1. Stocks and bonds would be classified as:a. real assetsb. indirect assetsc. personal assetsd. financial assetsd.

financial assetsThe investment professionals that arrange the sale of new securities arecalled:a. arbitragersb. tradersc. investment bankersd. specialists investment bankersInvestment professionals whose jobs may depend on their performancerelative to the market are the:a. registered representativesb. security analystsc. investment bankersd. portfolio managersd. portfolio managersMost financial advisors are registered with the Securities and ExchangeCommission as:a. registered representatives.b. registered investor advisors.c. registered financial planners.d. registered securities consultants. b. registered investor advisors.A Chartered Financial Analyst designation is a (an)a. SEC-approved and awarded designation.b. certification of a successful investing record.c. professional designation awarded for meeting recognized standards ofconduct and competency.d. professional designation awarded by the brokerage industry. professional designation awarded for meeting recognized standards ofconduct and competency. Underlying all investments is the tradeoff between:a. expected return and actual returnb. low risk and high riskc. actual return and high riskd. expected return and risk expected return and riskMost investors are risk averse which means:a. they will assume more risk only if they are compensated by higherexpected return.b. they will always invest in the investment with the lowest possible risk.c. they actively seek to minimize their risks.d. they avoid the stock market due to the high degree of risk. they will assume more risk only if they are compensated by higherexpected return. Which of the following would be considered a risk-free investment?a. goldb. equity in a housec. high-grade corporate bondsd. U.S. Treasury billsU.S. Treasury billsSecurity analysis is most concerned with:

a. analysis of the overall securities market and its direction.b. valuation and analysis of individual securities.c. purchasing securities at the best price.d. determination of the investor's required return. valuation and analysis of individual securities.In general, the ex ante risk-return tradeoffa. slopes upward.b. slopes downwardc. is flatd. is impossible to determine. a. slopes upward. International investing:a. is only practical for institutional investors.b. increases the overall risk of a stock portfolio.c. always leads to higher returns than a domestic portfolio.d. can reduce risk due to increased diversification. can reduce risk due to increased diversification. Investment decision making traditionally consists of two steps:a. investment banking and security analysisb. buying and sellingc. risk and expected return.d. security analysis and portfolio management. security analysis and portfolio management.Regulation FD applies to disclosure between:a. private companies and public officialsb. public companies and investment professionalsc. public companies and public officialsd. private companies and investment professionals b. public companies and investment professionalsWhich is not an advantage institutional investors enjoy over individualinvestors ?a. They can trade in the aftermarket.b. They can exploit spinoffs better than individual investors.c. They may receive information from public companies prior to individualinvestors.d. Al l of the above are advantages. They can exploit spinoffs better than individual investors. The largest single institutional owner of common stocks is:a. mutual funds.b. insurance companies.c. pension fundsd. commercial bankspension fundsWhich of the following is not one of the characteristics of the primarynonmarketable financial assets owned by most individuals?a. high liquidityb. high returnc. often issued by the U.S. governmentd. low riskhigh returnTreasury bills are traded in the --------------------- .a. money market.b. capital market.c. government market.d. regulated market. money market.Which of the U.S. Treasury securities is always sold at a discount?a. Treasury billsb. Treasury notes

c. Treasury bondsd. All of the Treasury securities are sold at a discount. Treasury billsWhich of the following would not be considered a capital marketsecurity?a. a 20-year corporate bondb. a common stockc. a 6-month Treasury billd. a mutual fund sharea 6-month Treasury bill The coupon rate is another name for the:a. market interest rate.b. current yield.c. stated interest rate.d. yield to maturitystated interest rate. Zero-coupon bonds are similar to Treasury bills in that both:a. are issued exclusively by the U.S. Treasury.b. are money-market securities.c. are capital-market securities.d. are sold at less than par.are sold at less than par. Each point on a bond quote represents:a. $100b. 1 percent of $100c. 1 percent of $1000d. $10001 percent of $1000 Bonds called in are likely to be:a. bonds already in default.b. reissued as new bonds with a lower interest rate.c. reissued as new bonds with a higher interest rate.d. junk bonds. reissued as new bonds with a lower interest rate. What will a bond be worth on the day it matures?a. $0b. $100c. its face valued. impossible to determine its face valueA municipal bond issue that was sold to finance a toll bridge would mostlikely be a:a. general obligation bond.b. revenue bond.c. special assessment bond.d. zero-coupon bond. revenue bond.What is the major difference between municipal bonds and other types ofbonds?a. Municipal bonds are always insured; other bonds are not.b. Unlike other bonds, municipal bonds sell at a discount.c. Municipal bond interest is tax-exempt; interest on other bonds is not.d. There is no brokerage commission on municipal bonds unlike other bonds. Municipal bond interest is tax-exempt; interest on other bonds is not. Fannie Mae is an example of a:a. federal agencyb. quasi-federal agencyc. federally dependent agencyd. federally sponsored agency federally sponsored agency The first four categories of bond ratings are known as _______.

a. risk-free securities.b. high-yield securities.c. investment grade securities.d. top drawer securities. top drawer securities. If an investor states that Intel is overvalued at 65 times, he is referring to:a. earnings per share.b. dividend yield.c. book value.d. P/E ratio.P/E ratio. ---------------- represent shares of foreign companies kept in banks.a. convertible bondsb. American Depository Receipts (ADRs)c. asset-backed securitiesd. LEAPSAmerican Depository Receipts (ADRs) If a preferred stock issue is cumulative, this means:a. dividends are paid at the end of the year.b. dividends are legally binding on the corporation.c. unpaid dividends will be paid in the future.d. unpaid dividends are never repaid. unpaid dividends will be paid in the future.What is the biggest difference between an option and a futures contract?a. Options are traded on exchanges while futures are not.b. Options give investors a way to manage portfolio risk while futures donot.c. Options can be used by speculators to profit from price fluctuations whilefutures cannot.d. Options is the right to buy or sell while a futures contract is an obligationto buy or sell.Options is the right to buy or sell while a futures contract is an obligationto buy or sell.Distinguish between direct and indirect investing. Answer: Direct investing - buy bonds and stocksIndirect investing - buy mutual funds, contribute to pension plans,buy life insurance policies. Rank (lowest to highest) the following securities in terms of the riskexpectedreturn tradeoff from the investors' viewpoint: common stock,corporate bonds, U. S. Treasury bonds, options, preferred stock.. U. S. Treasury bonds, corporate bonds, preferred stock, commonstock, optionsWhich of the following is not a characteristic of investments companies?a. pooled investingb. diversificationc. managed portfoliosd. reduced expensesreduced expensesIn order to avoid paying income taxes, an investment company must:a. be classified as a non-profit organizationb. invest only in municipal bonds.c. pass on interest, dividends, and capital gains to the stockholders.d. be registered as a closed-end investment company. pass on interest, dividends, and capital gains to the stockholders. Investment companies must register with the SEC under the provisions ofthe:a. Securities Act of 1933

b. Securities Exchange Act of 1934c. Maloney Act of 1938d. Investment Company Act of 1940 Maloney Act of 1938 An unmanaged fixed income security portfolio handled by an independenttrustee is known as a:a. junk bond fundb. closed-end investment company.c. unit investment trust.d. hedge fund.unit investment trust.A major difference between a closed-end investment company and anopen-end investment company is that:a. closed-end investment companies are generally much riskier.b. their security portfolios are substantially different.c. closed-end investment companies are passive investments and open-endsare not.d. closed-end companies have a more fixed capitalization. closed-end companies have a more fixed capitalization.Which of the following generally trade on stock exchanges?a. unit investment trustsb. closed-end investment companiesc. open-end investment companiesd. All trade on stock exchanges. closed-end investment companiesWhich of the following is not one of the characteristics of exchange tradedfunds (ETFs)?a. They are passive portfolios.b. They are managed investments.c. They often track a particular sector of the market.d. All of the above are characteristics of ETFs. They are managed investments.It is not important to have a secondary market for mutual funds because:a. investors hold the securities till maturity.b. investors trade between themselves.c. investors sell their shares back to the company.d. banks will cash their shares as long as they have accounts at the bank. investors sell their shares back to the company. A group of mutual funds with a common management are known as:a. fund syndicates.b. fund conglomerates.c. fund families.d. fund complexes. fund complexes.Which of the following is not true regarding money market funds?a. They charge no sales charge, redemption fee or management fee.b. Their maximum average maturity is 90 days.c. Normally, there are no capital gains or losses on their shares.d. All of the above are true. a. They charge no sales charge, redemption fee or management fee.11. In general, index funds:a. are higher risk than other funds.b. are traded on the exchanges.c. have lower expenses than other funds.d. all of the above. are traded on the exchanges. Net asset value takes into account:

a. both realized and unrealized capital gains.b. only realized capital gains.c. only unrealized capital gains.d. neither realized or unrealized capital gains. both realized and unrealized capital gains. If NAV > market price of a fund, then the fund:a. is selling at a discount.b. is selling at a premium.c. is an index fund.d. is an ETF. is selling at a discount.A loading fee is a:a. type of income tax.b. management fee.c. origination fee.d. sales charge.d. sales charge.15. A 12b-1 fee is a:a. redemption fee.b. sales chargec. distribution fee.d. loading fee.c. distribution fee.No-load funds sell:a. at net asset value.b. below net asset value.c. above net asset value.d. at a discount.a. at net asset value.No-loads charge no sales fee because:a. they are legally prohibited from doing so.b. they charge a redemption fee instead.c. they have no sales force.d. they charge a 12b-1 fee instead. they have no sales force.In the mutual fund industry, the most common performance measure is ahypothetical rate of return which assumes performance is constant over theentire period and is known as the:a. cumulative total return.b. average annual total return.c. total indexed return.d. compounded geometric return. average annual total return. On average, which type of mutual fund is expected to have the highestperformance?a. money market fundsb. bond fundsc. equity fundsd. municipal bond funds equity fundsGlobal funds tend to keep ---------- percent of their assets in -----------.a. 50; foreign securities.b. 50; single-country securities.c. 25; foreign securities.d. 25; United States. 25; United States.Unregulated companies that seek to exploit various market opportunitiesand require a substantial investment from investors are known as:a. derivatives.b. options.c. hedge funds.

d. SMAs.hedge funds.Briefly explain the fees charged by funds. Load fees are sales charges, management fees include advisoryfees and operating expenses, and 12b-1 fees are marketingexpenses.What are the main differences between a closed-end and an open-endinvestment company? A closed-end investment company has a fixed number of shares,and the price depends on supply and demand. An open-end fund'sshares increase as long as new investors contribute money, and theprice is the net asset value of the securities owned. Would one expect to find higher P/E ratios in an aggressive growth fundor in a growth and income fund? One would expect higher P/Es in an aggressive growth fundbecause investors are willing to pay a high current price forexpected future growth. The sale of a new issue of common stock of which there are alreadyshares publicly held is known as:a. an IPO.b. a secondary market issue.c. an EPO.d. a seasoned new issue. a seasoned new issue. In a firm underwriting arrangement, the risk is assumed by the:a. issuer of the securityb. investment bankersc. commercial bankersd. institutional investors investment bankers The ___________ summarizes information about a new security issue.a. syndicate offerb. IPOc. prospectusd. shelf ruleprospectusA major advantage of private placements over public offerings is:a. greater marketabilityb. lower interest costc. elimination of SEC registrationd. all of the aboveelimination of SEC registration The shelf rulea. became effective in 1933b. involves securities that are placed directly with financial institutionsc. permits qualified companies to file a short form registrationd. involves dealer procedures in the OTC market permits qualified companies to file a short form registrationWhich exchange member is assigned to a specific trading post?a. Commission brokerb. Floor traderc. Specialistd. DealerSpecialistA block trade is defined as a transaction involving at least:a. 1,000 sharesb. 5,000 sharesc. 10,000 sharesd. 1 million share10,000 sharesA type of trading involving a basket of 15 stocks or more and oftenused in conjunction with arbitrage strategies is called: program tradingA computerized trading network that matches buy and sell orderselectronically entered by customers is a:

a. National Markets Systemb. Electronic Communications Networksc. Internet Investment Serviced. Global Investment Network Electronic Communications Networks The price that some seller is trying to sell a stock for is known at the:a. the bid quote.b. the ask quote.c. the closing price.d. the specialist price. the ask quote.A criticism of the Dow-Jones Industrial Average (DJIA) is:a. it has too few stocks in the averageb. it is a value weighted methodc. it adjusts for even small stock dividendsd. it includes too many risky stocks it has too few stocks in the averageA major difference between the Standard & Poor's 500 Index (S&P)and the Dow-Jones Industrial Average (DJIA) is that:a. the S&P 500 is more dominated by OTC stocks than the DJIA.b. the S&P 500 is more difficult to calculate than the DJIA.c. the S&P 500 is a market value index and the DJIA is no.d. the S&P 500 is more stable than the DJIA. the S&P 500 is a market value index and the DJIA is no.A capitalization-weighted index obtains the current market value ofeach stock by:a. using the closing market price.b. multiplying price times shares outstanding.c. multiplying price times daily volume.d. dividing earnings by shares outstanding. multiplying price times shares outstanding. Most secondary bond trading takes place on:a. the NYSEb. the American Stock Exchangec. the OTCd. the Philadelphia Exchange the OTCThe type of bonds with the thinnest secondary market is:a. agency bondsb. corporate bondsc. Treasury bondsd. municipal bondsmunicipal bondsWhat is the difference between a seasoned new issue and an initial publicoffering?A seasoned new issue is the sale of a publicly traded companywhile an IPO represents the first time an issuer has sold securities. Which of the following accounts often requires an annual fee?

a. a cash accountb. an asset management accountc. a margin accountd. All of the above require an annual fee. b. an asset management account A newer variation of the wrap account is the:

a. mutual fund wrap account.b. asset allocation wrap account.c. small-cap wrap account.

d. index wrap account. mutual fund wrap account. Which of the following laws eliminated all fixed commissions?

a. Securities Exchange Act of 1934b. Securities Acts Amendments of 1975c. Investor Advisor Act of 1940d. Securities Investor Protection Act of 1970 Securities Acts Amendments of 1975 Direct stock purchase programs (DSPs) are an outgrowth of :

a. electronic tradingb. dividend reinvestment plansc. increased NASDAQ tradingd. decreased regulation b. dividend reinvestment plans The exchange member in charge of limit orders is the:

a. commission brokerb. floor brokerc. specialistd. delegatec. specialistThe specialist is allowed to act as both a broker and dealer in order

a. to give commission brokers more competition.b. to maintain a liquid and orderly market.c. to give them more power.d. to follow SEC regulations. b. to maintain a liquid and orderly market.If specialists "go against the market," this means:

a. they are acting against exchange orders.b. they are buying securities that have been taken off the exchange.c. they are buying when most others are selling or vice versa.d. they are selling off their inventory and maintaining a strictly cash position. b. they are buying securities that have been taken off the exchange.The NYSE now allows brokers to arrange trades of 25,000 shares or more between customers without considering orders at the same price from other investors on the NYSE floor under the :

a. block trading rule.b. crossing rule.c. clean-cross rule.d. express rule.c. clean-cross rule. Dealers in the over-the-counter market make their profits:

a. by commissions charged to customers.b. from the bid-asked spread.c. by fees charged for investment advice.d. All of the above are correct. b. from the bid-asked spread. Open orders, if not cancelled or renewed, remain in effect for:

a. one week.b. one month.c. six months

d. twelve months. c. six months If an investor is attempting to buy a stock that is very volatile, it would be best to use a:

a. market orderb. limit orderc. stop-loss orderd. contingency order b. limit orderAn order that must be filled immediately in its entirety or must becancelled is known as:

a. an immediate or cancel order.b. an all or none order.c a fill or kill order.d. a full or bust order.a fill or kill order.The NYSE is:

a. a free agent market.b. an agency auction market.c. a negotiated market.d. a dealer marketan agency auction market. The move to decimalization of stock prices should lead to:

a. larger profits for dealers.b. less risk for investors.c. more narrow spreads.d. more volume in the market. more narrow spreads.A sell stop order is placed:

a. above the current price.b. below the current price.c. at the current price.d. at the breakeven point. below the current price The law that requires that all new issues being offered for public sale are registered with the SEC is the: Securities Act of 1933 Which of the following statements regarding the SEC is not true? The SEC has the power to disapprove securities for lack of merit.A trading halt on the NYSE occurs:

a. whenever the SEC declares one.b. whenever the market declines more than 10 percent during the day.c. whenever the DJIA falls by more than a certain percentage.d. whenever the specialists have exhausted their capital funds. c. whenever the DJIA falls by more than a certain percentage. If a brokerage firm fails, customer accounts in brokerage firms are insured by the:

a. FDICa. NASDb. SIPCc. SECc. SECWhich of the following statements regarding margin trading is true:

a. Its major appeal is to institutional investors.

b. It maximizes returns and minimizes losses.c. It magnifies both gains and losses.d. It is considered a strictly speculative tool. c. It magnifies both gains and losses. The initial margin requirement on security trades is set by the:

a. Securities Exchange Commissionb. National Association of Security Dealersc. Securities Investor Protection Corporationd. Federal Reserve d. Federal Reserve What is the chief advantage of a market order? A market order is executed immediately. 1. Total return is equal to:a. capital gain + price change.b. yield + income.c. capital gain - loss.d. yield + price change. d. yield + price change. Investors should be willing to invest in riskier investments only:a. if the term is short.b. if there are no safe alternatives except for holding cash.c. if the expected return is adequate for the risk leveld. if they are true speculators. c. if the expected return is adequate for the risk level An impending recession is an example of:a. interest rate riskb. inflation riskc. market riskd. financial riskmarket riskFinancial risk is most associated with:a. the use of equity financing by corporationsb. the use of debt financing by corporationsc. equity investments held by corporationsd. debt investments held by corporations the use of debt financing by corporations Political stability is the major factor concerning:a. exchange riskb. systematic riskc. nonsystematic riskd. country riskcountry riskWhich of the following is not related to overall market variability?a. Financial risk.b. Interest rate risk.c. Purchasing power risk.d. Market risk.Financial risk. If a U.S. investor buys foreign stock, his dollar-denominated return willincrease if the dollar:a. appreciates in value.b. depreciates in value.c. remains unchanged.d. moves to a net gain position.depreciates in value.Total return as defined in the text is:a. the difference between the sale price and the purchase price of aninvestment.b. measured by dividing the sum of all cash flows received by the amountinvested.c. the reciprocal of a return relative.

d. measured by dividing all cash flows received by its selling price. measured by dividing the sum of all cash flows received by the amountinvested.The return relative solves the problem of:a. inflation.b negative returns.c. interest rates.d. tax differences. negative returns.If the Dow Jones Industrials had a price appreciation of 6 percent one yearand yet total return for the year was 11 percent, the difference would bedue to:a. the tax treatment of capital gains.b. the cumulative wealth effect.c. dividends.d. profits.dividends. In order to determine the compound growth rate of an investment oversome period, an investor would calculate the:a. arithmetic meanb. geometric meanc. calculus meand. arithmetic mediangeometric meanA major difference between real and nominal returns is that:a. real returns adjust for inflation and nominal returns do not.b. real returns use actual cashflows and nominal returns use expectedcashflowsc. real returns adjust for commissions and nominal returns do not.d. real returns show the highest possible return and nominal returns show thelowest possible return. real returns adjust for inflation and nominal returns do not.The equity risk premium is:a. the difference between stocks and bondsb. the difference between high-grade stocks and low-grade stocks.c. the difference between stocks and the risk-free rate.d. the difference between a stock market index and the inflation rate. the difference between stocks and the risk-free rate. The standard deviation measures:a. systematic risk of a security.b. unsystematic risk of a security.c. total risk of a security.d. the equity risk premium. total risk of a security. a. you will be able to buy back few dollars.b. your dollar-denominated return will increase.c. your-dollar denominated return will decrease.d. a and cyour dollar-denominated return will increase. As the dollar falls,a. foreign investors owning U.S. stocks suffer.b. U.S. investors owning U.S. stocks suffer.c. U.S. investors owning foreign stocks suffer.d. foreign investors owning foreign stocks suffer. foreign investors owning U.S. stocks suffer.Return and risk are inversely related. falseWhen should an investor use the arithmetic mean return? The geometricmean return?The arithmetic mean is better for single period returns, whereas,the geometric mean is better for multiple periods.