finance

 

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Question 1

1. If you short a stock and the price goes up, your net equity value will go up. 

 True

 False

2 points   

Question 2

1. ____, because of increasing replacement value and scarcity, perform(s) best in periods of high inflation. 

		Real assets
		Preferred stock
		Financial assets
		More than one of the above

2 points   

Question 3

1. All markets must have a physical central trading location. 

 True

 False

2 points   

Question 4

1. Common stock represents a direct equity claim. 

 True

 False

2 points   

Question 5

1. Which of the following are features of margin accounts? 

		They leverage returns (i.e., magnify the size of a gain or loss)
		You must put up part of the purchase price in cash or other securities
		Purchased securities are not delivered to the investor
		All of the above are features

2 points   

Question 6

1. The tax rate that is simply the amount of taxes paid, divided by taxable income is: 

		the marginal tax rate.
		the average tax rate.
		the short-term capital gains tax rate.
		the long-term capital gains tax rate.

2 points   

Question 7

1. Which of the following is true of over-the-counter markets?    

		Trading takes place by telephone or electronic network
		It is regulated by the Securities and Exchange Commission and the National Association of Securities Dealers
		The total securities traded represent the largest dollar volume in the U.S.
		All of the above are true

2 points   

Question 8

1. What is the rate of return on a share of common stock that increased in value from $40 to $50?       

		5%
		10%
		20%
		25%
		None of the above

2 points   

Question 9

1. Program trading 

		means that when a given market indicator reaches a certain point, a large sale or purchase of securities may take place.
		has been argued to affect the market by accelerating price movements.
		is likely to be voluntarily restricted by the securities exchanges and their member firms.
		All of the above

2 points   

Question 10

1. In general, markets are efficient when:    

		prices respond quickly to new information.
		each successive trade is made at a price close to the preceding price.
		they can absorb large amounts of securities or assets without changing the price significantly.
		All of the above

2 points   

Question 11

1. Common stock is a good example of an investment that lacks liquidity. 

 True

 False

2 points   

Question 12

1. A ____________ requires full payment for the purchase of securities, while a _____________ allows the investor to borrow a portion of the purchase price from the brokerage firm. 

		money market account; cash account
		cash account; charge account
		cash account; margin account
		type 5 account; a type 2 account

2 points   

Question 13

1. The difference between a cash account and a margin account is: 

		a margin account allows the investor up to five days to pay for the entire purchase.
		a cash account gives the investor a 2% discount if they pay within 10 days, or the investor has to pay the entire amount within 30 days (2/10 net 30).
		a margin account allows the investor to borrow a percentage of the purchase price from the brokerage firm.
		a margin account is less risky to the investor.

2 points   

Question 14

1. Creating prices for securities and allowing for liquidity are functions of: 

		the primary market.
		the secondary market.
		the third market.
		the real estate market.

2 points   

Question 15

1. A(n) _____ is a legally documented claim on an asset, while a(n) _____ is an actual, tangible asset which may be seen, felt, held, or collected.    

		Real asset; financial asset
		Financial asset; real asset
		Indirect equity claim; direct equity claim
		Direct equity claim; indirect equity claim
		None of the above

2 points   

Question 16

1. When ranking security returns, the data shows that the annualized returns are as follows (ranked from highest return to lowest return): 

		Large stocks, small stocks, long-term corporate bonds, long-term government bonds, treasury bills.
		Small stocks, large stocks, long-term corporate bonds, long-term government bonds, treasury bills.
		Small stocks, large stocks, treasury bills, long-term government bonds, long-term corporate bonds.
		Treasury bills, long-term government bonds, long-term corporate bonds, large stocks, small stocks.
		Large stocks, small stocks, long-term government bonds, long-term corporate bonds, treasury bills.

2 points   

Question 17

1. International competition from world markets has had very little effect on U.S. exchanges. 

 True

 False

2 points   

Question 18

1. NASDAQ is directly related to the operations of the NYSE. 

 True

 False

2 points   

Question 19

1. The success of a short investment position depends on: 

		a level stock price.
		a declining stock market.
		an increasing stock price.
		declining interest rates.

2 points   

Question 20

1. In general, inflation results in a loss of purchasing power to the investor. 

 True

 False

2 points   

Question 21

1. The Securities Investor Protection Corporation (SIPC) was established to: 

		oversee the liquidation of brokerage firms, and insure an investor's accounts to a maximum value of $500,000 in case of bankruptcy by the broker.
		protect investors from corporate insider trading, and insure their accounts for $500,000 in case corporate fraud caused a company to go bankrupt.
		cover the total market loss on an investor's brokerage account in case of the bankruptcy of the broker.
		create an insurance pool for brokerage firms, so that if one firm went bankrupt, all investor losses would be covered out of the insurance pool.

2 points   

Question 22

1. Beta measures a security's return relative to the market. 

 True

 False

2 points   

Question 23

1. A syndicate is formed to: 

		share the risk between investment bankers.
		distribute securities to a wide group of investors.
		improve the liquidity/marketability of an offering.
		All of the above

2 points   

Question 24

1. Good till canceled (GTC) orders expire automatically after a set period of time. 

 True

 False

2 points   

Question 25

1. Deposits in an IRA are: 

		allowed to grow tax free until withdrawal.
		deducted from current income tax due.
		deducted from current income to reduce income tax due.
		A and C

2 points   

Question 26

1. Historically, the real rate of return in the U.S. economy has been: 

		1-2%.
		2-3%.
		3-4%.
		4-5%.

2 points   

Question 27

1. A market is a way of exchanging assets. 

 True

 False

2 points   

Question 28

1. Efficient markets need not be liquid, as long as buyers and sellers can eventually get a fair price for the assets they trade. 

 True

 False

2 points   

Question 29

1. The margin requirement is used in selling stock. 

 True

 False

2 points   

Question 30

1. The largest segment of the Over-the-Counter (OTC) Market, in terms of dollar volume, is the U.S. government securities markets. 

 True

 False

2 points   

Question 31

1. In the financial world, risk is defined as variability of returns. 

 True

 False

2 points   

Question 32

1. Bringing private companies public for the first time is called: 

		a private placement.
		an initial public offering (IPO).
		a secondary offering.
		a founders sale.

2 points   

Question 33

1. If an investor is in a 34% tax bracket and has held a stock for two years, the applicable tax rate that will apply to dividends is: 

		15%.
		20%.
		28%.
		34%.

2 points   

Question 34

1. What factors must be considered in choosing between investment alternatives? 

		Risk and liquidity
		Interest or dividends versus capital gains
		Time frame for managing funds and evaluating performance and tax effects
		Safety of principal
		All of the above

2 points   

Question 35

1. The major functions of an investment banker are performed as part of the operations of the secondary market. 

 True

 False

2 points   

Question 36

1. When an investor establishes a position in a security, 

		they are said to be long if they purchase the security for their account.
		they are said to be long if they sell the security for their account.
		they are said to be short if they sell the security for their account.
		Both a and c

2 points   

Question 37

1. The index which gives equal weight to every company included, and is therefore not dominated by any single company, is the: 

		Dow Jones Composite Average.
		Standard & Poor's 400 Index.
		The Value Line Average.
		Dow Jones World Index.

2 points   

Question 38

1. Floor brokers act as agents for clients and execute buy and sell orders on the floor of the NYSE exchange. 

 True

 False

2 points   

Question 39

1. Silver is an example of a financial asset. 

 True

 False

2 points   

Question 40

1. An investor can totally eliminate time-consuming investment management activities by participating in a mutual fund or limited partnership. 

 True

 False

2 points   

Question 41

1. Rare paintings and baseball cards may be considered as forms of investment. 

 True

 False

2 points   

Question 42

1. The Russell 2000 measures performance of the 2000 largest stocks, based on market value. 

 True

 False

2 points   

Question 43

1. According to insider trading rules of the SEC, securities analysts and financial writers may not trade on insider information, but these rules do not extend to relatives and friends. 

 True

 False

2 points   

Question 44

1. Real assets, because of increasing replacement value and scarcity, tend to perform better than financial assets during periods of high inflation. 

 True

 False

2 points   

Question 45

1. The exchange with the largest dollar volume in major companies and which has the most restrictive listing requirements is: 

		the New York Stock Exchange.
		the American Exchange.
		the NASDAQ Stock Market.
		the Securities Exchange.

2 points   

Question 46

1. The minimum holding period to qualify for the long-term capital gains treatment is: 

		1 month.
		12 months.
		18 months.
		24 months.

2 points   

Question 47

1. Which of the following investments would theoretically always carry the highest risk premium? 

		U.S. treasury bill
		Common stock
		Preferred stock
		Any one of the above

2 points   

Question 48

1. Companies having the greatest impact on the computation of the Dow Jones Averages and the Standard & Poor's Indexes have the ____________ and the ____________, respectively.    

		highest price; highest total market value
		highest total market value; highest price
		highest price; lowest liquidity
		greatest number of shares outstanding; highest price

2 points   

Question 49

1. ________________ represents 75% of the total value of firms listed on the NYSE, while ____________________ includes 1,700 individual firms. 

		The Dow Jones Industrial Average; Value Line Average
		The Value Line Average; Standard & Poor's Composite
		The Dow Jones Composite Average; the Standard & Poor's Industrials
		The Standard & Poor's 500 Index; Value Line Average

2 points   

Question 50

1. Research has shown that it is not that difficult to beat the market on a risk-adjusted basis. 

 True

 False