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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 91

True/False

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The NASDAQ is a floor-based exchange.

A) True
B) False

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Question 92

Multiple Choice

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

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) None of the above
F) B) and C)

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Question 93

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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.

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

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

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

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

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:

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?

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

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

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.

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

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

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

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

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:

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

The cost of a firm borrowing money is called the:

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.