Question 1

Which of the following is true of an initial public offering (IPO)?

Accepted Answer

A)   Buying an IPO stock is less risky than purchasing established companies in the secondary market.
B)   An IPO stock can be sold later in the primary market.
C)   An IPO's stock price may rise or fall rapidly on the first day.
D)   An IPO represents a company that was just created within the last month. C

Question 2

Which of the following is not true regarding preferred stock?

Accepted Answer

A)   Preferred stockholders have rights to the assets of the corporation before common stockholders.
B)   Preferred stockholders have priority over common stockholders in receiving dividends.
C)   Preferred stock has greater potential for capital appreciation than common stock.
D)   The price of preferred stock is less volatile than the price of common stock. C

Question 3

If you purchase 100 shares of Ajax Corporation for $15 a share and one year later sell it for $20 a share, what was your return if the stock paid $2 per share dividends? (Ignore commissions and trading fees. Round to the nearest whole percent.)

Accepted Answer

A)   10%
B)   33%
C)   47%
D)   40% C

Question 4

You can reduce your risk by

Accepted Answer

A)   diversifying your investments.
B)   having a shorter time horizon.
C)   putting all of your investment in one successful company.
D)   Both A and B are correct.

Question 5

The main difference(s) between a preferred stock in Company A that pays a $2.50 per share annual dividend and a common stock in Company A that also pays a $2.50 per share current annual dividend is (are)

Accepted Answer

A)   the common stock has potential for price appreciation due to company earnings growth.
B)   the common stock dividend may increase but the preferred dividend is generally fixed.
C)   the common stock could lose value if the company performance were to suffer.
D)   All of the above are real differences between preferred and common stock in the same company.

Question 6

Common stockholders have the right to vote on key corporate issues, but also have the last right to the assets or profits of a company.

Accepted Answer

A) True 
 B)False

Question 7

John decides to take his annual Christmas bonus of $2,000 and invest it each year for the next five years in stock he believes can earn an 8% annual return. How much will John's investment be worth at the end of the five years?

Accepted Answer

A)   $11,972
B)   $19,098
C)   $11,734
D)   $15,600

Question 8

Which of the following statements regarding an investment's risk is not true?

Accepted Answer

A)   Investors measure risk to determine the degree of uncertainty surrounding their future returns.
B)   Risky stock will have a smaller range of returns and a smaller standard deviation of returns.
C)   Investments with a wide range of returns have more risk.
D)   Standard deviation measures the degree of volatility in the stock's return over time.

Question 9

If a stock is purchased for $30 a share and pays $5 per share in dividends a year, what selling price at the end of the year would result in a return of 50%?

Accepted Answer

A)   $60
B)   $40
C)   $35
D)   $15

Question 10

A key reason for uncertainty surrounding the return on investment is the uncertainty surrounding the current economic conditions.

Accepted Answer

A) True 
 B)False

Question 11

Before you start to invest, you should ensure liquidity by owning

Accepted Answer

A)   individual stocks.
B)   money market securities.
C)   options and puts.
D)   corporate bonds.

Question 12

You can estimate the amount by which your wealth will increase from an investment using

Accepted Answer

A)   standard deviation.
B)   discounted range of returns.
C)   time value of money.
D)   analysis of past returns.

Question 13

Of the following statements about a day trader, which is not correct?

Accepted Answer

A)   They have a short-term focus.
B)   They may buy and sell on the same day.
C)   They are more risk averse than most investors.
D)   Day trading may be their career.

Question 14

You have been given an overview of stocks, bonds, and mutual funds. Give one advantage and one disadvantage of investing in each of these.

Accepted Answer

The answer of You have been given an overview of...

Question 15

When a firm performs well, investors holding its shares are ________ willing to sell them and therefore, the demand for the stock ________.

Accepted Answer

A)   more; increases
B)   less; decreases
C)   less; increases
D)   more; decreases

Question 16

Money you set aside for a "rainy day fund" should be invested in ________, while money you are saving for retirement in 20 years should be invested in ________.

Accepted Answer

A)   mutual funds; bond funds
B)   money market funds; growth-oriented stock mutual funds
C)   three-year bank CDs; 20-year bank CDs
D)   preferred stock; common stock

Question 17

Many more shares of stock are traded daily on the primary market than on the secondary market.

Accepted Answer

A) True 
 B)False

Question 18

If economic conditions deteriorate, stock prices are likely to

Accepted Answer

A)   increase.
B)   decrease.
C)   stay the same.
D)   not be directly affected by changes in economic conditions.

Question 19

Individual risk tolerance is

Accepted Answer

A)   objective.
B)   a fixed percentage.
C)   an individual's comfort with the risk-return relationship.
D)   pretty much the same for everyone.

Question 20

Describe common stock.

Accepted Answer

The answer of Describe common stock....

Exam 14: Investing Fundamentals

Which of the following is true of an initial public offering (IPO) ?

Which of the following is not true regarding preferred stock?

If you purchase 100 shares of Ajax Corporation for $15 a share and one year later sell it for $20 a share, what was your return if the stock paid $2 per share dividends? (Ignore commissions and trading fees. Round to the nearest whole percent.)

You can reduce your risk by

The main difference(s) between a preferred stock in Company A that pays a $2.50 per share annual dividend and a common stock in Company A that also pays a $2.50 per share current annual dividend is (are)

Common stockholders have the right to vote on key corporate issues, but also have the last right to the assets or profits of a company.

John decides to take his annual Christmas bonus of $2,000 and invest it each year for the next five years in stock he believes can earn an 8% annual return. How much will John's investment be worth at the end of the five years?

Which of the following statements regarding an investment's risk is not true?

If a stock is purchased for $30 a share and pays $5 per share in dividends a year, what selling price at the end of the year would result in a return of 50%?

A key reason for uncertainty surrounding the return on investment is the uncertainty surrounding the current economic conditions.

Before you start to invest, you should ensure liquidity by owning

You can estimate the amount by which your wealth will increase from an investment using

Of the following statements about a day trader, which is not correct?

You have been given an overview of stocks, bonds, and mutual funds. Give one advantage and one disadvantage of investing in each of these.

When a firm performs well, investors holding its shares are willing to sell them and therefore, the demand for the stock .

Money you set aside for a "rainy day fund" should be invested in , while money you are saving for retirement in 20 years should be invested in .

Many more shares of stock are traded daily on the primary market than on the secondary market.

If economic conditions deteriorate, stock prices are likely to

Individual risk tolerance is

Describe common stock.