Question 1

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

Question 2

After buying 100 shares of common stock in the It's All Good Corporation for $20 per share, Popeye later sold the same shares for $25 per share. Popeye's capital gain on the total transaction is:

Accepted Answer

A)   $5.
B)   $50.
C)   $500.
D)   $2,500.E) A) and B)
F) None of the above

Question 3

After owning a Cordero Company bond for five years, Gabrielle exercised an option that allowed her to exchange her bond for 20 shares of the company stock. Gabrielle owned a:

Accepted Answer

A)   callable bond.
B)   revenue bond.
C)   junk bond.
D)   convertible bond.E) A) and B)
F) A) and C)

Question 4

If a company announces a stock split, the investor may receive two or more shares of the company stock, for every one share that he/she holds.

Accepted Answer

A) True 
 B)False

Question 5

Buying a stock makes the investor an owner in the firm.

Accepted Answer

A) True 
 B)False

Question 6

A callable bond allows a bondholder to exchange his/her bond for shares of common stock in the same corporation.

Accepted Answer

A) True 
 B)False

Question 7

Stocks of corporations with earnings expected to increase faster than other stocks are called ________ stocks.

Accepted Answer

A)   penny
B)   growth
C)   preferred
D)   blue skyE) B) and C)
F) None of the above

Question 8

Investors who trade securities buy securities they are interested in holding or sell securities to make a profit or cut losses by trading in the secondary market.

Accepted Answer

A) True 
 B)False

Question 9

Buying on margin is a relatively risk-free way of investing in the stock market.

Accepted Answer

A) True 
 B)False

Question 10

The NASDAQ is a floor-based exchange.

Accepted Answer

A) True 
 B)False

Question 11

The largest one-day drop in the stock market occurred in 1987-a 22% drop.

Accepted Answer

A) True 
 B)False

Question 12

The Federal Trade Commission (FTC) regulates the security markets in the United States.

Accepted Answer

A) True 
 B)False

Question 13

Most investment advisors put mutual funds high on the list of recommended investments for experienced investors, but consider them too risky for beginning investors.

Accepted Answer

A) True 
 B)False

Question 14

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) A) and D)

Question 15

Cynthia plans to buy 100 shares of common stock in the Idaho Spud Corporation. She willingly accepts the risk of this investment because she:

Accepted Answer

A)   understands that creditors are protected from risk.
B)   desires an opportunity to share in the success of this company.
C)   knows that every gambler wins occasionally.
D)   believes that a bear market is on the way.E) A) and D)
F) A) and C)

Question 16

In reviewing the firms whose stocks comprise the Dow Jones Industrial Average, we discover:

Accepted Answer

A)   The same 30 stocks have been used since the inception of the indicator.
B)   Different companies are used each year.
C)   These stocks change periodically as deemed appropriate.
D)   There is an even mix between big and small companies.E) A) and B)
F) A) and C)

Question 17

Which of the following securities guarantees preferred stockholders payment of missed dividends before any dividends are paid to common stockholders?

Accepted Answer

A)   Call provision
B)   Cumulative preferred
C)   Participating preferred
D)   Convertible preferredE) A) and B)
F) All of the above

Question 18

Investors buying bonds and corporations issuing bonds (both)  accept investment risk. Which of the following statements is most correct when it comes to the investment that one or the other party accepts?

Accepted Answer

A)   If investor Joe is holding a bond that pays 5% and market interest rates on similar bonds go down, Joe must hold the bond until maturity because if he were to sell it today, he would have to sell it at a discount.
B)   If investor Joe is holding a bond that pays 5% and market interest rates on similar bonds go down, Joe's bond is now worth more than its face value, and if he needed to sell it on the secondary market, he could probably sell it at a premium.
C)   If investor Joe is holding a bond that pays 5% and interest rates on similar bonds go up, Joe stands to gain more than the face value of the bond if he were to sell it on the secondary market today.
D)   If XYZ Corporation wants to issue bonds to pay for an expansion project, and analysts predict that interest rates are projected to climb over the next few years, it is to the corporation's advantage to wait until next year to issue the bonds.E) None of the above
F) C) and D)

Question 19

Investors and corporations are on the opposite sides of the interest rate risk scenario. If interest rates go up to 7%, the bondholder holding a bond with a 6% interest rate knows that he could do better. If he is forced to sell his bond on the secondary market before it matures, he will receive less than the face value.

Accepted Answer

A) True 
 B)False

Question 20

When acquiring funds through the sale of a bond, the business incurs a legal obligation to pay regular interest payments.

Accepted Answer

A) True 
 B)False

Exam 19: Using Securities Markets for Financing and Investing Opportunities

After buying 100 shares of common stock in the It's All Good Corporation for $20 per share, Popeye later sold the same shares for $25 per share. Popeye's capital gain on the total transaction is:

Correct Answer
verified

Stocks of corporations with earnings expected to increase faster than other stocks are called ________ stocks.

Correct Answer
verified

Buying a stock makes the investor an owner in the firm.

Correct Answer
verified

In reviewing the firms whose stocks comprise the Dow Jones Industrial Average, we discover:

Correct Answer
verified

The NASDAQ is a floor-based exchange.

Correct Answer
verified

If a company announces a stock split, the investor may receive two or more shares of the company stock, for every one share that he/she holds.

Correct Answer
verified

When acquiring funds through the sale of a bond, the business incurs a legal obligation to pay regular interest payments.

Correct Answer
verified

Which of the following securities guarantees preferred stockholders payment of missed dividends before any dividends are paid to common stockholders?

Correct Answer
verified

The largest one-day drop in the stock market occurred in 1987-a 22% drop.

Correct Answer
verified

Most investment advisors put mutual funds high on the list of recommended investments for experienced investors, but consider them too risky for beginning investors.

Correct Answer
verified

Buying on margin is a relatively risk-free way of investing in the stock market.

Correct Answer
verified

Cynthia plans to buy 100 shares of common stock in the Idaho Spud Corporation. She willingly accepts the risk of this investment because she:

Correct Answer
verified

The cost of a firm borrowing money is called the:

Correct Answer
verified

The Federal Trade Commission (FTC) regulates the security markets in the United States.

Correct Answer
verified

Investors buying bonds and corporations issuing bonds (both) accept investment risk. Which of the following statements is most correct when it comes to the investment that one or the other party accepts?

Correct Answer
verified

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

Correct Answer
verified

Investors who trade securities buy securities they are interested in holding or sell securities to make a profit or cut losses by trading in the secondary market.

Correct Answer
verified

After owning a Cordero Company bond for five years, Gabrielle exercised an option that allowed her to exchange her bond for 20 shares of the company stock. Gabrielle owned a:

Correct Answer
verified

Correct Answer
verified

A callable bond allows a bondholder to exchange his/her bond for shares of common stock in the same corporation.

Correct Answer
verified

Exam 19: Using Securities Markets for Financing and Investing Opportunities

After buying 100 shares of common stock in the It's All Good Corporation for $20 per share, Popeye later sold the same shares for $25 per share. Popeye's capital gain on the total transaction is:

Correct AnswerverifiedShow Answer

Stocks of corporations with earnings expected to increase faster than other stocks are called ________ stocks.

Correct AnswerverifiedShow Answer

Buying a stock makes the investor an owner in the firm.

Correct AnswerverifiedShow Answer

In reviewing the firms whose stocks comprise the Dow Jones Industrial Average, we discover:

Correct AnswerverifiedShow Answer

The NASDAQ is a floor-based exchange.

Correct AnswerverifiedShow Answer

If a company announces a stock split, the investor may receive two or more shares of the company stock, for every one share that he/she holds.

Correct AnswerverifiedShow Answer

When acquiring funds through the sale of a bond, the business incurs a legal obligation to pay regular interest payments.

Correct AnswerverifiedShow Answer

Which of the following securities guarantees preferred stockholders payment of missed dividends before any dividends are paid to common stockholders?

Correct AnswerverifiedShow Answer

The largest one-day drop in the stock market occurred in 1987-a 22% drop.

Correct AnswerverifiedShow Answer

Most investment advisors put mutual funds high on the list of recommended investments for experienced investors, but consider them too risky for beginning investors.

Correct AnswerverifiedShow Answer

Buying on margin is a relatively risk-free way of investing in the stock market.

Correct AnswerverifiedShow Answer

Cynthia plans to buy 100 shares of common stock in the Idaho Spud Corporation. She willingly accepts the risk of this investment because she:

Correct AnswerverifiedShow Answer

The cost of a firm borrowing money is called the:

Correct AnswerverifiedShow Answer

The Federal Trade Commission (FTC) regulates the security markets in the United States.

Correct AnswerverifiedShow Answer

Investors buying bonds and corporations issuing bonds (both) accept investment risk. Which of the following statements is most correct when it comes to the investment that one or the other party accepts?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Investors who trade securities buy securities they are interested in holding or sell securities to make a profit or cut losses by trading in the secondary market.

Correct AnswerverifiedShow Answer

After owning a Cordero Company bond for five years, Gabrielle exercised an option that allowed her to exchange her bond for 20 shares of the company stock. Gabrielle owned a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A callable bond allows a bondholder to exchange his/her bond for shares of common stock in the same corporation.

Correct AnswerverifiedShow Answer

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