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Personal Finance: Chapter Fifteen
Terms in this set (103)
The American Stock Exchange (AMEX) is the largest of the physical stock exchanges.
Some traders, called specialists, help to make a market in stocks by taking the same position as those who want to buy or sell the stock.
Floor traders on the NYSE are willing to trade stocks for others and earn a commission for doing so.
NASDAQ has less stringent trading requirements than the organized exchanges and tends to attract newer, high-tech companies.
People with seats on the NYSE who execute stock trades for others are called
A) day traders.
B) floor traders.
C) stock traders.
D) commission traders.
The stock exchange with the most stringent listing requirements is the
D) regional exchanges.
The stock exchange which is the largest in terms of dollar volume is the
D) regional exchanges.
The ________ is/are not a physical location, but rather an electronic communications network to buy and sell stocks.
D) regional exchanges
Computer systems that match up purchases and sales of stocks even at night when the other exchanges are closed are
B) the over-the-counter (OTC) markets.
C) electronic communication networks.
D) the regional stock exchanges.
Electronic communications networks that allow investors to buy or sell securities is called a(n)
A) electronic communications network.
B) over-the-counter market.
D) regional stock exchange.
An investment in stock requires all but
On the over-the-counter market trades are executed by
B) day traders.
C) floor traders.
) A ________ trader is one who executes trades to fulfill orders placed by other investors.
A ________ trader helps create a market in one or more stocks by taking an opposite position to the orders placed by clients.
The largest stock exchange in the United States is the ________.
New York Stock Exchange
a computerized network to buy and sell stocks
The most up-to-date quotes of stock prices may be found in The Wall Street Journal.
The daily stock quotations found in most large newspapers will not tell you the annual dividends paid per share of stock.
The daily stock quotations found in most large newspapers will tell you the closing price per share of stock for the previous day's trading, the range of prices the stock traded the previous day, and a range of trading prices for the last year.
Which of the following is not a good source of current stock quotations?
A) Newspapers, such as The Wall Street Journal
B) Magazines, such as Fortune
C) News television networks, such as CNBC
D) Web sites
A company's earnings are $3 per share, its dividend is $2 per share, and its stock price is $30 per share. Its PE ratio is
A PE of 10 means that the firm's stock price is ten times the firm's
A) earnings per share.
B) book value.
C) net income.
The yield represents which of the following?
A) Earnings per share
B) Dividend payment
C) Annual return from dividends
D) Market price
Usually, firms with high P/E ratios are ________ firms.
A low P/E ratio usually means that a firm is
A) a growth stock.
B) has positive expectations for the future.
C) is a mature firm.
D) is doomed in the marketplace.
A discount brokerage firm executes transactions and provides investment advice at a price less than that of full-service brokers.
If you don't need advice or other services offered, you are better off using a discount broker or Internet broker rather than a full-service broker.
In getting recommendations from brokers and analysts, you need to be careful that frequent suggestions to buy or sell are not being made in order to generate revenues for these traders.
On-line trading of stocks is not only less expensive than using traditional brokers, but is usually more convenient too.
Stocks are usually bought or sold in round lots, which are multiples of $100
An odd lot is the purchase of less than 100 shares of stock.
A market order is normally executed much more quickly than a limit order.
Limit orders can only be placed for a short period of time, usually a week or less.
A stop order is a special form of limit order; it is an order to execute a transaction when the stock price reaches a specified level.
You can currently borrow up to 75% of stock transactions under today's margin rate.
When you buy a stock on margin, your gain is magnified if the stock goes up in value.
) A margin call is a request from a brokerage firm for the investor to increase the cash in the account in order to bring the margin back up to the minimum level.
Compared to discount brokers, full service brokers
A) give stock advice to their clients.
B) execute stock trades faster.
C) charge competitive rates.
D) seldom meet with clients.
) Fees charged by brokerage firms
A) are set by the NYSE.
B) are set by the Federal Reserve.
C) are set by the National Association of Securities Dealers.
D) vary according to the services offered.
Some stock brokers or analysts encourage frequent buying and selling of your securities which may cause you to
A) increase your profit margin.
B) pay less commissions.
C) incur additional tax liabilities.
D) reduce your risk of loss.
If you want recommendations you can
A) trade with an online broker.
B) open an account at a full-service brokerage firm.
C) visit the SEC Web site.
D) contact a discount broker.
To start an online brokerage account, you need to do all of the following except
A) follow instructions to set up an account.
B) mail or deposit cash in an account.
C) go to the Web site.
D) deposit a minimum number of shares already owned.
With an online brokerage firm, you have all of the following except
A) money market fund for uninvested cash.
B) a personal sales representative to answer your questions.
C) quick and convenient trades.
D) very low cost trades.
When you place an order to buy or sell stock, you must specify all of the following except
A) commission you are willing to pay.
B) limit order.
C) ticker symbol.
D) whether you are buying or selling.
If you are a day trader you would probably utilize a(n)
A) discount brokerage firm.
B) full-service brokerage firm.
C) online brokerage service.
D) commercial bank trust department.
) A ________ symbol is used to identify a stock for trading purposes.
A round lot of stock is ________ shares.
C) $100 worth of
D) $1,000 worth of
All of the following are odd lots except
A) 99 shares.
B) 189 shares.
C) 200 shares.
D) 970 shares.
A ________ order is an order to execute a transaction to buy or sell a stock only if the price is within the range specified.
A ________ order is an order to execute a transaction to buy or sell a stock at its prevailing price.
A ________ is an order for a brokerage firm to sell a stock when the price falls to a specified level.
A) stop order
B) buy stop order
C) sell stop order
D) go order
A ________ is an order for a brokerage firm to buy a stock when the price rises to a specified level.
A) stop order
B) buy stop order
C) sell stop order
D) go order
You bought IBM stock at $70 per share. It is now $120 a share. You think it could go higher but you are nervous that it could go down and you would lose your gains. To protect your gains but still give yourself the chance to make future profits you could place a
A) market order.
B) sell stop order at $100 a share.
C) buy stop order at $100 a share.
D) sell stop order at $150 a share.
The Federal Reserve currently limits the margin rate, the amount that can be borrowed from the brokerage firm, to ________ percent.
You made a $10,000 stock purchase on margin (50%). You put $5,000 into your account initially to cover the purchase. Your stock has declined in value to $7,000 and you receive a margin call. How much cash must you put into your account as a result of the margin call?
D) None—you already have $5,000 in your account.
A stock purchased at a price of $22 per share, has risen to $46 per share. You wish to avoid losing your profit; therefore, you should put in a sell stop order at a price of
A) $22 per share.
B) $40 per share.
C) $43 per share.
D) $46 per share.
How much cash would you need to purchase 500 shares of stock at $21 per share plus brokerage commissions of $125, if you purchase on margin and the margin requirement is 50%?
Three hundred shares of stock are purchased on margin at a price of $42 per share plus $150 in brokerage commissions at a time when the margin requirement is 50 percent. How much additional cash would you need to deposit with your broker if the price of the stock dropped to $37 per share?
Which of the following is the most risky?
A) Buying stocks online
B) Buying on margin
C) Buying from a broker
D) Buying a bond
If you purchase stock ________ you are doing so with a portion of the funds borrowed from your broker.
) A brokerage firm that executes your transactions without offering investment advice is a(n) ________.
discount brokerage firm
The purchase of 48 shares of stock is considered a(n) ________ transaction.
T is the ________ for American Telephone and Telegraph Company
Is investing on margin what the average investor should do?
Investing on margin is highly risky and should not be done unless the investor can afford to lose the money.
Fiscal policy, the means by which the U.S. government imposes taxes on individuals and corporations and spends its money, has an impact on spending and thus an impact on the stock of some companies.
) Interest rates can affect economic growth and therefore have a direct impact on stock prices.
Low interest rates tend to entice investors into the stock market where they can achieve better returns.
) Economic growth, as measured by increases in the gross domestic product (GDP) signals the start of a bull market where stock prices are bound to rise.
The two parts of a company's balance sheet: (1) assets and (2) liabilities and shareholder's equity, must be equal or in balance.
The income statement for a company is like a budget in that it shows how much money the company would like to have made in a given accounting period.
Technical analysis and fundamental analysis are methods commonly used by investors to value stocks.
When aggregate demand by consumers ________, firms produce ________ products to accommodate the demand.
A) rises; less
B) rises; more
C) declines; more
D) All of the above.
When economic conditions are weak, the aggregate demand for products and services
C) remains the same.
D) may either decline or increase.
Stocks would be most favorably affected by
A) a decline in interest rates and a decline in inflation.
B) an increase in interest rates and a decline in inflation.
C) a decline in interest rates and an increase in inflation.
D) an increase in interest rates and an increase in inflation.
) The demand for which of the following will decrease the most with a weak economy?
D) Paper towels
The means by which the U.S. government imposes taxes on individuals and corporations and by which it spends its money is the ________ policy.
When corporate taxes rates are ________, the after-tax earnings of corporations are ________, which means ________ money for shareholders.
A) increased; decreased; more
B) decreased; increased; more
C) increased; increased; more
D) decreased; decreased; less
Which of the following actions of the U.S. government could not be considered part of fiscal policy?
A) Federal Reserve open market operations
B) The Tax Relief Act of 2001
C) Operation Enduring Freedom
D) Creating the Department of Homeland Security
Generally, stocks perform better when interest rates are
D) Stocks are unaffected by interest rates.
One of the most commonly used measures of inflation is the
A) gross domestic product.
B) fiscal policy.
C) consumer price index.
D) inflation factor.
A measure of inflation that represents prices of various products, such as groceries, household products, housing, and gasoline is the ________ index.
A) consumer price
B) cost of living
The ________ is a measure of inflation that represents prices of products such as coal, lumber, and metals that are used to produce other products.
C) inflation index
D) cost of living index
The CPI is used as part of the ________ analysis.
A company's annual report usually includes all of the following but
A) an auditor's report.
B) testimonials from employees.
C) a letter from the CEO.
D) management discussion and analysis.
Assets and liabilities on the balance sheet are classified as
A) personal and business.
B) short-term and long-term.
C) fundamental and discretionary.
D) secure and insecure.
In reading a corporate income statement, cost of goods sold is subtracted from
B) operating expenses.
C) earnings before interest and taxes.
The valuation of stocks based on an examination of revenues or earnings is called
A) technical analysis.
B) fundamental analysis.
C) fiscal analysis.
D) financial analysis.
If a firm performs strongly over a period of time the impact on its stock price is
B) inversely related.
All of the following online publications provide information about inflation except
C) Federal Reserve.
D) Consumer Reports.
The ________ shows the firm's operating results over a period of time.
A) income statement
B) statement of cash flows
C) balance sheet
D) statement of retained earnings
________ is a measure of economic growth that measures the total value of all products and services produced in the country.
Gross Domestic Product
The Stimulus Act of 2009 is an example of the governments use of ________ to impact economic growth.
The ________ is the most common measure of inflation.
Consumer Price Index
CPI (Consumer Price Index)
) measure of inflation that represents consumer products
measures revenues, expenses, earnings for a specific time
statement of assets, liabilities, and net worth
financial statements, notes, and other company information
Where or how can you obtain a corporate annual report and additional investment analysis?
Many annual reports are on companies' Web sites or can be requested and mailed. Additional investment analysis for different companies is available on the Web and in reference materials.
Before buying a stock, you should estimate its future market value, just as you would the future value of a car or a home.
Fundamental analysis is based on all of the following except
A) the firm's revenue.
B) the firm's earnings.
C) the firm's stock price over the last year.
D) the firm's sensitivity to economic conditions.
An increased demand for stock ________ the price.
A) has no effect on
The best time to sell stock is when you
A) need the money.
B) think the stock price has peaked.
C) want to purchase another stock.
D) have achieved 25% return.
Which of the following is not a reason some investors never purchase stock?
A) They are afraid of the risk.
B) They lack the knowledge.
C) They like safe investments such as CDs.
D) They don't want to make better returns.
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