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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 131

Multiple Choice

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The stock of well-known, high-quality firms, such as Coca-Cola, General Electric, and Procter & Gamble, fit the characteristics of ________ stocks, because investors can almost always be assured a dividend and consistent stock price appreciation.

A) growth
B) blue chip
C) income
D) callable

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Question 132

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Julio and his grandfather receive individualized investment advice from the same chartered financial analyst. When comparing their customized investment recommendations, it is likely that Julio's strategy targets lower-risk investment options than the advice received by his grandfather.

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Question 133

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Which of the following terms best describes the relationship between the New York Stock Exchange and the NASDAQ?

Government bonds can vary in denomination, but most corporate bonds are issued in

If a publicly traded corporation fails to maintain specific minimum requirements, the exchange can ________ the firm's securities.

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

The investor always pays a fee when purchasing a share of a mutual fund.

Mini-Case Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million. The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company. -Penny is concerned about the interest rate risk if the company decides to issue bonds. Penny would like protection from interest rate fluctuation. Therefore, the bond issue's features should include a(n)

The interest rate paid to bondholders is sometimes called the coupon rate.

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.

Investment bankers ________ new issues of bonds or stocks by purchasing, at a discount, the entire stock or bond issue of a firm and selling the issue to interested investors at a higher price.

If paid, dividends come from any profits remaining after the firm has paid taxes. The company cannot deduct dividends as an expense of doing business.

Abraham found a $1,000 face value bond that belonged to his father. He checked The Wall Street Journal and found the bond was currently selling for $1,220. This bond sells at a

Similar to bond investments, preferred shares can be ________, meaning the firm may buy them back.

Melodic Music, Inc., recently offered bonds for sale to the public. The unsecured corporate bond paid interest of 8% to investors for the 20-year life of the bonds. Melodic Music is obligated to

Which of the following measures how quickly an investor has access to his/her invested funds, if they are needed?

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.

Investors buying bonds and corporations issuing bonds (both) accept investment risk. Which of the following statements is most correct when it comes to the investment risks that one or the other party accepts?

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

Growth stocks are the stocks of corporations whose earnings are expected to grow faster than the overall economy.