Multiple Choice
Markets that transfer funds from savers to borrowers are called ___________.
a) financial markets
b) monopolistic markets
c) mutual markets
d) treasury markets
a) financial markets
Dividends of a company are _________.
a) legally mandated earnings of stockholders
b) a distribution of earnings that are paid to a corporation's stockholders
c) different kinds of stocks a company offers its shareholders
d) money from illegal stock transactions
b) a distribution of earnings that are paid to a corporation's stockholders
The first time a company issues stock that may be bought by the general public
Initial Public Offering (IPO)
The law that established the Federal Reserve System as the central bank of the United States
Federal Reserve Act of 1913
A type of stock that gives its holder preference over common stockholders in terms of dividends and claims on assets
preferred stock
A ______ is the most common depository institution.
a) credit union
b) commercial bank
c) savings and loan association
d) non-profit organization
b) commercial bank
Antoni holds a bond in a skincare company that matures after a period of 8 years. taken together with the interest on the principal amount, on maturity, Antoni will receive a sum of $64,000, which is the bond's _______.
a) first yield
b) par value
c) capital gain
d) exit rate
b) par value
A financial intermediary that obtains funds by accepting checking and savings deposits and then lending those funds to borrowers.
depository institution
The federal agency with primary responsibility for regulating the securities industry.
Securities and Exchange Commission
A formal debt instrument issued by a corporation or government entity
bond
Which of the following is true of securities brokers?
a) They earn a profit by selling securities for higher prices than they paid to purchase them.
b) They collect premiums from policyholders.
c) They issue new securities to raise financial capital.
d) They act as agents for investors who want to buy or sell financial securities.
d) They act as agents for investors who want to buy or sell financial securities.
Which of the following statements is true about stock exchanges?
a) Electronic trading began with the establishment of the over-the-counter market.
b) The stocks of privately traded corporations are listed and traded on these exchanges.
c) Apart from the annual fee, exchanges do not require firms to pay any other fee for the stock listing.
d) Each exchange establishes its own requirements for the securities it lists.
d) Each exchange establishes its own requirements for the securities it lists.
A financial intermediary who acts as an agent for investors who want to buy and sell financial securities. Brokers earn commissions and fees for the services they provide
securities broker
A federal law dealing with securities regulation that established the Securities and Exchange Commission to regulate and oversee the securities industry.
Securities and Exchange Act of 1934
The return on an asset that results when its market price rises above the price the investor paid for it
capital gain
Radley and Sam hold stocks in an alarm clock manufacturing company. However, when the company goes out of business and liquidates its assets, Sam rightfully receives his share in the company proceeds before Radley. Based on the given information, it can be concluded that Sam was a _______.
a) cumulative preferred stockholder, and Radley was a participating preferred stockholder
b) participating preferred stockholder, and Radley was a cumulative preferred stockholder
c) preferred stockholder, and Radley was a common stockholder
d) common stockholder, and Radley was a preferred stockholder
c) preferred stockholder, and Radley was a common stockholder
Which of the following is a difference between dividends on stock and interest on bonds?
a) A firm has a legal obligation to pay interest on bonds, whereas it has no legal obligation to pay dividends on stock.
b) Dividend on stock is paid by the stockholder, whereas interest on bond is paid by the issuer of the bond.
c) A firm has a legal obligation to pay dividends on stock, whereas it has no legal obligation to pay interest on bonds.
d) Dividend on stock is paid by the issuer of the stock, whereas interest on bond is paid by the bondholder.
a) A firm has a legal obligation to pay interest on bonds, whereas it has no legal obligation to pay dividends on stock.
An institutional investor that raises funds by selling shares to investors and uses the accumulated funds to buy a portfolio of many different securities.
mutual fund
The first major federal law regulating the securities industry. It requires firms issuing new stock in a public offering to file a registration statement with the SEC
Securities Act of 1933
A statistic that tracks how the prices of a specific set of stocks have changed
stock index
_________ overturned the section of the Banking Act of 1933 that prohibited commercial banks from selling insurance or performing the functions of investment banks.
a) The Securities Act of 1933
b) The Financial Services Modernization Act of 1999
c) The Securities and Exchange Act of 1934
d) The Sarbanes-Oxley Act of 2002
b) The Financial Services Modernization Act of 1999
In which of the following strategies for investing do investors buy low-risk securities, thereby getting a relatively low return because the market value of low-risk securities seldom(barely) increases much over time.
a) Value investing
b) Market timing
c) Investing for Income
d) Investing for growth
c) Investing for Income
An order telling a broker to buy or sell a specific security at the best currently available price.
market order
The law that established the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits. It also prohibited commercial banks from selling insurance or acting as investment banks
Banking Act of 1933
A stock index based on prices of 500 major U.S. corporations in a variety of industries and market sectors.
Standard & Poor’s 500