this money as a down payment or purchase of something new.David should buy high growth stock with his funds because even though they are risky,they also have the greatest potential of bringing in the better return on his investment.

The dramatic decrease in stock market prices during the 2000 to 2002 time period occurred in part because:

Which of the following offers low risk,guaranteed income,backed by the full faith and credit of the federal government?

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

Investing online is usually ________ than trading through a traditional stock brokerage firm.

When brokers talk about trading round lots,they are referring to 50 shares of stock.

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.

As a legal contract,bonds issued by different companies carry the same level of risk.

Mark impresses his friends by stating that he just cast four votes in the election of the board of directors of Microsoft,indicating that Mark owns __________ stock in Microsoft.

Which of the following represents the largest floor-based stock exchange in the world?

Another name for the fixed rate of interest attached to a bond is the:

If paid,dividends come from any profits remaining after the firm has paid taxes.The company cannot deduct dividends as an expense of doing business.

A company's stock does not have to be listed on one of the major stock exchanges in order to trade.It can be traded on _____________.