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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 151

Multiple Choice

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When investors purchase stock, they receive a priority claim in the payment of dividends, as well as assets, if the business is liquidated. However, these investors do not have voting rights.

A) common
B) preferred
C) secured
D) debenture

E) B) and C)
F) All of the above

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Question 152

Multiple Choice

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

A) The same 30 stocks have been used since the inception of the indicator.
B) Different companies are used each year.
C) These stocks change periodically as deemed appropriate.
D) There is an even mix between big and small companies.

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

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Question 153

Multiple Choice

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Daily reporting of the Dow Jones Industrial Average serves to:

Corporate management decisions are influenced by the desire to keep stockholders happy.

Preemptive rights provide common stockholders the first right to purchase any new shares of common stock issued by the firm.

A bull market occurs when overall stock prices increase.

Previous Close. Which of these will provide her with an indication of the present price per share she can expect to realize if she calls her broker tomorrow morning and asks her to sell the shares?

Many stock analysts believe that program trading decreases the volatility of stock market prices.

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

Ashleigh is looking for an investment that will pay a little better than what she can get from a government bond. You suggest that she consider a new issue of debenture bonds by Very Vegetarian that pay 8.5% annually and mature in 2025. A debenture bond:

The U.S. government just announced an increase in the interest rate paid on U.S. government bonds. This will likely cause a decrease in the interest rates paid on corporate bonds.

Many stock market analysts suggest that program trading was a big cause of the stock market crash of 1987.

Securities markets represent the financial marketplaces for stocks and bonds.

In the Making Ethical Decisions box in Chapter 19, the CEO of the pet food company had a personal dilemma: benefit a lot at the expense of others in the company, or benefit a little, and make certain that others with a stake in the business, benefit too.

Bonds represent a permanent source of funding for companies. The money firms acquire by issuing bonds does not need to be repaid.

Stocks that are not listed as trading on one of the national or international stock exchanges can be traded on the OTC, Over-The- Counter exchange.

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

A convertible bond allows the bondholder to exchange the bond for:

A bond represents a contract of indebtedness issued by a corporation that promises payment of a principal amount plus interest at a specified future date.

When investing in mutual funds, the investor will buy shares of a fund that consists of stocks or bonds, the fund will hold shares of many companies.