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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 91

Multiple Choice

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Buying stock on margin allows an investor to borrow funds from the brokerage company as part of the transaction. This ________ the potential return to the investor and ________ the risk.

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

E) A) and B)
F) B) and C)

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Question 92

Multiple Choice

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The Securities and Exchange Commission developed ________ to halt trading in the stock market for a short time when the market has experienced a dramatic decrease in prices.

A) program trading
B) online investing
C) circuit breakers
D) insider trading

E) B) and C)
F) A) and C)

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Question 93

Multiple Choice

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Issuing ________ increases a firm's debt and may adversely affect the financial community's perception of the firm.

Diversification means

Having just returned from serving with the U.S. Marines in Afghanistan, Nick has managed to save most of his earnings. He has enrolled in the local community college and he is back living with his parents while he assimilates back into U.S. life. As his business major friend, he has come to you for advice. He would like to see his $40,000 savings grow, yet he knows that he will need it in about five years when he and his girlfriend are out of school and make plans to get married. He also worries that his car may break down and he will need to invest in another used car. Which of the following would you suggest for Nick?

Iron Age Metalworks, known for its very generous dividend policy, easily attracts investors. These dividend payments basically represent

Once a stock exchange agrees to list a company, the firm can be assured that it will always be listed by that exchange.

Stocks represent shares of ownership in a company.

Which of the following trades corporate stocks not listed on the national securities exchanges?

Explain the differences between preferred stock and common stock.

U.S. government bonds are considered safe investments. Therefore such government bonds usually have a lower interest rate than corporate bonds.

Teeny Toys hopes to raise long-term capital by promising in writing to repay the principal provided by potential creditors in ten years. Additionally, the certificate issued by Teeny Toys promises to pay 5% interest annually for the ten-year life of the security. Teeny Toys intends to issue

Bondholders represent creditors of a firm.

The Dow Jones Industrial Average provides us with a sense of direction (up or down) of the overall stock market.

If you are willing to hold on to your growth stock long enough, at least five years or more, you will realize capital gains.

From an investor's point of view, corporate bonds offer less risk than government bonds.

Tomas purchased on margin 100 shares of stock in the Marshall Manufacturing for $50 per share yesterday. Today, the price of the shares dropped by $20 per share. Tomas expects his broker to issue a margin call.

According to the Standard & Poor's Investor Services ratings, which of these ratings indicates a highly speculative bond?

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

The Dow Jones Industrial Average represents the average price of ________ industrial stocks.