1. Stocks and bonds would be classified as: a. real assets b. indirect assets c. personal assets d. financial assetsd.

financial assets The investment professionals that arrange the sale of new securities are called: a. arbitragers b. traders c. investment bankers d. specialistsinvestment bankers Investment professionals whose jobs may depend on their performance relative to the market are the: a. registered representatives b. security analysts c. investment bankers d. portfolio managersd. portfolio managersMost financial advisors are registered with the Securities and Exchange Commission 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 of conduct and competency. d. professional designation awarded by the brokerage industry.professional designation awarded for meeting recognized standards of conduct and competency.Underlying all investments is the tradeoff between: a. expected return and actual return b. low risk and high risk c. actual return and high risk d. expected return and riskexpected return and riskMost investors are risk averse which means: a. they will assume more risk only if they are compensated by higher expected 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 higher expected return.Which of the following would be considered a risk-free investment? a. gold b. equity in a house c. high-grade corporate bonds d. 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 tradeoff a. slopes upward. b. slopes downward c. is flat d. 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 analysis b. buying and selling c. 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 officials b. public companies and investment professionals c. public companies and public officials d. private companies and investment professionalsb. public companies and investment professionalsWhich is not an advantage institutional investors enjoy over individual investors ? 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 individual investors. 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 funds d. commercial bankspension fundsWhich of the following is not one of the characteristics of the primary nonmarketable financial assets owned by most individuals? a. high liquidity b. high return c. often issued by the U.S. government d. 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 bills b. Treasury notes

c. Treasury bonds d. All of the Treasury securities are sold at a discount.Treasury billsWhich of the following would not be considered a capital market security? a. a 20-year corporate bond b. a common stock c. a 6-month Treasury bill d. a mutual fund sharea 6-month Treasury billThe 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. $100 b. 1 percent of $100 c. 1 percent of $1000 d. $10001 percent of $1000Bonds 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. $0 b. $100 c. its face value d. impossible to determineits face valueA municipal bond issue that was sold to finance a toll bridge would most likely 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 of bonds? 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 agency b. quasi-federal agency c. federally dependent agency d. federally sponsored agencyfederally sponsored agencyThe 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 bonds b. American Depository Receipts (ADRs) c. asset-backed securities d. 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 do not. c. Options can be used by speculators to profit from price fluctuations while futures cannot. d. Options is the right to buy or sell while a futures contract is an obligation to buy or sell.Options is the right to buy or sell while a futures contract is an obligation to buy or sell.Distinguish between direct and indirect investing.Answer: Direct investing - buy bonds and stocks Indirect investing - buy mutual funds, contribute to pension plans, buy life insurance policies.Rank (lowest to highest) the following securities in terms of the riskexpected return tradeoff from the investors' viewpoint: common stock, corporate bonds, U. S. Treasury bonds, options, preferred stock..U. S. Treasury bonds, corporate bonds, preferred stock, common stock, optionsWhich of the following is not a characteristic of investments companies? a. pooled investing b. diversification c. managed portfolios d. reduced expensesreduced expensesIn order to avoid paying income taxes, an investment company must: a. be classified as a non-profit organization b. 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 of the: a. Securities Act of 1933

b. Securities Exchange Act of 1934 c. Maloney Act of 1938 d. Investment Company Act of 1940Maloney Act of 1938An unmanaged fixed income security portfolio handled by an independent trustee is known as a: a. junk bond fund b. closed-end investment company. c. unit investment trust. d. hedge fund.unit investment trust.A major difference between a closed-end investment company and an open-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-ends are 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 trusts b. closed-end investment companies c. open-end investment companies d. All trade on stock exchanges.closed-end investment companiesWhich of the following is not one of the characteristics of exchange traded funds (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 charge c. 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 a hypothetical rate of return which assumes performance is constant over the entire 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 highest performance? a. money market funds b. bond funds c. equity funds d. municipal bond fundsequity 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 opportunities and 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 advisory fees and operating expenses, and 12b-1 fees are marketing expenses.What are the main differences between a closed-end and an open-end investment company?A closed-end investment company has a fixed number of shares, and the price depends on supply and demand. An open-end fund's shares increase as long as new investors contribute money, and the price is the net asset value of the securities owned.Would one expect to find higher P/E ratios in an aggressive growth fund or in a growth and income fund?One would expect higher P/Es in an aggressive growth fund because investors are willing to pay a high current price for expected future growth.The sale of a new issue of common stock of which there are already shares 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 security b. investment bankers c. commercial bankers d. institutional investorsinvestment bankersThe ___________ summarizes information about a new security issue. a. syndicate offer b. IPO c. prospectus d. shelf ruleprospectusA major advantage of private placements over public offerings is: a. greater marketability b. lower interest cost c. elimination of SEC registration d. all of the aboveelimination of SEC registrationThe shelf rule a. became effective in 1933 b. involves securities that are placed directly with financial institutions c. permits qualified companies to file a short form registration d. involves dealer procedures in the OTC marketpermits qualified companies to file a short form registrationWhich exchange member is assigned to a specific trading post? a. Commission broker b. Floor trader c. Specialist d. DealerSpecialistA block trade is defined as a transaction involving at least: a. 1,000 shares b. 5,000 shares c. 10,000 shares d. 1 million share10,000 sharesA type of trading involving a basket of 15 stocks or more and often used in conjunction with arbitrage strategies is called:program tradingA computerized trading network that matches buy and sell orders electronically entered by customers is a:

a. National Markets System b. Electronic Communications Networks c. Internet Investment Service d. Global Investment NetworkElectronic Communications NetworksThe 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 average b. it is a value weighted method c. it adjusts for even small stock dividends d. it includes too many risky stocksit 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 of each 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 NYSE b. the American Stock Exchange c. the OTC d. the Philadelphia Exchangethe OTCThe type of bonds with the thinnest secondary market is: a. agency bonds b. corporate bonds c. Treasury bonds d. municipal bondsmunicipal bondsWhat is the difference between a seasoned new issue and an initial public offering?A seasoned new issue is the sale of a publicly traded company while an IPO represents the first time an issuer has sold securities.Which of the following accounts often requires an annual fee? a. a cash account b. an asset management account c. a margin account d. All of the above require an annual fee.b. an asset management accountA 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 1934 b. Securities Acts Amendments of 1975 c. Investor Advisor Act of 1940 d. Securities Investor Protection Act of 1970Securities Acts Amendments of 1975Direct stock purchase programs (DSPs) are an outgrowth of : a. electronic trading b. dividend reinvestment plans c. increased NASDAQ trading d. decreased regulationb. dividend reinvestment plansThe exchange member in charge of limit orders is the: a. commission broker b. floor broker c. specialist d. 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 monthsIf an investor is attempting to buy a stock that is very volatile, it would be best to use a: a. market order b. limit order c. stop-loss order d. contingency orderb. limit orderAn order that must be filled immediately in its entirety or must be cancelled 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 priceThe law that requires that all new issues being offered for public sale are registered with the SEC is the:Securities Act of 1933Which 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. FDIC a. NASD b. SIPC c. 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 Commission b. National Association of Security Dealers c. Securities Investor Protection Corporation d. Federal Reserved. Federal ReserveWhat 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 level d. if they are true speculators.c. if the expected return is adequate for the risk levelAn impending recession is an example of: a. interest rate risk b. inflation risk c. market risk d. financial riskmarket riskFinancial risk is most associated with: a. the use of equity financing by corporations b. the use of debt financing by corporations c. equity investments held by corporations d. debt investments held by corporationsthe use of debt financing by corporationsPolitical stability is the major factor concerning: a. exchange risk b. systematic risk c. nonsystematic risk d. 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 will increase 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 an investment. b. measured by dividing the sum of all cash flows received by the amount invested. 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 amount invested.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 year and yet total return for the year was 11 percent, the difference would be due 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 over some period, an investor would calculate the: a. arithmetic mean b. geometric mean c. calculus mean d. 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 expected cashflows c. real returns adjust for commissions and nominal returns do not. d. real returns show the highest possible return and nominal returns show the lowest possible return.real returns adjust for inflation and nominal returns do not.The equity risk premium is: a. the difference between stocks and bonds b. 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 geometric mean return?The arithmetic mean is better for single period returns, whereas, the geometric mean is better for multiple periods.