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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 181

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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.

A) True
B) False

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Question 182

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Junk bonds are offered at higher interest rates than government bonds or corporate bonds with good ratings.

A) True
B) False

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Question 183

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Preferred stock is a source of long-term funds that requires a future repayment of the stockholder's investment.

Your privately held firm needs additional funding for a planned expansion.Having never issued stock to the public,your firm is well advised to seek the assistance of an investment banker prior to an initial public offering of stock.

Which of the following is not an important criterion to consider before investing?

Maggie owns 10% or 50,000 common shares of a small biotech company.Although she has enjoyed a lot of control,Maggie realizes that in order for the firm to acquire the funds to grow in a recessionary economy,it will need to issue more stock.Unless she and others exercise preemptive rights,

Bonds,like stocks,trade daily on major security exchanges.

Seattle Music,Inc.recently offered bonds for sale to the public.The unsecured corporate bond paid interest of 9% to investors for the twenty-year life of the bonds.Seattle Music is obligated to:

Buying on margin is a relatively risk-free way of investing in the stock market.

After buying 100 shares of common stock in the It's All Good Corporation for $20 per share,Popeye later sold the same shares for $25 per share.Popeye's capital gain on the total transaction is:

Juan recently invested in 15-year Bellandro Bay Brewery bonds paying 6% interest annually,with a maturity date of 2020.The bonds are callable in 2015.If interest rates go down to 4.5% in the year 2015,the brewery is likely to:

If you buy 100 shares of IBM for $120/share,and the margin on your account is 50%,the broker will float you an interest free loan of $6,000,until the price of IBM sufficiently rises to the point where you are willing to sell.You pay the broker back its $6,000,and you enjoy the capital gain.

Interest rates vary with changes in the state of the economy.

A well-diversified portfolio would consist of a variety of investments and even cash for emergencies.The important thing is that the choice of investments spreads the risk.Some investments may perform very well in any one year while others may lag.Those performing well will balance out those that are underperforming.

The interest paid to bondholders represents the principal of the bond.

An unsecured bond,backed only by the well-respected name of the organization,is called a ________ bond.

Diversification involves buying several different investment alternatives to spread the risk of investing.

Which of the following describes the process where an investor borrows a percentage of the purchase price of stocks from the brokerage firm?

Only those individuals and/or companies with a membership on a stock exchange can buy and sell securities on that stock exchange.

Buying a stock makes the investor an owner in the firm.