Practice Test

Chapter 14

 

 

1.         A request that a stock be bought or sold at a specified price is called a ____________ order.

            A)        market

            B)        limit

            C)        stop

            D)        round

            E)         discretionary

 

2.         To calculate current yield, the annual income amount is divided by

            A)        market value.

            B)        original value.

            C)        future return.

            D)        current return.

            E)         total return.

 

3.         Dividends remain with the stock until

            A)        two business days before the date of record.

            B)        two business days after the date of record.

            C)        five days before the date of record.

            D)        five days after the date of record.

            E)         five days before the actual payment date.

 

4.         A securities exchange is a marketplace where member brokers who are representing investors meet to buy and sell securities.

            A)        True

            B)        False

 

5.         The market price for stocks is quoted in dollars and fractional equivalent parts of a dollar.

            A)        True

            B)        False

 

6.         Dividends are paid out of profits, and

            A)        dividend payments must be approved by the firm's board of directors.

            B)        dividends are guaranteed.

            C)        dividends are paid before a firm's taxes are paid.

            D)        dividends are usually paid twice a year.

            E)         None of the above.

 

7.         When investors are optimistic about the overall economy and buy stocks, it is known as a(n) ____________ market.

            A)        bull

            B)        bear

            C)        book

            D)        equity

            E)         declining

 

8.         Convertible preferred stock may be exchanged, at the corporation's option, for a specified number of shares of common stock.

            A)        True

            B)        False

 

9.         The par value for a share of preferred stock is

            A)        what an investor can buy a share of preferred stock for on the open market.

            B)        an assigned dollar value that is printed on a stock certificate.

            C)        always twice the actual market price that an investor pays for a share of the stock.

            D)        always one half the market price that an investor pays for a share of the stock.

            E)         no longer used.

 

10.       An investment theory based on the assumption that a stock's market value is determined by the forces of supply and demand in the stock market as a whole is called the ____________ theory.

            A)        fundamental

            B)        technical

            C)        efficient market

            D)        primary

            E)         market

 

11.       The total return calculation includes only an increase or decrease in the original purchase price of the investment.

            A)        True

            B)        False

 

12.       The Nasdaq is an electronic marketplace for over 10,000 different stocks.

            A)        True

            B)        False

 

13.       Which of the following is not a true statement?

            A)        The price-earnings ratio is a key factor that serious investors use to evaluate stock investments.

            B)        The price-earnings ratio for a corporation must be studied over a period of time.

            C)        The price-earnings ratio is based on the company's dividends.

            D)        The price-earnings ratio for one firm may be compared to the price-earnings ratio for all firms.

            E)         A low price-earnings ratio indicates that a stock may be a good investment and a high price-earnings ratios may indicate that it is a poor investment.

 

14.       When adjusted for inflation, which of the following investments had the best return over the time period of 1926 to 1996?

            A)        certificates of deposit

            B)        U.S. Treasury bills

            C)        long-term government bonds

            D)        common stocks

            E)         preferred stocks

 

15.       To safeguard investments, stock owners who believe that the price of their stock will go down during an option period will purchase a

            A)        futures contract.

            B)        short contract.

            C)        call option.

            D)        put option.

            E)         margin contract.

 

16.       The Wall Street Journal is published

            A)        daily during the week, but not on weekends.

            B)        weekly.

            C)        twice monthly.

            D)        monthly.

            E)         every six months.

 

17.       A market in which an investor purchases financial securities (via an investment bank or other representative from the issuer of those securities is called the ____________ market.

            A)        technical

            B)        fundamental

            C)        efficient

            D)        secondary

            E)         primary

 

18.       A stock that pays higher than average dividends is called an income stock.

            A)        True

            B)        False

 

19.       Dollar-cost averaging enables investors to avoid the problem of buying high and selling low.

            A)        True

            B)        False

 

20.       The fundamental theory is based on the assumption that a stock's intrinsic or real value is determined by the future earnings of the company.

            A)        True

            B)        False