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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 121

Multiple Choice

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Which of the following situations would be considered insider trading?

A) You open the morning paper and read that Sun Microsystems has a new CEO,who plans to bring in his own team.You decide to call your broker and buy shares of Sun Microsystems.
B) Your Uncle Jerry works for Microsoft and sends you a news release put out by the company that talks about the acquisition of a Chinese company.You believe this will significantly boost Microsoft revenues so you buy 200 shares through an online service.
C) You call your stockbroker and ask him to buy 500 shares of your company,Best Dressed Computers,Inc. ,because you just heard from the CEO's administrative assistant that the CEO just got the boot! You figure that this emotional news has got to help the stock price.
D) Your stockbroker calls and recommends that you diversify your portfolio with a few shares of SLB [Schlaumberger] because SLB's request through the FTC and several international trade commissions to finalize the purchase of two oil companies was successful.You act on this information.

E) None of the above
F) A) and B)

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Question 122

Multiple Choice

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Investors trading online:

A) receive more advice than offered by traditional stockbrokers.
B) buy and sell securities without using a brokerage firm.
C) generally do their own research and make their own investment decisions.
D) generally were insured against the market downturn of the early and late 2000s.

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

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Question 123

Multiple Choice

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Gerald,a recent graduate of a community college,is about to make his first investment in the stock market.Which of the following would be a cautious way for Gerald to start investing?

Through disciplined investing,Alyssa now owns 10% or 50,000 shares of a small biotech company.Although she has enjoyed a lot of control,she realizes that in order for the firm to acquire the funds to grow in a recessionary economy,it will need to issue more stock.Her regret is that it will dilute her ownership.

Ina Vestor has a brokerage account with one of the remaining large investment firms.This morning her broker called asking if she is interested in participating in an IPO.He went on to say that he could get her 200 shares for $23/share.If Ina agrees to buy the IPO,the trade will take place in the _____________.

The ________ is a large national electronic stock trading market.

When thinking about purchasing foreign company stocks,U.S investors should proceed with caution if the foreign company's home nation has political unrest.

If an investor owns a bond that pays a higher rate of interest than other bonds of similar risk,the investor should be able to sell the bond on the secondary market for more than its face value.

Preferred stockholders receive dividend payments before common stockholders are paid any dividends.

Cumulative preferred stockholders enjoy a promise that missed dividends will accumulate and be paid later,before any dividends are paid to common stockholders.

The risk/return trade-off is inherent in any investment strategy.What are the five key criteria investors should consider when selecting investment options?

If an investor's strategy is: "buy low,and sell high." We could conclude that his optimism regarding future stock price increases indicates that he is:

Ken owns 100 shares in XYZ Company,currently selling for $60 per share.His stock split yesterday 3-for-1.The number of shares that Ken owns has tripled.

Unlike stocks,for selling purposes,bond prices remain stable over the life of the bond.

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

Last year Alexis landed her first professional job after graduating from college.She also started her first investment account.Having met with several brokers before choosing someone to work with,Alexis wanted to make certain that her investment choices would provide for long-term growth,yet satisfy her concern for diversification.The person who won her business prepared an asset allocation plan that would start her account by investing in several index funds.Her adviser has offered her a sound way to combine the concern for diversification since index funds are a sensible way for Alexis to start.

Corporations issuing ________ bonds pledge a tangible asset as collateral to reduce the risk incurred by a bondholder.

The traditional market barometer used to measure the direction of the stock market is the:

On-line trading services target those investors who:

Buying stock on margin allows investors to increase the potential rate of return made on a stock investment.