Question 1

A blue chip stock represents a highly speculative stock investment.

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

Question 4

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 5

Security markets assist businesses in performing their ________ function.

Accepted Answer

A)  long-term investing 
B)  long-term planning 
C)  long-term financing 
D)  concurrent controlling 
A)  long-term investing 
B)  long-term planning 
C)  long-term financing 
D)  concurrent controlling

Question 6

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 7

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 8

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. 
A)  secondary market. 
B)  discount. 
C)  premium. 
D)  price equal to the face value of the bond.

Question 9

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 10

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 Stock 
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 Stock

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Preferred stock may include callable and convertible provisions.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  stock 
B)  bond 
C)  debt 
D)  capital 
A)  stock 
B)  bond 
C)  debt 
D)  capital

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. 
A)  creditor. 
B)  owner. 
C)  blue chip master. 
D)  speculator.

Question 15

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. 
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.

Question 16

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 17

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

Accepted Answer

A) True 
 B)False

Question 18

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. 
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.

Question 19

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

Question 20

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

Exam 19: Using Securities Markets for Financing and Investing Opportunities

A blue chip stock represents a highly speculative stock investment.

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

The cost of a firm borrowing money is called the

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

Security markets assist businesses in performing their ________ function.

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

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.

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

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.

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.

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

Preferred stock may include callable and convertible provisions.

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

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

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

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

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

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

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

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

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

How to Form a Business

Entrepreneurship and Starting a Small Business

Management and Leadership

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Employeemanagement Issues

Marketing: Helping Buyers Buy

Developing and Pricing Goods and Services

Distributing Products

Using Effective Promotions

Understanding Accounting and Financial Information

Financial Management

Money, Financial Institutions, and the Federal Reserve

Appendix: Working Within the Legal Environment

Appendix: Using Technology to Manage Information

Appendix: Managing Risk

Appendix: Managing Personal Finances

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