Test questions

Chapter 11—Investment Planning
TRUE/FALSE
1. Investing is considered a short-term activity that involves the buying and selling of securities.
ANS: F PTS: 1 DIF: Easy OBJ: LO: 11-1
NAT: BUSPROG: Analytic skills STA: DISC: Investments
KEY: Bloom's: Comprehension
2. Investing and speculating are two entirely different activities.
ANS: T PTS: 1 DIF: Easy OBJ: LO: 11-1
3. Mutual funds provide professional management and diversification that individual investors -
especially those with limited resources - can rarely obtain on their own.
4. A systematic investment routine involves investing similar sums in regular intervals.
ANS: T PTS: 1 DIF: Moderate OBJ: LO: 11-1
KEY: Bloom's: Knowledge
5. When completed, an investment plan is a way of translating an abstract investment target into a
specific investment program.
6. The term "investment' refers to money placed in some medium where value and level of return are
totally unpredictable.
7. Two prerequisites to investing are above average risk and clear understanding of market direction.
ANS: F PTS: 1 DIF: Moderate OBJ: LO: 11-1
8. A statement specifying how investment capital will be invested in order to reach targeted goals is
called a marketing plan.

9. Your goals tend to set the tone for your investment program, and they play a major role in determining
how conservative or aggressive you're likely to be in making investment decisions.
10. The major reason most people invest is to shelter current income from taxes.
11. Owning common stock represents a debt investment.
12. Common stock pays interest payments on a quarterly basis.
13. Common stock generally allows the stockholder to vote on issues of corporate governance.
14. Long-term securities are traded in the primary market.
15. Newly issued securities are sold to the public in the secondary market.
16. A prospectus describes the firm and the issue of a new security.

17. An individual is more likely to use the secondary markets than the primary market.
18. Listed securities are traded on organized exchanges.
19. If a company's shares are traded on the New York Stock Exchange, the company is a member of the
exchange.
20. Preferred stocks are the common stocks of ultra blue-chip companies.
21. Preferred stock combines the fixed income features of bonds with the same price appreciation potential
as common stocks.
ANS: F PTS: 1 DIF: Challenging OBJ: LO: 11-2
22. Mutual funds often sell directly to investors.
23. A retail stockbroker buys and sells securities on behalf of clients.
24. The Securities Investor Protection Corporation insurance guarantees the dollar value of your securities
will not dip below a certain level.

25. A round lot consists of multiples of 100 shares of stock.
26. A sale of 450 shares of stock would involve the trade of an odd lot.
KEY: Bloom's: Analysis
27. All OTC stocks are part of NASDAQ.
28. The over-the-counter market is not an organized security exchange.
29. The bid price would be the price paid by an investor for an OTC stock.
30. NASDAQ is now the second largest securities market in the U.S.
31. The federal government regulates securities markets through the Securities and Exchange
Commission.
32. Prices are rising in bear markets, indicating economic optimism.
KEY: Bloom's: Application
33. When a brokerage house holds your securities for you, they hold them in a street name.

34. According to recent legislation, under the FDIC each brokerage account is insured up to $250,000.
35. An odd lot transaction is generally more expensive than a round lot transaction.
36. There are 50 shares in a round lot.
37. Brokers charge a commission on security purchases as well as on security sales.
38. Discount brokers discount the price of securities to below the prevailing market price.
39. A market order to sell would be filled at the highest price available that day.
40. A limit order may be used either to buy or to sell.
41. Buying on margin would allow you to purchase securities using borrowed funds.

42. The Securities and Exchange Commission sets margin requirements on security purchases.
43. The Federal Reserve Board (Fed) has the power to raise and lower the margin requirements for stock
purchases.
44. A short sale transaction will be profitable when prices are falling.
45. The federal margin requirement for common stock is 50%.
46. Trading on margin can magnify losses or profits.
47. A corporation's annual stockholders' report provides financial data and other information related to
both past and planned activities.
48. The most popular average/index covering stocks listed on the New York Stock Exchange is the New
York Stock Exchange Index.
49. The Standard and Poor's Index includes 30 industrial stocks.
50. Stockbrokerage firms often do industry analysis.

51. On-line trading is the only valuable investment service available through the Internet.
52. An annual stockholder report will contain audited financial statements of the company.
53. The NYSE index includes all stocks listed on the "Big Board."
54. The first step in asset allocation is selecting the securities that should go into your portfolio.
55. A portfolio is a collection of investment assets assembled to meet your investment objectives.
56. A diversified portfolio should be less risky than putting your money into a single security.
57. Diversification increases risk.
58. A retired couple can probably bear more risk in their portfolio than a young investor with a secure job.

59. There is a trade-off between earning a high current income from an investment and obtaining
significant capital appreciation from it.
ANS: T PTS: 1 DIF: Challenging OBJ: LO: 11-6
60. Once one's asset allocation plan is developed and securities are selected, these decisions do not have to
be made again until there is a major life change.
61. A portfolio is a collection of investment vehicles assembled to meet an investment goal.
62. The total return of a portfolio is influenced far more by specific security selection than asset allocation.
63. Portfolio rebalancing refers to buying and selling activities intended to return a portfolio to its target
allocation levels.
64. The single most important reason for investing is for retirement.
NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge
65. NYSE Euronext is a part of the broker market accounting for 40% percent of global transactions.
ANS: T PTS: 1 DIF: Challenging OBJ: LO: 11-2
66. The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 included several reforms
aimed at reforming banks and insurance companies.
67. In terms of market capitalization, Apple is the biggest company in the world.

68. Retired people often choose investments offering high current income with high risk.
NAT: BUSPROG: Analytic skills KEY: Bloom's: Analysis
69. Exchange traded notes face both market risk and the risk of the issuing bank defaulting.
NAT: BUSPROG: Analytic skills KEY: Bloom's: Analysis
MULTIPLE CHOICE
1. ____ is a short-term investment activity.
a
.
Buying life insurance
b
.
Buying bonds
c
.
Investing in common stock
d
.
Speculating in common stock
e
.
Saving
ANS: D PTS: 1 DIF: Moderate OBJ: LO: 11-1
2. Which of the following is least likely to be an investment objective?
a
.
enhance current income
b
.
save for a major purchase
c
.
pay monthly bills
d
.
accumulate funds for retirement
e
.
seek shelter from taxes
ANS: C PTS: 1 DIF: Easy OBJ: LO: 11-1
3. Which of the following is a characteristic of an organized securities exchange?
a
.
they facilitate trading unlisted securities

b
.
municipal bonds are primarily traded in organized exchanges
c
.
pink sheets are commonly used in these markets
d
.
the NASDAQ is an example of an organized exchange
e
.
trading in securities is carried out in a physical location
ANS: E PTS: 1 DIF: Moderate OBJ: LO: 11-2
4. Which of the following is not a securities market
a
.
capital market
b
.
money market
c
.
primary market
d
.
secondary market
e
.
Dow Jones market
5. Which of the following types of brokers is most likely to involve an investor trading electronically
from his or her personal computer?
a
.
Full service broker
b
.
Bank broker
c
.
Futures broker
d
.
Online broker
e
.
Market maker
6. The Securities Investor Protection Corporation insures brokerage firm accounts up to
a
.
$500,000 per account and $250,000 in cash
b $250,000 per account and $100,000 in cash

.
c
.
$1,000,000 per account and $500,000 in cash
d
.
e
.
7. Which of the following securities/investment acts regulates the sale of mutual fund shares?
a
.
The Securities Act of 1933
b
.
the Securities and Exchange Act of 1934
c
.
The Investment Company Act of 1940
d
.
The Sarbanes/Oxley Act of 2002
e
.
The Securities and Protection Act of 1970
ANS: C PTS: 1 DIF: Challenging OBJ: LO: 11-2
8. During a bull market
a
.
prices go up
b
.
prices go down
c
.
prices remain stable
d
.
investments are pessimistic
e
.
cattle futures perform well
ANS: A PTS: 1 DIF: Easy OBJ: LO: 11-2
9. The most important investment prerequisites are
a
.
adequate income and savings.
b
.
adequate income and insurance.
c adequate insurance and liquidity.

.
d
.
an investment plan and professional advice.
e
.
consistency and risk awareness.
10. The most common reason given for investing is
a
.
enhancing current income.
b
.
saving for retirement.
c
.
sheltering earnings from taxes.
d
.
paying for an expensive vacation.
e
.
saving for college education.
ANS: B PTS: 1 DIF: Easy OBJ: LO: 11-1
11. During a bear market, security prices generally
a
.
hold value
b
.
rapidly increase in value
c
.
remain neutral
d
.
decline in value
e
.
consolidate in value
ANS: D PTS: 1 DIF: Easy OBJ: LO: 11-2
12. There are a variety of investment vehicles including which of the following:
a
.
common stock
b
.
bonds
c
.
preferred and convertible securities
d real estate

.
e
.
all of the above are investment vehicles
ANS: E PTS: 1 DIF: Easy OBJ: LO: 11-1
13. You have been offered an opportunity to buy shares of a diversified collection of securities. You will
be investing in
a
.
bonds.
b
.
common stock.
c
.
mutual funds.
d
.
real estate.
e
.
stock opt ions.
14. Securities markets include
a
.
capital and money markets.
b
.
primary and secondary markets.
c
.
stock exchanges.
d
.
all of these.
e
.
none of these.
15. Securities sold in the primary markets are usually handled by a(n)
a
.
commercial banker.
b
.
broker.
c
.
investment banker.
d
.
dealer.

e
.
none of these.
ANS: C PTS: 1 DIF: Moderate OBJ: LO: 11-2
16. Which of the following is an order to sell a stock when the market price drops to or below a specified
level?
a
.
Market order
b
.
limit order
c
.
stop loss order
d
.
fill or kill order
e
.
day order
17. The SEC requires corporations to issue ____ describing the firm and the security issue it wishes to sell.
a
.
an advertisement
b
.
a prospectus
c
.
an underwriting journal
d
.
a dealer newsletter
e
.
none of these
ANS: B PTS: 1 DIF: Moderate OBJ: LO: 11-2
18. Which of the following is a true statement about the Dow Jones Industrial Average?
a
.
it is based on 30 industrial stocks
b
.
it is based on 50 transportation stocks
c
.
it is a composite index for the 500 largest industrial publicly traded companies
d
.
it is based on 100 utilities stocks
e it contains 50 blue chip stocks

.
ANS: A PTS: 1 DIF: Moderate OBJ: LO: 11-2
19. If a company's common stock is traded on an exchange, the company is said to be
a
.
an exchange member.
b
.
seated on the exchange.
c
.
marketed on the exchange.
d
.
listed on the exchange.
e
.
licensed by the exchange.
20. The ____ is not an organized security exchange.
a
.
New York Stock Exchange
b
.
American Stock Exchange
c
.
Midwest Stock Exchange
d
.
Pacific Stock Exchange
e
.
Over-the-Counter Exchange
21. Unlisted securities are traded on the
a
.
SEC market.
b
.
SIPC.
c
.
OTC market.
d
.
AMEX.
e
.
NYSE.

22. Which of the following are characteristics of an effective portfolio strategy?
a
.
level and stability of income
b
.
investment time horizon
c
.
investment experience and age
d
.
disposition toward risk
e
.
all of the above
23. When you sell a security OTC, you will receive the
a
.
offering price.
b
.
market price.
c
.
ask price.
d
.
selling price.
e
.
bid price.
24. The securities market which you could not locate on the map is the
a
.
New York Stock Exchange.
b
.
American Stock Exchange.
c
.
Midwest Stock Exchange.
d
.
Pacific Stock Exchange.
e
.
Over the Counter Market.

25. The federal government regulates securities markets through the
a
.
Department of Commerce.
b
.
Federal Reserve System.
c
.
National Association of Securities Dealers.
d
.
Securities and Exchange Commission.
e
.
Federal Securities Agency.
26. A bull market is characterized by
a
.
investor optimism.
b
.
governmental stimulus.
c
.
economic slowdown.
d
.
falling stock prices.
e
.
investor pessimism.
27. Stockbrokers are also known as
a
.
market makers.
b
.
account executives.
c
.
broker-dealers.
d
.
commission sellers.
e
.
traders.

28. ____ is not a normal brokerage service.
a
.
Providing investment information
b
.
Buying and selling securities
c
.
Managing your portfolio
d
.
Storing security certificates
e
.
Providing market quotations
29. The SIPC provides protection to the investor from
a
.
declining security prices.
b
.
low or missing dividend payments.
c
.
brokerage firm failure.
d
.
using margin requirements.
e
.
none of these.
30. When you buy 300 shares of a company you have purchased
a
.
an odd lot.
b
.
a round lot.
c
.
both an odd lot and a round lot.
d
.
a combined lot.
e
.
none of these.
31. Discount brokers will

a
.
execute orders.
b
.
give advice.
c
.
watch portfolios.
d
.
do all of these.
e
.
do none of these.
32. A market order would be transacted at the
a
.
lowest price of the day.
b
.
highest price of the day.
c
.
best price when the order is entered.
d
.
limit price.
e
.
none of these.
33. An immediate order to buy or sell common stock at the best price is a
a
.
stop order.
b
.
market order.
c
.
limit order.
d
.
stop-loss order.
e
.
discount order.
34. Instructing your broker to buy or sell a stock at a particular price is a
a
.
limit order.

b
.
market order.
c
.
margin order.
d
.
regular order.
e
.
stop order.
35. Buying on margin is buying
a
.
at the lowest price.
b
.
at the market price.
c
.
with borrowed funds.
d
.
by trading currently-owned stock.
e
.
with a short sale process.
36. The margin required on the purchase of common stock is currently set at
a
.
30%.
b
.
40%.
c
.
50%.
d
.
60%.
e
.
70%.
37. Minimum margin requirements that brokers must observe are set by the
a
.
brokerage firm.
b
.
corporation issuing stock.

c
.
Securities and Exchange Commission.
d
.
Securities Investor Protection Corporation.
e
.
Federal Reserve System.
38. Which of the following are characteristics of a limit order?
a
.
the order that provides the quickest way to have an order filled
b
.
buy orders are filled at the lowest available price
c
.
stock is purchased at the current market price
d
.
the order is executed as soon as the specified price is reached
e
.
securities are always bought on margin.
39. In investment terminology, selling stock that you have borrowed is known as a
a
.
margin sale.
b
.
short sale.
c
.
limit sale.
d
.
stop-loss sale.
e
.
none of these.
40. Selling equities you don't own and buying them back to cover the sale is
a
.
short selling in anticipation of a bear market in that security
b
.
going long.
c
.
discounting the market averages.

d
.
a very safe investment activity.
e
.
considered wise in a bull market.
ANS: A PTS: 1 DIF: Challenging OBJ: LO: 11-3
41. The Internet allows individual investors to legally
a
.
perform investment research and screening
b
.
make trades without using a brokerage firm
c
.
participate in pump and dump schemes
d
.
obtain information that is always completely accurate from chat rooms
e
.
more than one of the above
42. The most widely followed stock average is the
a
.
Dow Jones Industrial Average.
b
.
Standard & Poor's Index.
c
.
New York Stock Exchange Index.
d
.
American Stock Exchange Index.
e
.
Wall Street Journal Index.
43. The ____ Index reflects the total market value of over 98% of all publicly traded stock in the US.
a
.
Dow Jones Industrial Average
b
.
S & P 500
c
.
NASDAQ
d
.
Wilshire 5000

e
.
New York Stock Exchange
44. How much would it cost to purchase a round lot (the smallest number you can get and still be a round
lot) of Stock A at the closing price for the day?
YTD 52 weeks Yld Vol Net
% CHG Hi Lo Stock Div % P/E 100s Last Chg
+ 9.6 29.60 22 A .60 3 12 790 19.50 +0.13
- 3.8 17.33 15 B 1.20 8.6 10 510 13.25 +0.25
+1.7 32 17 C -- -- 15 465 24.70 +0.38
a
.
$ 790
b
.
$ 1,950
c
.
$ 2,960
d
.
$19,500
e
.
$29,600
ANS: B PTS: 1 DIF: Challenging OBJ: LO: 11-4
KEY: Bloom's: Evaluation
45. How many shares of Stock A traded on this day?
+ 9.6 29.60 22 A .60 3 12 790 19.50 +0.13
- 3.8 17.33 15 B 1.20 8.6 10 510 13.25 +0.25
+1.7 32 17 C -- -- 15 465 24.70 +0.38
a
.
2,000
b
.
79,000
c
.
51,000
d
.
10,000
e
.
12,000

46. What was the closing price of Stock C on the previous trading day?
+ 9.6 29.60 22 A .60 3 12 790 19.50 +0.13
- 3.8 17.33 15 B 1.20 8.6 10 510 13.25 +0.25
+1.7 32 17 C -- -- 15 465 24.70 +0.38
a
.
$24.00
b
.
$23.63
c
.
$24.32
d
.
$23.00
e
.
Cannot tell from the information given
47. The smallest round lot of stocks quoted at 23.25 would cost you (ignoring commissions)
a
.
$ 23.25.
b
.
$ 232.50.
c
.
$ 2,325.00.
d
.
$23,250.00.
e
.
none of these
48. A collection of investments is called
a
.
a letter of exposure.
b
.
a diversification.
c
.
a grouping.

d
.
an envelope.
e
.
a portfolio.
ANS: E PTS: 1 DIF: Easy OBJ: LO: 11-6
49. A diversified securities portfolio is characterized by
a
.
dissimilar risk and return characteristics of the securities.
b
.
concentrating on a single industry.
c
.
minimal loss potential.
d
.
stable earnings.
e
.
formula timing.
50. ____ is a portfolio characteristic which leads to reduced risk with good return.
a
.
Maturity
b
.
Price-earnings ratio
c
.
Diversification
d
.
Stratification
e
.
Duration
51. An essential ingredient of an effective investment strategy is
a
.
enough money to diversify.
b
.
a good broker.
c
.
blue-chip stock selections.
d
.
high-income securities.

e
.
a bull market.
52. An unmarried investor with few responsibilities should be able to accept ____ better than two people
who are married with young children.
a
.
return
b
.
risk
c
.
maturity
d
.
diversification
e
.
balance
53. A long term investment strategy includes all of the following except
a
.
stock and bond selection.
b
.
diversification.
c
.
immediate financial needs to pay current bills.
d
.
risk-return behavior.
e
.
investor education.
54. Portfolio management involves making decisions in order to
a
.
buy low and sell high.
b
.
maximize risk and return.
c
.
accept risk.
d
.
own stocks in bear markets.
e meet your investment needs and objectives.

.
55. In addition to a description of any investments owned, the worksheet listing your investments should
include
a
.
the purchase price.
b
.
the original amount of the investment.
c
.
the current annual income.
d
.
the latest market value.
e
.
all of the above.
56. Assume that the price of ABC common stock fell from in a short period of time from $105 to $84.
Which of the following investors probably made the most money, if all of these transactions occurred
prior to the drop in price?
a
.
Abe took a long position in 1000 shares of ABC
b
.
Bert took a short position in 1000 shares of ABC
c
.
Carrie kept her money in CDs at the bank
d
.
Darren shorted 2000 shares of ABC using a margin loan
e
.
Earl used a margin loan to finance a 2000 share long position in ABC
ANS: D PTS: 1 DIF: Challenging OBJ: LO: 11-6
57. Which of the following terms best describes a day trader
a
.
Speculator
b
.
Long-term investor
c
.
Money market maker
d
.
Buy and hold mentality

e
.
Illegal gambler
58. A stock portfolio containing 80% common stocks is most likely to be appropriate for
a
.
a retired couple who needs a high return
b
.
a divorced middle-aged mother who needs a high return
c
.
a blue-collar, two-income family with five kids
d
.
a young single worker putting money aside for retirement
e
.
a portfolio with 80% in common stocks is not suitable for anyone under any
circumstances
59. The single most important reason for investing is for
a home purchase
down payment
d college fund
b auto purchase
down payment
e ensuring a
sufficient
emergency fund
c
.
retirement
60. NYSE Euronext is a part of the broker market accounting for what percent of global equities?
a 20 d 70
b 40 e 80
c
.
60
61. Which of the following was not an intention of The Dodd–Frank Wall Street Reform and Consumer
Protection Act of 2010?
a improve
accountability
d protect consumers
from exploitation

b discontinue the
“too big to fail”
approach
e Recapitalize banks
c
.
improve transparency
ANS: E PTS: 1 DIF: Challenging OBJ: LO: 11-2
COMPLETION
INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.
Select A for the first item, B for the second item, and C if neither item will correctly complete the
statement.
1. [Speculating | Investing] is considered to be a long term activity.
ANS: b
PTS: 1 DIF: Easy OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills
STA: DISC: Investments KEY: Bloom's: Comprehension
2. [Investing | Speculating] is viewed as a short-term activity that involves the buying and selling of
securities in which future value and expected return are highly uncertain.
ANS: b
3. Before you start investing, you should plan to have a minimum of [$1,000 | $15,000] available.
ANS: a
STA: DISC: Investments KEY: Bloom's: Knowledge
4. The first thing you need to determine in order to reach an investment goal is the [rate of return you
can receive | the amount of money you need to set aside periodically].
ANS: a
PTS: 1 DIF: Moderate OBJ: LO: 11-1 NAT: BUSPROG: Analytic skills
5. [Depositing a lump sum and letting it grow | Making monthly deposits to your investment] would be
the least costly way to reach a financial goal.
ANS: a

STA: DISC: Investments KEY: Bloom's: Analysis
6. An investment offering a high current income would likely be more desirable for [a young couple | a
retired couple].
ANS: b
7. Ownership in a corporation would be represented by [stock | bonds].
ANS: a
8. The owner of a bond would expect to receive [steady | variable] annual income.
ANS: a
9. [Common stocks | Bonds] have no maturity date.
ANS: a
10. A fixed dividend would be received with [common | preferred] stock.
ANS: b
11. A convertible bond would let the investor exchange it for [preferred | common] stock.
ANS: b
12. Short term securities are traded in the [money | capital] market.
ANS: a

13. The issuer of the security would get no money from a trade in the [primary | secondary] market.
ANS: b
14. The [primary | secondary] market is where new securities are sold to the public.
ANS: a
15. An IPO is be sold in the [primary | secondary] market many times.
ANS: a
16. A(n) [underwriting | prospectus] is a document made available to prospective security buyers that
describes the firm and a new security issue.
ANS: b
17. A [broker | investor] can be a member of a "syndicate" when taking orders for a new IPO.
ANS: a
PTS: 1 DIF: Challenging OBJ: LO: 11-2 NAT: BUSPROG: Analytic skills
18. The [broker | dealer] market is made up of both the NASDAQ market and the OTC market.
ANS: b
19. Listed securities would be purchased from [a securities exchange | the over the counter market].
ANS: a
STA: DISC: Investments KEY: Bloom's: Application
20. The [bid | ask] price for a stock sold on the OTC market represents the price you would receive when
you sold the stock.

ANS: a
21. The majority of the securities laws were enacted [before | after] 1930.
ANS: b
22. The Securities and Exchange Commission was established as a result of the [Securities Act of 1933 |
Securities Exchange Act of 1934].
ANS: b
23. A [bull | bear] market is characterized by falling stock prices.
ANS: b
24. A [bull | bear] market is characterized by rising stock prices.
ANS: a
25. Stockbrokers prefer clients who [buy and hold | trade actively.]
ANS: b
26. A deep discount broker will execute orders as well as [pick the stocks for you to buy | provide extensive
information about various securities | offer little to no other services].
ANS: c
27. The Securities Investors Protection Corporation would make payment to you if [the corporation in
which you bought stock | the brokerage firm holding your stock] went bankrupt.

ANS: b
28. Most brokerage agreements [will | will not] permit you to sue your broker for malpractice.
ANS: b
29. Fifty shares of stock would constitute [an odd lot | a round lot].
ANS: a
30. Two hundred shares of stock would constitute [an odd lot | a round lot].
ANS: b
31. On a percentage basis, commissions will be higher if you are buying a [large | small] number of
shares.
ANS: b
32. Brokerage commissions on [stock | bond] transactions are likely to be a flat fee per unit.
ANS: b
33. An order to buy or sell a security at the best price available at the time the order is received is a
[market | limit] order.
ANS: a
34. If you want to set a specific price in your order, you will use a [market | limit] order.

ANS: b
PTS: 1 DIF: Easy NAT: BUSPROG: Analytic skills
35. You are going to buy stock on margin. You will be required to put up a minimum of [50 | 60] percent
of the money needed to make the purchase.
ANS: a
36. Margin requirements are set by the [SEC | Federal Reserve].
ANS: b
37. Using margin will magnify [only gains | only losses | gains and losses].
ANS: c
38. You are selling short; you anticipate the price of the stock will [rise | fall].
ANS: b
39. When you sell short, the proceeds of the sale will be [held until the sale is covered | given to you
immediately after the sale].
ANS: a
40. The maximum amount of money you could lose in a short sale is [known | unknown] at the time of the
transaction.
ANS: b
41. Publicly traded corporations [are required to | may choose to] provide annual reports to their
stockholders.

ANS: a
42. The Dow Jones Industrial Average is based on [all stocks traded on the NYSE | 50 large stocks | 30
large stocks].
ANS: c
43. The [DJIA | S&P Index] is based on 500 different stocks.
ANS: b
44. The high price for ABC stock over the past 52 weeks was [29 | 23.98].
YTD
% CHG
52
HI
WEEKS
LO STOCK (SYM) DIV
YLD
% PE
VOL
100S LAS
T
NET
CHG
+ 14.1 29 19.44 ABC .16 .7 20 1488 23.98 -0.27
ANS: a
STA: DISC: Investments KEY: Bloom's: Evaluation
45. You would expect to receive an annual dividend of [$0.16 | $0.70] per share.
YTD
% CHG
52
HI
WEEKS
LO STOCK (SYM) DIV
YLD
% PE
VOL
100S LAS
T
NET
CHG
+ 14.1 29 19.44 ABC .16 .7 20 1488 23.98 -0.27
ANS: a
46. [2,000 | 148,800] shares of ABC stock were traded on this day.
YTD
% CHG
52
HI
WEEKS
LO STOCK (SYM) DIV
YLD
% PE
VOL
100S LAS
T
NET
CHG

+ 14.1 29 19.44 ABC .16 .7 20 1488 23.98 -0.27
ANS: b
47. The closing price of this stock on the previous day was [higher | lower] than today's close.
YTD
% CHG
52
HI
WEEKS
LO STOCK (SYM) DIV
YLD
% PE
VOL
100S LAS
T
NET
CHG
+ 14.1 29 19.44 ABC .16 .7 20 1488 23.98 -0.27
ANS: a
48. ABC stock is [up 14.1% | down 27%] since the beginning of the year.
YTD
% CHG
52
HI
WEEKS
LO STOCK (SYM) DIV
YLD
% PE
VOL
100S LAS
T
NET
CHG
+ 14.1 29 19.44 ABC .16 .7 20 1488 23.98 -0.27
ANS: a
49. Day trading is [illegal | risky].
ANS: b
50. The collection of investments you select to meet your investment goals is called your [portfolio |
allocation].
ANS: a
51. The axiom that explains diversification is [Don't cry over spilt milk | Don't put all of your eggs in one
basket].

ANS: b
52. Diversification should [reduce the possibility of losing all your money | have little impact on the risk of
losing money].
ANS: a
53. Asset allocation is another term for [selecting the stocks you want to buy | deciding what percentage of
your investment you want in stocks].
ANS: b
54. Investments with high current income typically have [high | low] potential capital appreciation.
ANS: b
55. The single most important reason for investing is for [home purchase down payment | retirement].
ANS: b
56. The single most important reason for investing is for [a down payment on a home | a down payment on
an automobile | retirement].
ANS: c
57. NYSE Euronext is a part of the broker market totaling about [40% | 80%] of world equity markets.
ANS: a
58. The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 included provisions to
improve [accountability | sustainability].

ANS: a
59. In terms of market capitalization, [Apple | IBM] is the biggest company in the world.
ANS: a
60. Retired people often choose investments offering [high current income | low current income].
ANS: a
61. Exchange traded funds face the risk of [market fluctuations | default].
ANS: a
PROBLEM
1. Monte wants to save for his daughter's college education. He would like to have $85,000 in 15 years.
If Monte can earn an average of 8.5% on this fund, how much would he need to deposit in the account
today to meet his goal?
If Monte has no money to set aside now but wants to save at the end of each month for this goal, how
much would he need to add to the account each month?
ANS:
Lump sum Monthly Payments
FV = 85,000 FV = 85,000
N = 15 N = 15 × 12
I = 8.5 I = 8.5/12
PV = 25,002 PMT = 235

2. Abe owns 1000 shares of Amazon, which he purchased for $12 per share 3 months ago. Abe just
checked the price of Amazon and found that it is selling for $19 per share. He is so excited about his
gain that he has booked a $6,000 20-day trip to Hawaii for he and his wife. He wants to be sure that
the trip will be paid for entirely from gains in his Amazon shares because his wife has been nagging
him about his frequent stock trading habit and he feels that this trip will demonstrate to her once and
for all that he has the skills, acumen and instincts to get rich trading stocks. He feels strongly that the
price of Amazon stock will go through the roof in the intermediate term but is concerned about short-
term volatility. Abe's plan is to sell the shares only if the value of his shares either declines below
$18,000 or if the value climbs to $30,000. He would like to submit his stock orders right now, because
for the next three weeks it is very important to his marriage that he not trade or even follow the market
(maybe just a peek at CNBC while his wife is in the shower). Which of the following set of stock
orders would accomplish his pathetic goals?
ANS:
A GTC stop-loss order to sell 1000 shares at $18 and a GTC limit order to sell 1,000 shares at $30.
3. You have just bought (on margin) 100 shares of IBM Corp. common stock for $108 per share. One
year from now you expect to sell the stock for $140. The interest charge will be 9%. What return do
you expect to earn on your investment? (Show all work. Ignore commissions.)
ANS:
Amount invested $ 5,400
Amount borrowed $ 5,400
Total purchase $10,800
1 year gross proceeds $14,000
Less interest (.09 × $5,400) 486
Net proceeds $13,514
Less total invested 10,800
Net profit $ 2,714
Return on investment = = .503 or 50.3%
4. You have inherited $250,000. You have decided that since you don't need the money currently, you
should invest for the long-term. After seeking advice, you decide on an asset allocation plan that puts
10% in short-term securities, 75% in equities, and 15% in bond funds. How much money would you
put in each category? (Show all work.)
ANS:
Short-term Securities (.10 × $250,000) $ 25,000
Equities (.75 × $250,000) 187,500
Bond funds (.15 × $250,000) 37,500
Total invested $250,000

5. You have just bought 100 shares of ABC Corporation common stock at 70.50. The commission is
calculated as 1.5% of the total value of the transaction plus $30. What commission will you be charged
and how much must you pay the broker for the entire transaction? (Show all work.)
ANS:
Market transaction = 100 × $70.50 = $7,050
Commission = (.015 × $7,050) + $30 = $105.75 + $30 = $135.75
Total payment = $7,050 + 135.75 = $7,185.75

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