Question 1

Which of the following statements about financing with stocks is NOT true?

Accepted Answer

A) Equity financing does not need to be repaid. 
B) Equity financing increases owner control of the company. 
C) Equity financing allows the company to retain cash and profits. 
D) Equity financing means less debt, which means the balance sheet looks stronger. 
A) Equity financing does not need to be repaid. 
B) Equity financing increases owner control of the company. 
C) Equity financing allows the company to retain cash and profits. 
D) Equity financing means less debt, which means the balance sheet looks stronger. B

Question 2

Issuing stock gives the founders of the company more control over company direction and management.

Accepted Answer

A) True 
 B)False  False

Question 3

What are the advantages and disadvantages to being a preferred stockholder as opposed to being a common stockholder?

Accepted Answer

Preferred stockholders don't get to vote on company policy; however, they do have a better financial position compared to common stockholders in that they receive any dividends first, and they are ahead of common stockholders when a bankrupt company's assets are distributed.

Question 4

Preferred stockholders are more likely to be paid a dividend than are common stockholders.

Accepted Answer

A) True 
 B)False

Question 5

A utility company that pays a good dividend can best be characterized as a growth stock.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following sources of funds is MOST likely to be obtained just before a company raises money through a stock offering?

Accepted Answer

A) contributions from family members 
B) personal sources of cash and credit 
C) capital from business associates 
D) money from angel investors 
A) contributions from family members 
B) personal sources of cash and credit 
C) capital from business associates 
D) money from angel investors

Question 7

If you want a bond that you can exchange into stock of a given company, you should buy a ________.

Accepted Answer

A) revenue bond 
B) serial bond 
C) convertible bond 
D) secured bond 
A) revenue bond 
B) serial bond 
C) convertible bond 
D) secured bond

Question 8

Of the following investments, which has the lowest risk?

Accepted Answer

A) government bonds 
B) mutual funds 
C) corporate bonds 
D) Treasury bills 
A) government bonds 
B) mutual funds 
C) corporate bonds 
D) Treasury bills

Question 9

Of the following investments, which has the greatest risk?

Accepted Answer

A) real estate 
B) mutual funds 
C) options 
D) common stock 
A) real estate 
B) mutual funds 
C) options 
D) common stock

Question 10

The ________ details the company's history.

Accepted Answer

A) prospectus 
B) marketing plan 
C) business section 
D) dissertation 
A) prospectus 
B) marketing plan 
C) business section 
D) dissertation

Question 11

Which of the following is NOT a reason why savings accounts give low returns?

Accepted Answer

A) the low interest rates on most savings accounts 
B) the cost of FDIC insurance 
C) taxes on interest earned 
D) the effect of inflation 
A) the low interest rates on most savings accounts 
B) the cost of FDIC insurance 
C) taxes on interest earned 
D) the effect of inflation

Question 12

Most companies that issue stock are legally required by the Securities and Exchange Commission to pay dividends to shareholders.

Accepted Answer

A) True 
 B)False

Question 13

What is the prospectus that a company issues prior to an initial public offering? Why is it important?

Accepted Answer

The prospectus is a formal legal documen

Question 14

Of the following investments, which has the lowest risk?

Accepted Answer

A) government bonds 
B) mutual funds 
C) futures 
D) common stock 
A) government bonds 
B) mutual funds 
C) futures 
D) common stock

Question 15

Of the following stock indexes, which one tracks the largest number of stocks?

Accepted Answer

A) DJIA 
B) NASDAQ 100 
C) S&P 500 
D) All three indices track the same number of stocks. 
A) DJIA 
B) NASDAQ 100 
C) S&P 500 
D) All three indices track the same number of stocks.

Question 16

What is the biggest disadvantage of issuing stock, from the company's perspective?

Accepted Answer

A) being required to pay dividends to stockholders 
B) dealing with financial advisors during the initial public offering 
C) diluting ownership in the company 
D) keeping track of individual stock holders 
A) being required to pay dividends to stockholders 
B) dealing with financial advisors during the initial public offering 
C) diluting ownership in the company 
D) keeping track of individual stock holders

Question 17

The first time a company issues stock, it does so through a(n)________.

Accepted Answer

A) primary market issuance 
B) initial public offering 
C) tertiary market sale 
D) auction house 
A) primary market issuance 
B) initial public offering 
C) tertiary market sale 
D) auction house

Question 18

Which of the following types of investments is best for money you may need in an emergency?

Accepted Answer

A) individual stocks 
B) corporate bonds 
C) money markets 
D) real estate 
A) individual stocks 
B) corporate bonds 
C) money markets 
D) real estate

Question 19

Junk bonds ________.

Accepted Answer

A) are paid with the highest interest rates 
B) are typically rated in the A or B category 
C) are relatively safe investments 
D) are backed by insurance policies 
A) are paid with the highest interest rates 
B) are typically rated in the A or B category 
C) are relatively safe investments 
D) are backed by insurance policies

Question 20

Of the following investments, which has the greatest risk?

Accepted Answer

A) real estate 
B) mutual funds 
C) corporate bonds 
D) treasury bills 
A) real estate 
B) mutual funds 
C) corporate bonds 
D) treasury bills

Exam 16: Securities and Investments

Which of the following statements about financing with stocks is NOT true?

Issuing stock gives the founders of the company more control over company direction and management.

What are the advantages and disadvantages to being a preferred stockholder as opposed to being a common stockholder?

Preferred stockholders are more likely to be paid a dividend than are common stockholders.

A utility company that pays a good dividend can best be characterized as a growth stock.

Which of the following sources of funds is MOST likely to be obtained just before a company raises money through a stock offering?

If you want a bond that you can exchange into stock of a given company, you should buy a ________.

Of the following investments, which has the lowest risk?

Of the following investments, which has the greatest risk?

The ________ details the company's history.

Which of the following is NOT a reason why savings accounts give low returns?

Most companies that issue stock are legally required by the Securities and Exchange Commission to pay dividends to shareholders.

What is the prospectus that a company issues prior to an initial public offering? Why is it important?

Of the following investments, which has the lowest risk?

Of the following stock indexes, which one tracks the largest number of stocks?

What is the biggest disadvantage of issuing stock, from the company's perspective?

The first time a company issues stock, it does so through a(n)________.

Which of the following types of investments is best for money you may need in an emergency?

Junk bonds ________.

Of the following investments, which has the greatest risk?

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