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practice quiz #1

Terms in this set (21)

An investor has a bond maturing during a time when interest rates are falling. It is likely that the investor, wanting to keep the funds invested, would be most concerned with:

a) business risk
b) reinvestment risk
c) inflation risk
d) purchasing power risk
reinvestment risk
Which of the following would be most susceptible to currency risk?

a) common stock of a small cap company in the United States
b) common stock of a large, well established company in England
c) treasury bonds
d) municipal bonds
common stock of a large, well established company in england
Preferred shares have:

a) only the characteristics matching those of debt securities
b) characteristics of neither equity nor debt securities
c) only the characteristics matching those of equity securities
d) characteristics of both equity and debt securities.
characteristics of both equity and debt securities
Most notable characteristics of preferred stock:
annual dividend represents its fixed rate of return like the fixed rate of return for a bond.
By virtue of a stocks listing for trading on a U.S. stock exchange, which of the following risks is reduced or even recognized as eliminated?

a) price risk
b) liquidity risk
c) market risk
d) equity risk
liquidity risk
A bank trustee holds the titles to assets a corporation has purchased and utilized in its day-to-day business. The corporation issues debt securities backed by these assets. These securities are:

a) mortgage bonds
b) equipment trust certificates
c) collateral trust bonds
d) debentures
equipment trust certificates
An investor interested in quarterly income should invest in:

a) STRIPS
b) corporate bonds
c) utility company stock
d) treasury stock
utility company stock

utility stocks generally pay quarterly dividends,
corporate and treasury bonds pay interest semiannually.
STRIPS pay at maturity
Interest on a 7% corporate bond would be paid to the investor as:

a) two semiannual checks for $35 each
b) several checks totaling $70 each year
c) one annual $70 check
d) two semiannual checks for $70 each
two semiannual checks for $35 each

7% of par ($1,000) or $70 per year, so semiannual checks for $35 each
Which of the following can encourage economic growth because gradually increasing prices tend to stimulate business investment?

a) deflation
b) stagnation
c) mild inflation
d) high inflation
mild inflation

inflation is a general increase in prices
mild inflation encourages economic growth because gradually increasing prices stimulate business investment
high inflation reduces a dollar's buying power which hurts the economy
The measure of the inflation rate is:

a) the business cycle
b) the consumer price index
c) the EAFE Index
d) the S&P 500 Index
the consumer price index

inflation is an increase in prices over time, the consumer price index measures the price of a basket of goods. when comparing the value of this basket of goods, we can identify whether there's inflation or deflation occurring
If a customer sold calls to open, which of the following transactions would be allowed if the options agreement was not returned signed within 15 days?

a) sell puts to close
b) buy calls to close
c) sell puts to open
d) sell calls to open
buy calls to close
The coupon rate on a debt security represents:

a) the principal amount due to the investor at maturity
b) the principal amount loaned to the issuer
c) the interest rate the issuer has agreed to pay the investor
d) the interest rate the investor has agreed to pay the issuer
the interest rate the issuer has agreed to pay the investor
Someone who purchases shares of a corporations common stock has:

a) neither liability nor voting rights
b) unlimited liability and voting rights
c) limited liability and voting rights
d) no liability and no voting rights
limited liability and voting rights
The options disclosure document (ODD) must be provided:

a) at the time confirmation for the first transaction is delivered
b) before any discussions of options can occur with the customer
c) at or before the time of account approval
d) only if the customer requests to see it
at or before the time of account approval
If a registered representative allows a customer to unknowingly buy investment company shares in an amount just under a dollar bracket that would qualify for a reduced sales charge, or encourages such a purchase this is known as:

a) short sale violation
b) a breakpoint sale violation
c) markup violation
d) market manipulation violation
a breakpoint sale violation
The ratings on the debt instruments of a foreign country with outstanding loans from a number of other countries worldwide have been downgraded. The impact felt due to the risk of possible default is known as:

a) interest-rate risk
b) political risk
c) sovereign risk
d) legislative risk
sovereign risk
All of the following statements are true except:

a) a closed-end company may issue preferred stock
b) a bond mutual fund may not issue bonds
c) a bond mutual fund may issue bonds
d) a closed0end company may issue bonds
a bond mutual fund may issue bonds
T-bonds and T-notes

a) have interest paid on an annual basis
b) are both priced as a percentage of par
c) are both priced at a discount to par
d) have interest that accrues until paid at maturity
are both priced as a percentage of par
A stock's market value is directly determined by which of the following?

a) vote of the stockholders
b) company's financial condition
c) supply and demand
d) board of directors
supply and demand
An investor purchases a bond in the secondary market at $950. Assuming $1,000 par value this bond is trading at:

a) the market
b) par value
c) a discount
d) a premium
a discount

when a bond is priced below par value it is trading a discount (discount to par)
Limited partnerships sold through private placements involve:

a) a small group of investors, each contributing a large sum
b) a small group of investors, each contributing a small sum
c) a large group of investors, each contributing a small sum
d) a large group of investors, each contributing a large sum
a small group of investors each contributing a large sum
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