Question 1

At year-end a firm has assets of $100 and debts due of $120. In this situation,the stockholders must pay an additional $20 out of their own pocket.

Accepted Answer

A) True 
 B)False  False

Question 2

The Dow Jones Industrial Average is a price-weighted index of 30 stocks chosen to represent the overall market.

Accepted Answer

A) True 
 B)False  True

Question 3

The preliminary version of a security offer that is circulated to potential buyers before SEC approval (registration)is obtained is called a

Accepted Answer

A) final prospectus. 
B) shelf registration statement. 
C) due diligence draft. 
D) waiting period offer. 
E) red herring prospectus. 
A) final prospectus. 
B) shelf registration statement. 
C) due diligence draft. 
D) waiting period offer. 
E) red herring prospectus. E

Question 4

In cumulative voting,a stockholder who owns 51 percent of the shares can be assured of the ability to elect the entire board of directors.

Accepted Answer

A) True 
 B)False

Question 5

From a U.S. investor perspective,diversifying in the international stock markets adds foreign exchange risk and political risk to the portfolio.

Accepted Answer

A) True 
 B)False

Question 6

The preemptive right is designed to

Accepted Answer

A) allow management to diffuse stock ownership any voting power. 
B) allow managers to preempt a stock offering if they do not like the terms of the deal. 
C) allow existing shareholders the right to sell their existing shares before the new offer. 
D) allow existing shareholders to buy shares of the new offering if they desire. 
E) None of these choices are correct. 
A) allow management to diffuse stock ownership any voting power. 
B) allow managers to preempt a stock offering if they do not like the terms of the deal. 
C) allow existing shareholders the right to sell their existing shares before the new offer. 
D) allow existing shareholders to buy shares of the new offering if they desire. 
E) None of these choices are correct.

Question 7

Common stocks typically have which of the following that bonds do NOT have?
I. Voting rights
II. Fixed cash flows
III. Set maturity date
IV. Tax deductibility of cash flows to investors

Accepted Answer

A) I only 
B) I,II,and IV only 
C) II,III,and IV only 
D) IV only 
E) I,II,III,and IV 
A) I only 
B) I,II,and IV only 
C) II,III,and IV only 
D) IV only 
E) I,II,III,and IV

Question 8

A participating preferred stock has a fixed dividend payment every year.

Accepted Answer

A) True 
 B)False

Question 9

Preferred stockholders have a claim senior to common stock but junior to bondholders.

Accepted Answer

A) True 
 B)False

Question 10

An order to buy shares of stock at a specified price or better is called a limit order.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is/are true about specialists?
I. Investment banks generally cannot be specialists.
II. Specialists are used by the NASDAQ system.
III. Market and limit orders are transacted at specialist posts,but the specialist's own account orders are executed elsewhere.
IV. Specialists help maintain continuous trading.

Accepted Answer

A) I,II,and III only 
B) I and IV only 
C) II,III,and IV only 
D) I only 
E) III only 
A) I,II,and III only 
B) I and IV only 
C) II,III,and IV only 
D) I only 
E) III only

Question 12

What are ECNs? How are they changing trading in the traditional markets?

Accepted Answer

ECNs are electronic communication networ

Question 13

In terms of volume of trading and market value of firms traded,the ________ is the largest U.S. stock market. In terms of number of firms traded,the ________ is the largest in the United States.

Accepted Answer

A) NYSE; NYSE 
B) NASDAQ; NYSE 
C) NYSE; AMEX 
D) NYSE; NASDAQ 
E) NASDAQ; AMEX 
A) NYSE; NYSE 
B) NASDAQ; NYSE 
C) NYSE; AMEX 
D) NYSE; NASDAQ 
E) NASDAQ; AMEX

Question 14

Stock splits change the divisor in a price-weighted index but do not result in any net change in the divisor of a value-weighted index.

Accepted Answer

A) True 
 B)False

Question 15

A firm is using cumulative voting and four director spots are up for election. There are 3.6 million shares outstanding. How many shares must a minority owner own or control to ensure that he or she can gain control of one seat on the board of directors?

Accepted Answer

A) 900,001 
B) 880,001 
C) 720,001 
D) 1,800,001 
E) 1,750,001 
A) 900,001 
B) 880,001 
C) 720,001 
D) 1,800,001 
E) 1,750,001

Question 16

When would preferred stock be a better investment choice than common stock or bonds?

Accepted Answer

Preferred stocks have higher yields than

Question 17

The market in which firms sell new securities to raise cash is called the secondary market.

Accepted Answer

A) True 
 B)False

Question 18

If all preferred dividend payments that have been missed must be paid before any common stock dividend can be paid,the preferred stock is called ________ preferred stock.

Accepted Answer

A) cumulative 
B) participating 
C) nonparticipating 
D) voting 
E) dual class 
A) cumulative 
B) participating 
C) nonparticipating 
D) voting 
E) dual class

Question 19

Individuals and households indirectly invest in corporate stock through investments in mutual funds and pension funds.

Accepted Answer

A) True 
 B)False

Question 20

Today,Stock A is worth $20 and has 1,000 shares outstanding. Stock B costs $30 and has 500 shares outstanding. Stock C is priced at $50 per share and has 1,200 shares outstanding. If,tomorrow,Stock A is priced at $22,Stock B at $35,and Stock C is worth $48,what would the value-weighted index amount equal? (The index has a base period value of 100.)

Accepted Answer

A) 35.00 
B) 105.00 
C) 108.44 
D) 101.45 
E) 102.21 
A) 35.00 
B) 105.00 
C) 108.44 
D) 101.45 
E) 102.21

Exam 8: Stock Markets

At year-end a firm has assets of $100 and debts due of $120. In this situation,the stockholders must pay an additional $20 out of their own pocket.

The Dow Jones Industrial Average is a price-weighted index of 30 stocks chosen to represent the overall market.

The preliminary version of a security offer that is circulated to potential buyers before SEC approval (registration)is obtained is called a

In cumulative voting,a stockholder who owns 51 percent of the shares can be assured of the ability to elect the entire board of directors.

From a U.S. investor perspective,diversifying in the international stock markets adds foreign exchange risk and political risk to the portfolio.

The preemptive right is designed to

Common stocks typically have which of the following that bonds do NOT have? I. Voting rights II. Fixed cash flows III. Set maturity date IV. Tax deductibility of cash flows to investors

A participating preferred stock has a fixed dividend payment every year.

Preferred stockholders have a claim senior to common stock but junior to bondholders.

An order to buy shares of stock at a specified price or better is called a limit order.

What are ECNs? How are they changing trading in the traditional markets?

In terms of volume of trading and market value of firms traded,the ________ is the largest U.S. stock market. In terms of number of firms traded,the ________ is the largest in the United States.

Stock splits change the divisor in a price-weighted index but do not result in any net change in the divisor of a value-weighted index.

A firm is using cumulative voting and four director spots are up for election. There are 3.6 million shares outstanding. How many shares must a minority owner own or control to ensure that he or she can gain control of one seat on the board of directors?

When would preferred stock be a better investment choice than common stock or bonds?

The market in which firms sell new securities to raise cash is called the secondary market.

If all preferred dividend payments that have been missed must be paid before any common stock dividend can be paid,the preferred stock is called ________ preferred stock.

Individuals and households indirectly invest in corporate stock through investments in mutual funds and pension funds.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

In terms of volume of trading and market value of firms traded,the is the largest U.S. stock market. In terms of number of firms traded,the is the largest in the United States.