AFF 501 - All Chapter Questions - PDF

Exam Name___________________________________ TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) A non-interest-bearing chequing account is still considered an investment. 1) 2) Land and buildings are examples of...

Exam Name___________________________________ TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) A non-interest-bearing chequing account is still considered an investment. 1) 2) Land and buildings are examples of real property investments. 2) 3) Securities are investments issued by firms, governments, or other organizations that represent a financial 3) claim on the issuer's resources. 4) A Government of Canada bond is an example of a debt security. 4) 5) Most sources of investment information are in print format, expensive, and difficult to access. 5) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 6) Which of the following is NOT an investment as defined in the text? 6) A) a Government of Canada bond B) a new automobile C) a certificate of deposit issued by a bank D) a mutual fund held in a retirement account 7) Stocks are a(n) ________ investment representing ________ of a business. 7) A) direct; ownership B) indirect; ownership C) indirect; debt D) direct; debt 8) An exchange traded fund that invests in the stocks of large corporations is an example of 8) A) indirect investment. B) direct investment. C) tangible investment. D) derivative investment. 9) Which of the following has declined in both the US and Canada in recent years? 9) A) the timeliness of information available to investors B) direct ownership of stock by individual investors C) the percentage of foreign stocks held in typical portfolios D) institutional ownership of common stocks 10) Which of the following has increased in both the US and Canada in recent years? 10) A) the percentage of domestic stocks held in typical portfolios B) institutional ownership of common stocks C) direct ownership of stock by individual investors D) indirect ownership of stocks through mutual funds and ETFs. 11) Debt represents funds loaned in exchange for 11) A) dividend income and the repayment of the loan principal. B) interest income and the repayment of the loan principal. C) dividend income and an ownership interest in the firm. D) interest income and a partial ownership interest in the firm. 1 TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 12) Institutional investors manage money for businesses and nonprofit organizations, but not for 12) individuals. 13) Institutional investors are individuals who invest indirectly through financial institutions. 13) 14) Banks and insurance companies are examples of institutional investors. 14) 15) In the financial markets, individuals are net suppliers of funds. 15) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 16) The government is generally 16) A) a supplier of funds to the financial market. B) not involved in the financial market. C) a demander of funds in the financial market. D) the owner of the financial market. 17) On a net basis, funds in the financial markets are generally supplied by 17) A) individuals. B) the government. C) both individuals and business firms. D) business firms. 18) Stocks of large publicly traded companies 18) A) are highly liquid. B) are rarely traded. C) rarely decline in value. D) are illiquid. 19) Which of the following are true concerning institutional investors? 19) I. Institutional investors are professionals who manage money for other people. II. Banks, insurance companies and mutual funds are all institutional investors. III. Institutional investors are individuals who invest indirectly through financial institutions. IV. Institutional investors invest large sums of money. A) I and II only B) I, II and IV only C) II, III and IV only D) I, II, III and IV 20) Which of the following is NOT traded in the securities markets? 20) A) stocks B) bonds C) real estate D) derivatives ESSAY. Write your answer in the space provided or on a separate sheet of paper. 21) Describe the major differences between individual and institutional investors. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 22) Bond investors lend their money for a fixed period of time and receive interest. 22) 23) A collection of securities designed to meet an investment goal is called a portfolio. 23) 24) Call options on common stock are a form of equity. 24) 2  25) An option to purchase common stock is a type of derivative security. 25) 26) Bonds represent a lower level of risk than do stocks in the same company. 26) 27) Exchange traded funds are similar to mutual funds but are traded like stocks. 27) 28) Mutual funds invest in diversified portfolios of securities. 28) 29) Bond prices rise as interest rates decline. 29) 30) Bond interest and stock dividends are different ways of distributing a corporation's earnings to 30) its owners. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 31) Which of the following is an example of a tangible asset? 31) A) bonds B) stocks C) mutual funds D) real estate 32) Which of the following would be the least liquid investment? 32) A) real estate B) stocks C) put options D) money market mutual funds 33) Which of the following investments represents partial ownership of a corporation? 33) A) mutual funds B) commercial paper C) common stocks D) bonds 34) Investors seeking a diversified, professionally managed portfolio of securities can purchase 34) shares of A) mutual funds. B) preferred stock. C) insurance policies. D) convertible securities. 35) The major difference between mutual funds and exchange traded funds (ETFs) is 35) A) mutual fund portfolios are always based on one of the major market indexes. B) ETFs can be bought or sold at their current price at any time during normal trading hours. C) ETFs invest in broadly diversified portfolios of securities. D) ETFs are actively managed. 36) One reason that passively managed mutual funds have grown in popularity relative to actively 36) managed mutual funds is that A) active funds are too diversified. B) passive fund returns are always higher. C) passive fund expense ratios are lower. D) active fund returns mimic a market index. 37) Over the past decade, passively managed index funds have 37) A) declined in popularity. B) attracted almost 100% of investment dollars. C) almost disappeared as a fund type. D) grown quite a lot. 3 ESSAY. Write your answer in the space provided or on a separate sheet of paper. 38) Briefly describe three advantages of investing in mutual funds or exchange traded funds. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 39) Earning a high rate of return with little or no risk is a realistic investment goal. 39) 40) Under current tax laws, most taxpayers will pay a lower tax rate on capital gains than on 40) dividends. 41) Investors can postpone or avoid income taxes by investing through Registered Retirement 41) Savings Plans. 42) Under current laws, a couple filing jointly with a total income of $75,000 would pay a 15% tax on 42) capital gains. 43) To qualify for long-term capital gains rates, a stock must be held for at least 12 months. 43) 44) Registered Retirement Savings Plans (RRSPs) allow individuals to defer taxes on the plan 44) contributions until the funds are withdrawn from the retirement plan. 45) Contributions to a TFSA are not tax deductible, but subsequent earnings and withdrawals are tax 45) free. 46) The taxes and tax credits are different for eligible dividends and non -eligible dividends in Canada. 46) 47) The average tax rate is the rate a person pays on their next dollar of income. 47) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 48) Which of the following represent investment goals? 48) I. saving for major expenditures such as a house or education II. sheltering income from taxes III. increasing current income IV. saving funds for retirement A) I and IV only B) III and IV only C) I, III and IV only D) I, II, III and IV 49) In selecting investments consistent with your goals, you should consider 49) A) risks, returns, and taxes. B) annual dividends and taxes only. C) the pre-tax rate of return only. D) rates of return and taxes only. 50) Alexandra purchased a stock one year ago at a price of $64 a share. In the past year, she has 50) received four quarterly dividends of $1.50 each. Today she sold the stock for $76 a share. Her capital gain per share is A) $6.00. B) $18.00. C) $12.00. D) $(6.00). 4 51) A well-conceived investment policy statement will take into account 51) A) the types of investments the investor is willing to consider. B) the investor's preference for frequent or infrequent trading. C) the investor's current age and economic situation. D) all of the above. 52) New investors with small amounts to invest should 52) A) buy a portfolio of very low-priced stocks (penny stocks). B) invest all of their money in one high-quality stock. C) buy mutual funds or exchange traded funds (ETFs). D) avoid stock investments completely. 53) Research indicates that investors who monitor their portfolios less frequently 53) A) earn rates of return similar to those who hold investments for the long term and trade infrequently. B) tend to invest in riskier assets. C) are more highly educated and in higher income brackets than those who hold investments for the long term and trade infrequently. D) outperform those who hold investments for the long term and trade infrequently. 54) 54) Table 1.2 2020 (due April 15, 2021) Tax rates Individual Returns Joint Returns 10% $0 to $9,525 $0 to $19,050 12% $9,526 to $38,700 $19,051 to $77,400 22% $38,701 to $82,500 $77,401 to $165,000 24% $82,501 to $157,500 $165,001 to $315,000 32% $157,501 to $200,000 $315,001 to $400,000 35% $200,001 to $500,000 $400,001 to $600,000 37% Over $500,000 Over $600,000 Josh earned $82,500 in taxable income, all from wages and interest, and files an individual tax return. What is the amount of Josh's taxes for the year 2020? Round to the nearest dollar. A) $12,285 B) $13,750 C) $18,150 D) $14,090 55) Tax planning 55) A) is limited to reviewing income for the current year and determining how to minimize current taxes. B) ignores the source of income and concentrates solely on the amount of income. C) guides investment activities to maximize after-tax returns over the long term for an acceptable level of risk. D) is primarily done by individuals with incomes below $200,000. 56) Investors seeking to increase their wealth as quickly as possible would invest in 56) A) smaller companies pursuing rapid growth. B) large company stocks with high dividends. C) corporate bonds and preferred stock. D) government bonds and low-risk income stocks. 5  57) A person's marginal tax rate is the rate they pay 57) A) only on earned income. B) on all income. C) on the next dollar of income. D) only on investment income. 58) During which period are stock returns typically the lowest? 58) A) during a recession B) there is no discernible pattern C) 12 months after a recession D) 6 months before a recession ESSAY. Write your answer in the space provided or on a separate sheet of paper. 59) Discuss the relationship between stock prices and investors' beliefs about the business cycle. 60) What are some of the important prerequisites to investing? 61) Discuss the general investment philosophy and the types of investments preferred by investors in each phase of the life cycle. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 62) Government of Canada Treasury Bills mature in 1 year or less. 62) 63) Liquidity is the ability to convert an investment into cash quickly with little or no loss of value. 63) 64) Short-term investments generally provide liquidity, safety, and a high rate of return. 64) 65) Money market accounts, certificates of deposit, bonds and commercial paper are all forms of 65) short-term investment vehicles. 66) Investors can use short-term securities as a temporary place to "park" funds before deciding where to 66) invest the money on a long-term basis. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 67) The primary risk associated with a short-term investment is 67) A) purchasing power risk. B) interest rate risk. C) default risk. D) economic risk. 68) Short-term investments 68) I. provide liquidity. II. fill an important part of most investment programs. III. provide a high rate of return with low risk. IV. provide resources for emergencies. A) I and IV only B) II and IV only C) I, II and IV D) I, II, III and IV only 69) Which of the following short-term investments provide the most liquidity? 69) A) a corporate bond B) a guaranteed investment certificate C) money market mutual funds D) a chequing account 6  70) Canada Deposit Insurance Corporation (CDIC) insures up to $100,000 per account for 70) A) deposits in Savings Accounts. B) deposits in Chequing Accounts. C) chequing and savings accounts in Credit Unions. D) all of the above. 71) Which of the following has the lowest level of risk? 71) A) Treasury bill B) commercial paper C) banker's acceptance D) money market mutual fund account TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 72) Certified Financial Planners typically manage institutional portfolios. 72) 73) A major goal of corporate financial management is to increase the value of the firm to investors. 73) 74) Stringent regulations and vigorous enforcement have all but eliminated unethical behaviour by 74) financial professionals in recent years. 75) Insurance companies invest the premiums and fees collected from customers to neutralize the 75) risks assumed from their clients. 76) Chartered Financial Analyst (CFA) is a degree offered by several prestigious business schools. 76) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 77) Funds that merely track a broad index and make no attempt to identify undervalued or 77) exceptional growth stocks are known as A) actively managed funds. B) equity funds. C) hedge funds. D) passively managed funds. 78) Jobs in which of the following fields require an understanding of the investment environment? 78) I. commercial banking II. corporate finance III. financial planning IV. insurance A) I and IV only B) I, II and IV only C) II, III and IV only D) I, II, III and IV 79) A major function of investment banking firms is 79) A) assisting businesses when they issue stocks and bonds. B) developing investment strategies to neutralize risk. C) providing financial planning services to wealthy individuals. D) All of these are major functions of investment banking firms. 7  80) Which of the following has set an outstanding example of ethical behaviour in the financial 80) professions? A) Hank Greenberg of AIG B) Bernard Madoff of Madoff Securities C) Ramalinga Raju of Satyam Computers D) none of the above 81) In Canada, the most prestigious designation for financial planners is 81) A) CFP. B) CLU. C) IA. D) CPA. ESSAY. Write your answer in the space provided or on a separate sheet of paper. 82) Briefly describe three different career paths that require a strong background in investments. 8 Answer Key Testname: UNTITLED1 1) FALSE 2) TRUE 3) TRUE 4) TRUE 5) FALSE 6) B 7) A 8) A 9) B 10) D 11) B 12) FALSE 13) FALSE 14) TRUE 15) TRUE 16) C 17) A 18) A 19) B 20) C 21) Individual investors manage their own funds to achieve individual goals such as increasing financial security or financing a comfortable retirement. Institutional investors, such as mutual funds and insurance companies, manage funds for individuals who lack the time or expertise to invest individually and for other institutions such as universities or charities. 22) TRUE 23) TRUE 24) FALSE 25) TRUE 26) TRUE 27) TRUE 28) TRUE 29) TRUE 30) FALSE 31) D 32) A 33) C 34) A 35) B 36) C 37) D 38) The investor does not need to spend a great deal of time researching individual securities. Small investors easily achieve diversification by investing indirectly in a broad portfolio of securities. The funds are managed by professionals who presumably have expertise in making investment decisions. 39) FALSE 40) FALSE 41) TRUE 42) FALSE 43) TRUE 44) TRUE 45) TRUE 9 Answer Key Testname: UNTITLED1 46) TRUE 47) FALSE 48) D 49) A 50) C 51) D 52) C 53) B 54) D 55) C 56) A 57) C 58) D 59) Stock prices tend to anticipate the economic conditions that investors expect in the future. When they believe that economic conditions will deteriorate and profits will decline, stock prices fall. When they expect an improving economy and higher corporate profits, stock prices rise. 60) Before entering into risky investments, individuals need to provide for the necessities of life such as housing, transportation, and taxes. They should have liquid assets available to meet unforeseen emergencies such as job loss, auto repairs or dental treatments. They should also have insurance for catastrophic events involving health or property. 61) Life Cycle Phase Philosophy Types of Investments Young investors Growth Growth stocks, options, and futures Middle-aged investors Growth and income Higher quality stocks, preferred stocks, convertibles, high-grade bonds, and mutual funds Retired investors Preservation of capital Low risk stocks, short-term and current income bonds, certificates of deposit 62) TRUE 63) TRUE 64) FALSE 65) FALSE 66) TRUE 67) A 68) C 69) D 70) D 71) A 72) FALSE 73) TRUE 74) FALSE 75) TRUE 76) FALSE 77) D 78) D 79) D 80) D 10 Answer Key Testname: UNTITLED1 81) A 82) Students may discuss any of the following career paths. Answers will vary. Responsibilities of commercial bankers may include portfolio management, managing short-term securities, and advising individuals as personal bankers. Corporate financial managers must raise external funds through the debt and equity markets, manage short -term investments, and understand investor expectations for their business. Financial planners assist individuals in choosing the investments that will help them meet their short - and long-term goals. The insurance industry employs professionals to invest and manage the large sums collected from premiums. Within the investment management industry, professionals may work as securities analysts, fund managers, or retail brokers. 11 Exam Name___________________________________ TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) Stocks, bonds and exchange traded funds (ETFs) are bought and sold in the capital market. 1) 2) Capital markets deal exclusively in stock. Money markets deal exclusively in debt instruments. 2) 3) Primary markets deal in the stocks of larger, well-known companies; secondary markets deal in 3) the stocks of smaller, less well-known companies. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 4) Short-term securities are bought and sold in the 4) A) capital market. B) stock market. C) money market. D) primary market. 5) The US government agency that oversees the capital markets is the 5) A) Federal Reserve. B) Fair Trade and Banking Agency. C) Securities and Exchange Commission. D) Federal Trade Commission. 6) Stocks purchased in the secondary market are purchased 6) A) from small, little-known brokerages. B) from other investors. C) directly from the issuing corporation. D) indirectly through financial institutions. 7) Stocks and bonds are traded in 7) A) federal trade commissions. B) money markets. C) securities and exchange commissions. D) capital markets. 8) The primary market tends to be more active when 8) A) early in the calendar year. B) the economy is slowing and stock prices are falling. C) the economy is expanding and stock prices are rising. D) interest rates are rising. 9) The over-the-counter market describes transactions 9) A) that are not regulated by the industry standards. B) that involve the purchase and sale of smaller, unlisted securities. C) that are not reported. D) that take place in a broker's office. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 10) Underwriters are responsible for promoting and facilitating the sale of securities. 10) 11) A red herring is a term referring to false or misleading statements in the prospectus. 11) 1  12) The purpose of the "quiet period" a company must observe from the time it files a registration 12) statement with the CSA until after an IPO is complete is to assure that all investors receive the same information. 13) IPOs are typically underpriced so the price rises during the first few days of trading. 13) 14) IPOs are relatively safe investments. 14) 15) The price of stock sold in an IPO is set by bids submitted in the month before trading begins. 15) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 16) Which of the following statements concerning the primary market is correct? 16) A) A rights offering is a direct sale of stock to an institution that participates in the primary market. B) A transaction in the primary market is between two private stockholders. C) The first public sale of a company's stock is called an IPO. D) The first public sale of a company's stock in the primary market is called a seasoned new issue. 17) A rights offering is the 17) A) initial offering of securities to the public. B) sale of securities directly to a select group of investors. C) sale of newly issued shares of stock to the general public. D) offering of new securities to current shareholders on a pro-rata basis. 18) IPO activity tends to peak when stock prices 18) A) have fallen sharply. B) Stock prices have relatively little influence on IPO activity. C) have risen sharply. D) are volatile and unstable. 19) The document that describes the issuer of a security's management and financial position is 19) known as a A) prospectus. B) balance sheet. C) red herring. D) 10-K report. 20) Which of these alternatives is NOT an option available to companies offering their stock to the 20) public for the first time? A) rights offering B) a public offering C) prospectors D) private placement 21) When the offer price is lower than the market price on the first day of trading, the difference is 21) known as A) underpricing. B) overpricing. C) the spread. D) the underwriter's fee. 22) Investment bankers who join together to share the financial risk associated with buying an entire 22) issue of new securities and reselling them to the public is called a(n) A) tombstone group. B) selling group. C) primary market group. D) underwriting syndicate. 2  23) Relative to a traditional IPO process, a direct listing 23) A) is much more costly, so it is rarely used. B) has a much longer road show. C) can save the issuer millions of dollars in investment banking fees. D) is illegal in Canada. 24) Direct listings are more common among 24) A) small firms. B) publicly-traded firms. C) established firms with long track records. D) large firms. ESSAY. Write your answer in the space provided or on a separate sheet of paper. 25) Describe the initial public offering (IPO) process and explain the role of the underwriter, the Securities and Exchange Commission (SEC), and the red herring. 26) Explain the role of investment bankers and brokerage firms in the issuance of new securities. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 27) The NYSE and TSX are examples of broker-dealer markets. 27) 28) Firms that list their stock on an exchange can be delisted for failing to meet the requirements of 28) the exchange. 29) The NYSE is part of the world's largest international trading network known as NYSE Euronext. 29) 30) Most commodity futures are traded on the NYSE Amex. 30) 31) Securities that trade in the over-the-counter market are called unlisted securities. 31) 32) A market maker brings together buyers and sellers in an auction market. 32) 33) The income paid to a market maker is referred to as the spread. 33) 34) In general, investors experience higher (or positive) returns on common stock investments during a bull 34) market. 35) In dealer markets, the market maker buys securities at the bid price and sells at the ask price. 35) 36) Stocks of many large foreign companies such as Toyota trade on the NYSE as well as on 36) exchanges in their own country. 37) The majority of bonds trade in the OTC market. 37) 3 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 38) Market makers in dealer markets 38) A) buy securities at a bid price and hope to resell them at a higher offer price. B) bring sellers and buyers together by matching offers. C) earn commissions paid by the sellers of securities. D) all of the above. 39) In a broker market such as the TSX, the broker 39) A) will not be able to execute a trade if there are no matching buy and sell offers. B) will first attempt to sell from his or her own inventory. C) must attempt to match sellers and buyers at the mid-point of the bid/ask spread. D) will act as either broker or dealer, depending on which will maximize his or her profit. 40) The great majority of transactions on the NYSE are executed 40) A) by auction in trading areas known as pits. B) automatically through electronic technology. C) on the trading floor by brokers known as specialists. D) by dealers known as market makers. 41) Which of the following are correct statements concerning the NYSE? 41) I. Each stock has a designated location, called a post, at which its shares are traded. II. The NYSE is a dealer market. III. Supply and demand determine the price of each security. IV. A designated market maker buys and sells to maintain a market for a particular security. A) I and II only B) I and III only C) I, III and IV only D) I, II, III and IV 42) A market where securities are bought from, or sold to, a market maker is known as a 42) A) dealer market. B) exchange floor. C) broker market. D) board of exchange. 43) Large technology companies such as IBM and Microsoft trade 43) A) exclusively on the NASDAQ. B) exclusively on the NYSE. C) exclusively on alternative trading systems. D) on either the NASDAQ or the NYSE. 44) Which of the following is currently a requirement for a stock to be listed on the NYSE? 44) A) gross revenue of at least $15,000,000 B) three consecutive years of profitable operations C) global market capitalization of at least $200 million D) a price of at least $10 per share 45) The dominant exchange for trading options contracts is the ________. The dominant player in the 45) trading of futures contracts is ________. A) NYSE; Nasdaq BX B) PHLX; CBOE C) ISE; CBOT D) CBOE; CME Group 4 46) The dominant options exchange is the 46) A) American Stock Exchange. B) Pacific Stock Exchange. C) Chicago Board Options Exchange. D) Philadelphia Options Exchange. 47) The NYSE Euronext includes exchanges in all of the following cities EXCEPT 47) A) Brussels. B) Amsterdam. C) Tokyo. D) Paris. 48) Options contracts on stocks may 48) A) legally oblige the owner to buy the stock at a specified price over a specified period of time. B) depending on the type of contract, grant the owner the right to either buy or sell the stock at a specified price over a specified period of time. C) grant the owner the right to sell the stock at a specified price over a specified period of time. D) grant the owner the right to buy the stock at a specified price over a specified period of time. 49) The automated system for trading highly active regulated OTC securities is the 49) A) Chicago Board of Trade. B) Big Board. C) Kansas City Board. D) OTC Bulletin Board. 50) In recent years, 50) A) there has been a major consolidation of trading venues. B) broker markets have grown at the expense of dealer markets. C) dealer markets have grown at the expense of broker markets. D) retail trading has come to be dominated by electronic communication networks while traditional broker and dealer markets have lost ground. 51) ECNs are 51) A) publicly owned auction markets for listed stocks. B) part of the third market, which trades listed securities between individual investors. C) facilities used by market makers for trading unlisted securities. D) networks that transact trades between institutional investors. 52) The price an individual investor will pay to purchase a stock in the OTC market is the 52) A) broker price. B) bid price. C) spread. D) ask price. 53) Which of the following are associated with bull markets? 53) I. investor pessimism II. government stimulus III. economic recovery IV. low inflation A) I and II only B) II and III only C) I, II and III only D) II, III and IV only 5  54) Which of the following are associated with bear markets? 54) I. investor pessimism II. rising profits III. economic slowdown IV. rising security prices A) I and III only B) II and III only C) I, II and III only D) II, III and IV only 55) The ask price is always ________ the bid price. 55) A) unrelated to B) lower than C) higher than D) equal to 56) At the market close on June 13, 2019, Alphabet Inc. (GOOG) common stock was trading at an ask 56) price of $1,099.99 and a bid price of $1,082.04. What is the bid/ask spread? A) $14.32 B) $17.95 C) $21.32 D) $32.04 57) At the market close on June 13, 2019, Apple Inc. (AAPL) common stock was trading at an ask price 57) of $191.10 and a bid price of $190.35. Apple's previous closing price was $194.19. What is the bid/ask spread of Apple? A) -$0.75 B) $0.75 C) $3.84 D) $3.09 TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 58) Diversification is the inclusion of a number of different investments in a portfolio with the goal of 58) reducing risk. 59) The financial markets are becoming more globally integrated. 59) 60) Participation in foreign stock markets is complicated and expensive for Canadian investors. 60) 61) The North American stock markets tend to produce the highest rate of return each year. 61) 62) Adding foreign stocks that are riskier than the portfolio average will always increase the risk of 62) the portfolio. 63) A Canadian investor can purchase IDRs/GDRs or ADRs through any Canadian investment broker without 63) any additional tax and currency exposures. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 64) Including foreign investments in a portfolio 64) A) limits the diversification amongst industries. B) increases the overall risk of the portfolio. C) provides potential benefits from changes in currency values. D) reduces the potential rate of return. 6 65) Which of the following statements about foreign investments is true? 65) A) Foreign markets include equity securities only. B) Investing in foreign markets will always produce higher returns because of exchange rate fluctuations. C) In general, major foreign markets always tend to underperform the US market. D) Investing in foreign markets may involve specific risks not encountered with domestic securities. 66) Functioning securities exchanges are located in 66) I. Brazil II. China III. Russia IV. South Korea A) I, II, III and IV B) I and IV only C) II, III, and IV only D) I, II and IV only 67) Dollar-denominated debt securities issued by foreign corporations and traded in US markets are 67) called A) Yankee B) ETFs. C) global bonds. D) ADRs. bonds. 68) Which of the following can be encountered when investing in foreign markets? 68) I. foreign taxation of dividends II. different accounting standards for financial disclosure III. restrictions on types of investments IV. illiquid markets A) II and III only B) II and IV only C) I, II and IV D) I, II, III and IV only 69) Assume the foreign exchange rate for the euro was US $1.00 =.91 euro last month. This month, 69) the exchange rate is US $1.00 =.88 euro. This information indicates that over the past month the A) euro depreciated relative to the US dollar. B) US dollar remained unchanged relative to the euro. C) US dollar appreciated relative to all foreign currencies. D) euro appreciated relative to the US dollar. 70) Assume the foreign exchange rate for the euro was US $1.00 =.91 euro last month. This month, 70) the exchange rate is US $1.00 =.88 euro. All things equal, the US dollar value of European stocks A) increased. B) decreased. C) stayed the same. D) would vary depending on the country. 71) American investors can participate in international stock markets by 71) A) purchasing ADSs (American Depositary shares). B) purchasing shares in a mutual fund that invests in foreign companies. C) purchasing shares of a US-based company such as Coca-Cola or McDonald's with extensive international operations. D) all of the above. 7  72) The effects of fluctuating foreign exchange rates may 72) I. increase an investor's rate of return. II. decrease an investor's rate of return. III. be avoided by investing in ADRs. IV. be avoided by investing in mutual funds that specialize in foreign stocks. A) I and II only B) I and III only C) III and IV D) I, II, III and IV only 73) Kayla purchased 500 ADRs in Pearson PLC, a British company. How will fluctuations in the 73) dollar/pound exchange rate affect the value of her investment? A) Changes in the exchange rate will be directly reflected in both the ADR value and dividends. B) If the pound weakens against the dollar, the dollar value of her ADRs will increase. C) If the dollar weakens against the pound, the value of her ADRs will decrease. D) Because the ADRs are denominated in dollars, the exchange rate will have no effect on her investment. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 74) High-frequency trading (HFT) accounts for roughly half of all equity trades in the US and 74) Europe. 75) SEC and CSA regulations strictly prohibit trading outside the normal hours of 9:30 A.M. to 4:00 75) P.M. EST. 76) The Securities Act of 1933 deals mostly with primary markets. 76) 77) Research indicates that investors are more likely to overreact to news when trading after hours. 77) 78) Insider trading is the use of nonpublic information about a security to gain a profit. 78) 79) The CSA coordinates the operation of Canadian capital markets across ten provinces and three territories in 79) Canada. 80) Canada has no federal authority like the SEC that oversees US securities transactions, but each province 80) and territory of Canada is responsible for enacting securities-related laws. 81) In Canada, insider trading is prohibited by Sections 107 and 109 of the Securities Act, R.S.O. 1990, c. S.5 81) (OSA), and laws governing fraud, insider trading, whistle-blower protection and evidence gathering are outlined in Bill C-13. 8 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 82) Which of the following characteristics apply to trading before and after regular hours? 82) I. Most after-hours trades match a bid price to a corresponding offer price. II. Most brokerage firms require individual investors to place only market orders for after-hours trades. III. Electronic Communications Networks (ECNs) play a key role in after-hours trading. IV. After-hours trading begins at 4:00 P.M. and ends at 9:30 A.M. eastern time. A) II and IV only B) I, III and IV only C) I and IV only D) I, II and III only 83) The Investment Industry Regulatory Organization of Canada (IIROC) is responsible for 83) A) accounting and public information. B) IPOs. C) insider trading. D) setting regulatory and investment industry standards, overseeing investment dealers, and monitoring all trading activity in equity and debt markets in Canada. 84) Ontario introduced the Security Frauds Prevention Act in 1928 and the Securities Act in 84) A) 1975. B) 2002. C) 1945. D) 1934. 85) Ontario introduced the Security Frauds Prevention Act in 85) A) 1928. B) 1975. C) 1988. D) 1940. 86) Which of the following practices is prohibited by the Insider Trading and Fraud Act of 1988? 86) A) the use of nonpublic information to make profitable stock transactions B) private sales of stock between executives of the company C) the granting of stock options to corporate executives in lieu of salaries D) the selling of stock by officers of the company 87) Crossing markets are those that 87) A) fill only the orders which have opposing orders at identical prices. B) conduct business at locations in varying time zones. C) conduct transactions between institutional and individual traders. D) trade foreign securities. 88) The Securities Exchange Act of 1934 88) A) established trade associations such as the NASD. B) requires full disclosure of information on all new security issues. C) created the SEC as the regulator of the securities exchanges. D) authorized the SEC to regulate mutual funds. 89) Which of the following is NOT an agency of the United States government? 89) A) FINRA (Financial Industry Regulatory Authority) B) Bureau of Consumer Financial Protection C) FTC (Federal Trade Commission) D) The SEC (Securities Exchange Commission) 9 TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 90) Margin trading requires the borrowing of securities. 90) 91) Margin trading will magnify losses on a percentage basis. 91) 92) Short selling requires the borrowing of securities. 92) 93) In a short sale, money is borrowed from a broker to purchase stocks. 93) 94) When a person sells a common stock short, she or he is betting that the price of the stock will fall. 94) 95) Losses on a stock purchase are limited to the price of the stock, but losses on a short sale are 95) potentially unlimited. 96) The minimum initial margin requirement for both long and short positions is set by the Federal 96) Reserve Board in the United States and by the IIROC in Canada. 97) A brokerage firm may set a higher margin requirement than that set by the Federal Reserve 97) Board. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 98) The purchase of stock with cash in the hope of earning a capital gain is known as taking a 98) A) short, margined position in the stock. B) long, margined position in the stock. C) long position in the stock. D) short position in the stock. 99) Which of the following statements about margin trading is correct? 99) A) If Arun buys $1,000 worth of stock using a 60% margin, he will need to pay $400 in cash to make the purchase. B) Margin trading increases the potential profits while lowering the potential losses on a percentage basis. C) Purchasing stocks on margin is less risky than purchasing stocks by paying cash for the entire purchase. D) The IIROC sets the minimum margin requirement for margin trading. 100) Which of the following statements about margin trading is correct? 100) A) If Arun buys $1,000 worth of stock using a 60% margin, he will need to pay $600 in cash to make the purchase. B) The Securities Exchange Commission sets the minimum margin requirement for margin trading. C) Margin traders are willing to accept a lower return to reduce their risk. D) Margin traders are pessimistic about the future price of the stock. 101) Megan bought 200 shares of stock at a price of $10 a share. She used her 70% margin account to 101) make the purchase. Megan sold her stock after a year for $12 a share. Ignoring margin interest and trading costs, what is Megan's return on investor's equity for this investment? A) 29% B) 67% C) 10% D) 14% 10 102) Harry bought 100 shares of stock at a price of $48 a share. He used his 60% margin account to 102) make the purchase. Harry sold his stock after a year for $40 a share. Ignoring margin interest and trading costs, what is Harry's return on investor's equity for this investment? A) 28% B) -24% C) -28% D) -17% 103) Mario purchased 1000 shares of stock at a price of $32 a share. He utilized his 50% margin 103) account to make the purchase. What is Mario's initial equity in this investment? A) $16,000 B) -$16,000 C) $48,000 D) $32,000 104) Saima purchased 200 shares of stock at $38 using her 70% margin account. Her maintenance 104) margin is 40%. Saima has no other securities in her account. At what price will she receive a margin call? A) $11.40 B) $7.60 C) $26.60 D) $19.00 105) A restricted account is defined as a margin account in which the equity is 105) A) greater than the initial margin amount. B) greater than the maintenance margin amount. C) less than the maintenance margin amount. D) less than the initial margin amount. 106) Emily bought 200 shares of ABC Co. stock for $29.00 per share on a 60% margin. Assume she 106) holds the stock for one year and that her interest costs will be $80 over the holding period. Ignoring commissions, what is her percentage return (loss) on invested capital if the stock price went down 10%? A) -19% B) -10% C) -32% D) -16% 107) Mohammed bought 100 shares of stock for $30.00 per share on a 70% margin. Assume 107) Mohammed holds the stock for one year and that his interest costs will be $45 over the holding period. Mohammed also received dividends amounting to $0.30 per share. Ignoring commissions, what is his percentage return on invested capital if he sells the stock for $34 a share? A) 106.17% B) 9.16% C) 20.48% D) 18.33 108) Justin just made a margin purchase of 100 shares of DEF Corp. for $22.50 per share. The initial 108) margin is 70%. The maintenance margin is 30%. How low can the price of each share of DEF be before Justin will have to add equity to his account? A) $5.25 B) $6.75 C) $4.73 D) $9.64 109) Maintenance margin is the 109) A) initial amount of equity required for a margin purchase. B) amount of additional funds that need to be added to an account to meet minimal equity requirements. C) minimum amount of the loan that can be used for margin trading. D) minimum amount of equity that an investor can have to avoid a margin call. 110) If an investor does not respond to a margin call, the broker will 110) A) notify the Federal Reserve so they can cover the call. B) sell enough of the investor's holdings that the margin account can be closed. C) sell some of the investor's holdings to cover the margin call. D) sell all of the investor's holdings and close their brokerage account. 11 111) Which of the following is a major advantage of margin trading? 111) A) possibility of increased gains on a dollar basis B) interest-free loans C) increase in potential diversification D) increase in potential profits on a percentage basis 112) Which of the following are characteristics of short selling? 112) I. borrowing shares of stock from a brokerage firm or other investors II. selling shares of stock you do not own III. betting the stock price will increase IV. limiting losses per share to the price at which the stock was sold A) I and II only B) III and IV C) I, II and IV D) I, II, III only only only 113) Marg sells short 1000 shares of JKLO stock at $31.25 per share and six months later purchases the 113) shares at $29.00 each. Ignoring margin interest and brokerage fees, Marg will A) earn a total profit of $2,250. B) lose a total of $2,900. C) earn a total profit of $3,125. D) lose a total of $2,250. 114) Which of the following statements about short selling is (are) true? 114) I. Short selling requires an initial margin deposit. II. Short sellers begin a transaction with a sale and end it with a purchase. III. Short sellers profit when the stock prices rise. IV. Short selling can be a risky strategy. A) IV only B) I and II only C) I, II and IV D) I, II, III and IV only 115) Kensington Company stock was selling at $132 a share when Charlotte sold 300 shares of the 115) stock short. Today, Charlotte bought 300 shares of the same stock at a price of $140 per share to cover her position. Ignoring trading costs, what is the dollar return on Charlotte's investment? A) $800 B) -$800 C) $-2,400 D) $2,400 116) Chiyo has heard a rumour that a major pet food company will be forced to recall millions of cans 116) of pet food due to contamination. If the rumours are true, the company's stock price will decline sharply. Which of the following strategies would allow Chiyo to earn a profit if the rumour proves to be true? A) Take a long position in the stock today. B) Take a long position in the stock one month from today. C) Sell the stock short today. D) Buy the stock on margin today. 12 Answer Key Testname: UNTITLED2 1) TRUE 2) FALSE 3) FALSE 4) C 5) C 6) B 7) D 8) C 9) B 10) TRUE 11) FALSE 12) TRUE 13) TRUE 14) FALSE 15) FALSE 16) C 17) D 18) C 19) A 20) C 21) A 22) D 23) C 24) A 25) The underwriter is responsible for promoting the stock and facilitating the sale of the company's IPO shares. The SEC approves the registration statement, including the prospectus. This statement includes the key aspects of the issue, the issuer, the company management, and the financial position of the company. The SEC does NOT recommend the investment or offer an opinion on the value of the stock. The red herring is the preliminary prospectus issued on tentative offerings. The prospectus has red lettering on the front cover. 26) An investment banker assumes the role of the underwriter and bears the risk of reselling the securities purchased from an issuing corporation. The investment banker earns a profit by reselling at a price higher than the price paid to the issuer. Brokerage firms form a selling group, with each firm accepting responsibility for selling a portion of the newly issued securities. The brokerage firms also earn a profit if they can resell the shares at a price higher than their purchase price. 27) TRUE 28) TRUE 29) TRUE 30) FALSE 31) TRUE 32) FALSE 33) TRUE 34) TRUE 35) TRUE 36) TRUE 37) TRUE 38) A 39) C 40) B 41) C 42) A 13 Answer Key Testname: UNTITLED2 43) D 44) C 45) D 46) C 47) C 48) B 49) D 50) A 51) D 52) D 53) D 54) A 55) C 56) B 57) B 58) TRUE 59) TRUE 60) FALSE 61) FALSE 62) FALSE 63) FALSE 64) C 65) D 66) A 67) A 68) D 69) D 70) A 71) D 72) A 73) A 74) TRUE 75) FALSE 76) TRUE 77) FALSE 78) TRUE 79) TRUE 80) TRUE 81) TRUE 82) B 83) D 84) C 85) A 86) A 87) A 88) C 89) A 90) FALSE 91) TRUE 92) TRUE 14 Answer Key Testname: UNTITLED2 93) FALSE 94) TRUE 95) TRUE 96) TRUE 97) TRUE 98) C 99) D 100) A 101) A 102) C 103) A 104) D 105) D 106) A 107) D 108) D 109) D 110) C 111) D 112) A 113) A 114) C 115) C 116) C 15 Exam Name___________________________________ TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) Most brokers charge higher commissions for online trades than for telephone transactions. 1) 2) Online trading has greatly lowered the cost of buying and selling stock and has greatly increased 2) the speed of transactions. 3) For most stocks, charts and tables of historical prices are only available through subscription 3) services. 4) You can utilize the internet to develop financial plans and goals, analyze and select individual 4) investments and organize your portfolio. 5) An investor who mistakenly buys the wrong stock because the symbols are similar has 24 hours 5) to undo the trade. 6) The tools and calculators available on the FINRA website are useful but quite expensive to use. 6) 7) The cost of using industry-sponsored websites such as FINRA usually exceeds the benefits for 7) small investors. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 8) An internet tool that selects stocks to meet specific criteria such as dividend payout or 8) price-earnings ratio is known as a(n) A) screener. B) advisor. C) compiler. D) sorter. 9) Which of the following actions are possible on the internet? 9) A) stock trading directly between individual investors without the use of a brokerage B) accessing financial statements for publicly traded companies C) accessing historical data on popular indexes D) only B and C are correct 10) Individuals can now use the internet to buy and sell 10) I. stocks. II. bonds. III. mutual funds. IV. stock options. A) I and IV only B) II and III only C) I, II and III D) I, II, III and IV only 1  11) Information that can be found on the internet at no cost includes 11) I. P/E ratios. II. recent news about a company. III. financial statements. IV. future earnings and stock prices. A) I and IV only B) II and III only C) I, II and III D) I, II, III and IV only 12) Which of the following can be considered a pitfall for investors new to on-line trading? 12) A) Online trading is available to the average investor. B) Online trading is fast and efficient. C) Online investors pay lower costs per trade than investors using a broker. D) Online investors tend to trade too frequently. ESSAY. Write your answer in the space provided or on a separate sheet of paper. 13) What are some of the tools available to investors on the internet ? (Name at least 4.) TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 14) Analytical information would include information such as estimates of growth in sales and 14) future earnings. 15) Reviewing industry and company information may provide guidance on the future outlook of a 15) particular firm. 16) A listing of a firm's major product lines and projections of future sales would both be considered 16) descriptive information. 17) Descriptive information might include the company's lines of business, a list of major 17) competitors, and recent changes in management. 18) Current price information on shares of a company's stock is often accompanied by statistics on 18) the recent price behaviour of that stock. 19) Investors who are aware of current economic, political, and market events tend to make better 19) investment decisions. 20) Often, on short-term trades of less than one year, you'll pay taxes on profits at the higher ordinary income 20) tax rates, not the lower capital gains rate. 21) Investors can usually find the financial statements of a firm on the firm's website. 21) 22) A "pump and dump" scheme involves buying shares of stock, hyping that stock via the internet 22) and then quickly selling the shares at a profit. 2 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 23) Charting is the technique of 23) A) monitoring a stock based on the underlying economic conditions. B) determining the amount of money that must be saved based on a given financial goal. C) sorting through databases of securities to select one based on certain parameters. D) plotting the performance of a security over time. 24) Which of the following types of information is NOT available from printed publications? 24) A) real-time price quotes for widely held stocks and exchange traded funds B) interest rates offered by local and national banks C) stories concerning business leaders D) price quotations for stocks of major companies 25) Which of the following is a general rather than a financial newspaper? 25) A) The Wall Street Journal B) The Financial Post C) The Toronto Star D) Barron's 26) Which of the following is published by the Canadian Government? 26) A) Economic Report of the Prime Minister B) Survey of Current Business C) Canadian Business Bulletin D) Bank of Canada's "Weekly Financial Statistics" 27) The FD in Regulation FD refers to 27) A) financial disclosure. B) fair dividends. C) financial disability. D) fair disclosure. 28) Which of the following websites facilitates the review of financial information in a Canadian 28) company's financial reports? A) CNN B) finance.yahoo.com C) wsj.com D) SEDAR website 29) Which of the following is usually available on a company's website? 29) A) red herrings B) annual reports C) brokerage reports D) back-office reports 30) The published analysis and recommendations of an individual brokerage firm is called a 30) A) back-office research report. B) broker's subscription report. C) comparative data source. D) prospectus. 31) Assume you wanted to find the most current price for Home Depot's stock. Your most likely 31) source would be A) Investor's Business Daily. B) Yahoo! Finance. C) The Wall Street Journal. D) The Granville Market Letter. 32) Recommendations of "strong buy, buy, hold, reduce, sell" are most likely to be found in 32) A) brokerage back-office research reports. B) Barron's. C) Yahoo! Finance. D) Kiplinger Washington Letter. 3  33) Subscription letters are 33) A) descriptive in nature but do not offer investment advice. B) available free on the internet. C) published on an annual basis. D) sometimes geared to specific industries and companies. 34) Which of the following sites is especially valuable for information concerning mutual funds? 34) A) www.bondsonline.com B) www.morningstar.com C) www.investopedia.com D) www.moody's.com 35) Supersites that accumulate tremendous amounts of investing information that typically includes 35) price history, investment screening tools and other personal finance features are known as A) financial portals. B) institutional news sites. C) comparative data sources. D) subscription services. 36) Which of the following services provides bond ratings? 36) A) Standard & Poor's B) Canadian Economic Observer C) Yahoo! Finance D) Value Line Investment Survey TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 37) An index measures the current value of a group of stocks in relation to a base value established 37) previously. 38) All the Standard & Poor's indexes are based on the total market values of the companies rather 38) than on the price of a single share. 39) The Dow Jones Corporate Bond Index and the Dow Jones Industrial Average are both 39) price-weighted averages whose divisors are adjusted periodically to maintain continuity. 40) Standard & Poor's and Mergent both publish extensive data on bonds. 40) 41) In addition to the Dow Jones Industrial Average, the Standard & Poor's 500 and NASDAQ 41) indexes are widely quoted measures of market performance. 42) The Value Line Index is a value-weighted index based on a small sample of the 1700 stocks 42) covered by the Value Line investment reports. 43) The Dow-Jones Corporate Bond Index is entirely based on industrial firms. 43) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 44) Stock market averages reflect the arithmetic average price behaviour of a group of stocks 44) A) at a given point in time. B) relative to a base price of 100. C) relative to other indexes. D) relative to a base value set at an earlier point in time. 4 45) Averages and indexes differ from one another in that an index 45) A) is the arithmetic average price behaviour of a group of stocks at a given point in time. B) is of value in and of itself, while an average must be compared to a historical figure to have any meaning. C) measures the current price behaviour of a group of stocks in relation to a base value set at an earlier point in time. D) always moves up before a corresponding average moves up, and always moves down before a corresponding average moves down. 46) The Dow Jones Industrial Average (DJIA) consists of 30 stocks whose price behaviour 46) A) reflects the changes in value of manufacturing stocks only. B) typically has little correlation with the rest of the stock market. C) leads the movements in the general economy by one to two weeks. D) broadly reflects the overall price behaviour of the stock market. 47) Suppose that Pfizer and Boeing are part of the Dow -Jones Industrial Average (DJIA). If, on a 47) given day, Boeing closes at $320 and Pfizer at $40, A) the DJIA will include eight shares of Pfizer for each share of Boeing. B) the effect of each stock on the DJIA cannot be determined without knowing the number of shares outstanding for each company. C) the difference in price will not affect the DJIA. D) changes in the price of Boeing shares will have eight times the effect on the DJIA as changes in the price of Pfizer. 48) The Dow Jones Industrial Average (DJIA) is based on the prices of 48) A) 500 stocks. B) 100 stocks. C) 200 stocks. D) 30 stocks. 49) Which of the following statements about the Dow Jones Industrial Average (DJIA) are correct? 49) I. Higher-priced stocks tend to affect the DJIA more than lower-priced stocks. II. A one-point change in the DJIA correlates to a $1 change in average share value. III. Changes in the DJIA are made to reflect company mergers and acquisitions. IV. The DJIA divisor was determined when the DJIA was created and remains constant. A) I and III only B) II and IV only C) I, III and IV only D) I, II, III and IV 50) Which of the following statements is correct? 50) A) The S&P 500 Index is based on 500 large companies that trade on US exchanges. B) The S&P 500 Index is carefully constructed to reflect the values of large, medium and small capitalization companies. C) Because of mergers and bankruptcies, the S&P 500 Index no longer contains 500 stocks. D) The S&P 500 is based on the 500 largest US companies as measured by market value. 5 51) Assume that the S&P 500 composite stock index closes at 2,500. This means that 51) A) an investor would have to pay $2,500 to purchase one share of each of the stocks represented in the index. B) the average value of a company reflected in the Index has doubled from when the Index was at 1,250. C) the share prices of the stocks in the index have risen 25 times since the 1941 -1943 base period. D) the average stock in the index is selling for $25.00. 52) Which of these market indexes follows the largest number of companies? 52) A) S&P 500 index B) Dow Jones Industrial Average C) Nasdaq 100 D) Nasdaq Composite Index 53) The Value Line Composite Index 53) A) considers only the percentage changes in the prices of the stocks in the index. B) adjusts the number of shares in each stock to produce an equal weighting. C) divides the sum of the closing share prices by a divisor and then multiplies the quotient by 100. D) divides the sum of the closing share prices by an adjusted divisor. 54) EAFE stands for 54) A) England, America, Far East. B) Europe, Australia, Far East. C) England, America, France, European Community. D) Europe, Asia, Far East. 55) Which of the following statements is true concerning bonds? 55) A) Bond yield data is more useful to an investor when compared over time. B) A bond's yield remains constant even when a bond is sold prior to maturity. C) A bond yield represents only the interest earned on a bond. D) Bonds with similar characteristics generally have widely disparate bond yields. 56) Which of the following indexes would best reflect the performance of a large, diversified 56) portfolio with equal amounts of money invested in each company? A) the Value Line Composite Index B) the NASDAQ 100 C) the Russell 3000 D) the S&P 500 Index 57) Which of the following indexes reflects a large sample of small, medium and large companies? 57) A) DJIA B) Value Line composite C) Russell 3000 D) NYSE composite 58) Which of the following is a measure of the performance of small companies? 58) A) Russell 3000 B) Russell 1000 C) Russell 2000 D) Value Line 1700 6  59) The Dow Jones Corporate Bond Index is based on 59) A) the yield to maturity of bonds in the index. B) annual rates of return and the assumption the bonds were purchased one year ago and sold today. C) the closing prices of bonds in the index. D) the interest rates offered on a sample of newly issued bonds. ESSAY. Write your answer in the space provided or on a separate sheet of paper. 60) The Dow Jones Industrial Average and the Standard & Poor's Industrial Index have a number of similarities and differences. Discuss at least two major similarities and major differences between these two market indicators. 61) Why are market averages and indexes useful to investors? TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 62) The basic function of stockbrokers is to execute client orders at the best possible price. 62) 63) Shares of stock owned by an individual but held in a brokerage firm's name for ease of trading 63) are said to be held in street name. 64) Trading stocks is much faster and less complicated if an individual investor has possession of the 64) actual stock certificates. 65) Stockbrokers in Canada must be registered with the Investment Industry Regulation Organization of 65) Canada (IIROC) or as required by provincial or territorial Securities Commissions. 66) Investors who choose to hold stock certificates can receive or submit them electronically in PDF 66) form. 67) Brokerage firms are not allowed to make specific buy or sell recommendations to their clients. 67) 68) Dividends earned on securities held in street name by the brokerage are reported to the Canada 68) Revenue Agency (CRA) and are considered taxable income to the investor. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 69) Which of the following statements about stockbrokers is correct? 69) A) Stockbrokers are regulated by financial consultants. B) Stockbrokers act as dealers in the securities they trade. C) Stockbrokers act as intermediaries between buyers and sellers of securities. D) Stockbrokers execute trades on the floor of the Toronto Stock Exchange on behalf of account executives. 7 70) Which of the following statements concerning stock trades is correct? 70) A) Brokerage firms generally hold securities in street name so they can be transferred without the customer's signature. B) Confirmation of a trade is transmitted directly from the TSX to the customer who placed the order. C) Brokerage firms send customer orders to a market maker on the floor of the TSX. D) A broker transmits OTC orders from a customer directly to a floor broker in the OTC market. 71) Unless the investor has requested another arrangement, cash from dividends and the sale of 71) stock is normally A) automatically reinvested in more stock. B) held in escrow by the brokerage until it is reinvested. C) direct deposited into the investor's bank account. D) deposited in a Money Market Account offered by the brokerage. 72) In recent years, the distinctions between discount, premium discount, and full -service brokers 72) A) have been regulated into law. B) have been somewhat blurred. C) have become increasingly well defined. D) mainly concern whether or not the brokerage offers online trading. 73) Which is the correct order of events when an individual buys a stock through a brokerage firm? 73) I. The order is transmitted to the main office of the brokerage firm. II. The customer places the order with their local stockbroker. III. The confirmation of the order is sent to the broker placing the order. IV. The order is sent to the floor of the exchange. A) II, I, IV, III B) I, II, III, IV C) II, IV, I, III D) II, I, III, IV 74) Holding securities in street name 74) A) enables the brokerage firm to collect the stock dividends as compensation for their services. B) means that the brokerage firm actually owns the securities. C) makes the trading of securities easier and more efficient for individual investors. D) allows the brokerage firm to sell securities without the customer's approval. 75) A report describing the transactions in an account, listing the dividend and interest payments 75) received, and detailing the current holdings is called a A) statement. B) street certificate. C) prospectus. D) red herring. 76) A brokerage firm that provides analyst reports, investment advice and information in addition to 76) online brokerage services is called a(n) A) electronic broker. B) full-service broker. C) basic discount broker. D) premium discount broker. 8  77) When deciding between a discount or full-service brokerage, the investor should consider 77) A) their comfort level making unassisted investment decisions. B) their awareness of potential investment opportunities. C) trading costs. D) all of the above. 78) The practice of encouraging a client to trade frequently in order to generate commissions for the 78) broker is known as A) flipping. B) day trading. C) momentum investing. D) churning. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 79) A limit order is an order to buy at the limit price or less. 79) 80) A limit order is an order to sell at the limit price or less. 80) 81) A stop-loss order is activated once the stock reaches the specified price. 81) 82) A stop-loss order on a short sale will be executed if the stock price rises above the specified price. 82) 83) Many day traders are also margin traders. 83) 84) Stop orders are used only when selling a stock. 84) 85) Most day traders avoid holding stocks overnight because they fear large price changes while the 85) markets are closed. 86) It is generally a good idea to use limit orders when trading after hours. 86) 87) Traders who hold stocks for less than a full day can reduce the tax burden on their profits. 87) 88) Commission structures vary with the type of security being traded, the type of broker involved 88) and the size of the order. 89) The CIPF in Canada provides protection in case your brokerage firm fails but will not insure you 89) against bad investment advice or churning. 90) Commissions for online trades are considerably lower than for orders placed with a full -service 90) broker. 91) SIPC insurance is offered by some full-service brokers to protect investors from large losses. 91) 92) Many brokerage firms require that disputes between individual investors and brokers be settled 92) through arbitration. 93) The Securities Investors Protection Corporation protects investors from brokers who offer 93) incompetent advice. 9 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 94) Excessively trading a customer's account to increase a stockbroker's commission income is 94) A) called churning, which is an illegal practice. B) an acceptable method of timing the market to increase rates of return. C) permitted provided that the customer does not object. D) probably unethical but is considered acceptable by the securities industry. 95) Which of the following practices is NOT recommended for online traders? 95) A) Double-check your order to be sure the number of shares and the price are what you intended. B) Use limit orders rather than market orders, especially when trading after hours. C) Double-check stock symbols to be sure you are ordering the right stock. D) Trade as often as possible to maintain a strong relationship with the brokerage. 96) When an investor places a ________ order, he agrees to buy or sell at the best available price 96) when the trade is executed. A) stop B) limit C) market D) stop-limit 97) An individual investor who wishes to borrow money to buy stocks must open a 97) A) joint account. B) custodial account. C) signature account. D) margin account. 98) The current price of HAR stock is $75. Gurpreet places a limit order for 100 shares at $65, GTC. 98) The price falls to $65.10 and then rises over the course of a month to $84. A) Gurpreet does not own the stock but will if his trade can ever be executed at $65.00 or less. B) Gurpreet has a gain of $1,900. C) Gurpreet has a loss of $900. D) Gurpreet has a gain of $1,890. 99) A margin account 99) A) allows an investor to borrow a portion of the purchase price at a reasonable rate of interest. B) allows an investor to borrow one hundred percent of the cost of the securities purchased. C) is permitted only in wrap accounts. D) can be opened by any investor who wants to purchase securities by charging them to his/her credit card. 100) Which of the following are characteristics of a wrap account? 100) I. a flat amount of commission per transaction II. an increased probability of account churning III. a money manager IV. detailed performance reports A) I and II only B) III and IV only C) II, III and IV only D) I, III and IV only 10 101) An odd-lot trade involves a trade 101) A) of 100,000 shares or more. B) that is generally priced at a discount to the market price. C) of only 100 shares. D) consisting of any number of shares that is not a multiple of 100. 102) Amina places an order to buy 525 shares of stock. This is an order for 102) A) 21 round lots of 25. B) five hundred round lots and twenty-five odd lots. C) five round lots and one odd lot. D) one odd lot. 103) An order to sell 300 shares of ABC stock at the best available price is called a 103) A) market order. B) fill-or-kill order. C) limit order. D) stop-loss order. 104) Market orders are usually executed 104) A) before the price can change significantly if the order is placed while the markets are in session. B) only after all limit orders have been executed. C) at the closing price for the day's trading. D) at the average price during the previous trading session. 105) McDonald's stock is now selling for $190 per share. Kim wants to buy 100 shares but only if she 105) can do so at $180 or less. She should place a(n) A) market order. B) limit order. C) stop order. D) odd-lot order. 106) Which of the following statements about limit orders is correct? 106) A) The execution will occur at the regular open on the day following the day the trade is placed. B) The trade will be executed at the market price at the end of the third business day, if it is not executed previously at the limit price. C) The execution of the trade will occur prior to the close of trading on the day the trade is placed. D) The trade may be executed only at the limit price or better at any time prior to the expiration or cancellation of the order. 107) A fill-or-kill order will be 107) A) executed immediately upon order arrival on the floor of the exchange. B) cancelled at the end of the trading day if not executed by that time. C) cancelled if not immediately executed at the stated price or better. D) in effect until cancelled by the customer who placed the order. 108) Stefan places a good-'til-cancelled (GTC) order to sell 200 shares of MRK at $76 a share. When 108) his order reaches the trading floor, MRK is trading at $76.48. Which of the following statements is true concerning Stefan's order? A) The trade will not be executed and will be immediately cancelled. B) The order will only be executed if it can be matched with an order to buy at $76. C) The order will be executed at $76.48 with the proceeds credited to Stefan's account. D) The broker will sell the 200 shares at $76.48 and keep the additional $0.48 as a commission. 11 109) Which of the following statements concerning market, stop loss and limit orders are correct? 109) I. Market orders guarantee both a price and an execution. II. Market orders guarantee an execution but not a price. III. Limit orders guarantee a price but not an execution. IV. Stop-loss orders may never be executed. A) I and III only B) I and IV only C) II, III and IV only D) II and IV only 110) On March 15, Jacqueline placed a limit order, GTC, to buy 200 shares of CAKE at $40 a share. 110) CAKE sold between $40.50 and $44.00 on that day. Over the following two months, the stock price continued to rise, and Jacqueline forgot about the order. After the markets closed on June 30, some bad news concerning CAKE was released. The stock opened on July 1 at a price of $32.00 a share. Which of the following statements is correct concerning Jacqueline's order? A) The order was executed on March 15 at $40.50 a share since that was the best available price of the day. B) The order was executed on July 1 at a price of $32.00 a share. C) The order was executed on July 1 at a price of $40.00 a share. D) The order was cancelled on May 15 because it had not been executed within the allowable two-month time period. 111) Which of the following statements is correct about a good-'til-cancelled (GTC) order? 111) A) The order will automatically renew unless cancelled by the customer. B) The order generally expires after six weeks. C) The order will be cancelled at the end of the trading day if not executed. D) The order helps customers obtain a specific price without watching the market continuously. 112) Dr. Balcom is a busy ophthalmologist who has no time to trade during market hours. She likes 112) Allergan products and thinks the stock is attractively priced at the day's close of $148.20. Over the past week, Allergan has traded between $145 and $160, fluctuating widely within each day. It is now 8:00 P.M. on a Wednesday evening. If Dr. Balcom wants to buy 200 shares of Allergan, she should A) place a limit order to buy 200 shares at $145. B) wait to see what happens the next day. C) place a market order to buy 200 shares. D) place a limit order to buy 200 shares at $148.20. 113) Ryan bought a stock three years ago for $6 a share. Today, June 22, the stock is selling for $72 a 113) share. Ryan is afraid that the price will fall and does not want to lose his profits, so he places a stop-loss order to sell at $70. The stock sells between $71 and $75 throughout the remainder of the day on June 22. On the morning of June 23, the stock opens at $9 a share based on rumours of a possible bankruptcy due to inappropriate accounting procedures. Which of the following statements is true concerning this situation? A) Ryan received a call from the specialist asking him what he wanted to do about his order. B) Ryan's stock was sold for $9 a share causing him to lose most of his profits. C) Ryan was able to sell his stock for $70 a share, thus protecting his profits. D) Ryan still owns his shares of stock since his order was never executed at the $70 price. 12 114) Three years ago, Mila bought 200 shares of HQ at $27.00 per share. HQ shares have risen to 114) $57.50 per share. If the stock continues to rise, she wants to hold it, but Mila fears that the price could fall quickly, and she will lose most of her