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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 41

Multiple Choice

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If an investor's strategy is: "buy low, and sell high," we could conclude that his optimism regarding future stock price increases indicates that he is

A) bullish.
B) bearish.
C) only marginally confident about the stock market.
D) lionish.

E) A) and D)
F) None of the above

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Question 42

True/False

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Natalie landed her first job after from college. The same year, she also started her first investment account. Having met with several brokers before choosing someone to work with, Natalie wanted to make certain that her investment choices would provide for long-term growth, yet satisfy her concern for diversification. The person who won her business prepared an asset allocation plan that would start her account by investing in several index funds. Her advisor has offered her a sound way to combine the concern for diversification since index funds are a sensible way for Natalie to start.

A) True
B) False

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Question 43

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Explain the major advantages and disadvantages of issuing stock as a source of long-term financing.

Bill is reviewing the firms whose stocks have comprised the Dow Jones Industrial Average over the years. He discovers

When given a choice, businesses prefer to obtain long-term financing through retained earnings or by borrowing from a lending institution such as a bank instead of issuing stock.

John invested in a new issue corporate bond on the primary market for $1,000, with a coupon rate of 7%, and a maturity date of 2025. The bond was held in his brokerage account electronically, so he did not think about it on a daily basis. In 2020, he thought about selling the bond on the secondary market to help pay for his school tuition. At that time, interest rates had climbed to 8.5%. This was great news for John because now he could sell his bond for more than the principal amount he would receive in 2025.

The risk/return trade-off is inherent in any investment strategy. What are the five key criteria investors should consider when selecting investment options?

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.

When issuing stock to obtain long-term funding, dividend payments are

Buying several different investment alternatives to spread the risk helps an investor achieve

If an investor, Cora, buys a share of stock in Epic Electronics from another investor, Nathan, Epic Electronics automatically receives a fixed percentage of the selling price.

Corporations issuing ________ bonds pledge a tangible asset as collateral to reduce the risk incurred by a bondholder.

The interest earned on municipal bonds is often tax-free at the state level.

A(n) ________ represents a condensed version of the registration statement that enables prospective investors to evaluate a stock for possible purchase.

Debenture bonds represent bonds that are not secured by collateral.

A stock split refers to buying a share of stock at a discounted price if full payment is made at the time of purchase.

A convertible bond allows the bondholder to exchange the bond for

An investor placing a market order with a broker agrees to buy or sell a stock immediately at the best price available.

When stock prices decline steadily, investors refer to the market as a ________ market.

Most businesses prefer to meet their long-term financial needs through