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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 161

Multiple Choice

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A share of preferred stock for Marshall Manufacturing currently sells for $120. It offers the investor a dividend rate of 8%, on a par value of $100. If the investor owns 500 shares, her total annual dividend will equal

A) $800
B) $8.00
C) $2,000
D) $4,000

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

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Question 162

True/False

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Although companies that issue bonds are required to pay interest, companies issuing stock are not required to pay dividends.

A) True
B) False

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Question 163

Multiple Choice

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Private investors benefit from securities markets primarily by

Small investors can spread the risk of investing by purchasing shares of mutual funds or ETFs.

When an investor sells a security for more than the purchase price, the investor earns a(n)

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

Preferred stockholders possess the first right to purchase any new stock the company issues.

Interest rates vary with changes in the state of the economy.

Each share of common stock provides the investor with a ________ right that offers the investor the first right to purchase any new shares of common stock the firm decides to issue. This allows common stockholders to maintain a proportional share of ownership in the company.

The primary market allows an investor to purchase financial securities from other investors.

From a risk standpoint, stocks are considered the riskiest investments, followed by mutual funds, preferred stock, and ETFs. Bonds represent a lower-risk investment.

Every time someone sells a stock believing the price has reached its maximum, someone else buys it believing the price will go still higher.

The dollar amount assigned to shares of stock by the corporation's charter represents the stock's

If you buy 100 shares of IBM for $120/share, and the margin on your account is 50%, the broker will float you an interest-free loan of $6,000, until the price of IBM sufficiently rises to the point where you are willing to sell. You pay the broker back its $6,000, and you enjoy the capital gain.

Corporations receive needed funds when they sell a new issuance of a security in the primary market.

A preferred stock's par value establishes the base used for calculating the preferred stockholders' dividend.

Will just returned from Afghanistan and has $25,000 in his savings account. His girlfriend recommends he speak with a financial advisor and let his money "make more money." Will has his eye on a new truck, but knows that his old Jeep will most likely last another four years. By then, though, he will definitely need this money to buy something new. Not to mention, he also knows he will have other needs too. Will should buy high-growth stock with his funds because even though they are risky, they also have the greatest potential of bringing in a better return on his investment.

Cumulative preferred stockholders enjoy the first right to purchase any new shares of stock issued by the firm.

Realizing that Iron Age Metalworks stock currently sells for $37 a share, Alex directed her broker to buy 100 shares if and when the price dropped to $31. Alex placed a ________ order with her broker.

Bond interest is usually paid in two times each year, even though the interest rate that is usually quoted is an annual rate.