Stock Features
Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?
a. Dual class
b. Cumulative
c. Non-cumulative
d. Preferred
e. Common
What is Common?
Emst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets?
a. Private
b. Auction
c. Tertiary
d. Secondary
e. Primary
What is Primary?
The owner of a trading license for the NYSE is called a:
a. Broker
b. Member
c. Agent
d. Specialist
e. Dealer
What is a member?
Kate tends to hold onto assets that have lost value in the hope that their values will increase in the future. Kate illustrates which one of the following?
a. Frame dependence
b. Self-attribution bias
c. Gambler's fallacy
d. Break-even effect
e. Regret aversion
What is Break-even effect?
Which term refers to the tendency to shy away from the unknown?
a. Aversion to ambiguity
b. Clustering illusion
c. Anchoring and adjustment
d. Recency bias
e. Availability bias
What is Aversion to ambiguity?
Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities?
a. Senior bond
b. Debenture
c. Warrant
d. Common stock
e. Preferred stock
What is Preferred stock?
The counter area on the floor of the NYSE where a designated market maker operates is called a:
a. Pit
b. Hot spot
c. Seat
d. Post
e. Platform
What is Post?
A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n):
a. Floor trader
b. Dealer
c. Specialist
d. Executor
e. Commission broker
What is a Commission broker?
Assume you are an overconfident manager. You are most apt to do which one of the following more so than you would if you were not overconfident?
a. Research a project more thoroughly before committing funds to commence it.
b. Accept risky projects that turn out to be less profitable than you expected.
c. Wait until new technology proves its worth before incorporating it into your firm's operations.
d. Avoid mergers and acquisitions.
e. Invest excess company cash more conservatively than your peers at other firms.
Accept risky projects that turn out to be less profitable than you expected.
A tendency to be overly conservative when faced with new information is referred to as:
a. Anchoring and adjustment
b. Heuristics
c. Self-attribution
d. Loss aversion
e. Regret aversion
What is Anchoring and adjustment?
The secondary market is best defined by which one of the following?
a. Market in which subordinated shares are issued and resold
b. Market conducted solely by brokers
c. Market dominated by dealers
d. Market where outstanding shares of stock are resold
e. Market where warrants are offered and sold
Market where outstanding shares of stock are resold
The stream of customer orders coming in to the NYSE trading floor is called the:
a. Paper trail
b. Trading volume
c. Order flow
d. Bid-ask spread
e. Commission trail
What is Order Flow?
An agent who maintains an inventory from which he or she buys and sells securities is called a:
a. Broker
b. Trader
c. Capitalist
d. Principal
e. Dealer
What is a Dealer?
Recently, a neighbor you have known for years won a lottery and received a $250,000 prize. This neighbor decided to invest all of his winnings in a new business venture that he knew only had a 5 percent chance of success. Previous to this, the neighbor had always been ultra conservative with his money and had refused to invest in this business venture as recently as last week. Which one of the following behaviors most applies to your neighbor's decision to invest in this business venture now?
a. Disposition effect
b. Affect heuristic
c. Gambler's fallacy
d. House money
e. Get-evenitis
What is House money?
Roger's Meat Market is a chain of retail stores that limits its sales to fresh-cut meats. The stores have been very profitable in northern cities. However, when two stores were opened in the south, both lost money and had to be closed. Roger, the owner, has now concluded that no southern-based store should be opened as it would not be profitable. Which one of the following applies to Roger?
a. Confirmation bias
b. Endowment effect
c. Money illusion
d. Affect heuristic
e. Representativeness heuristic
What is Representativeness heuristics?
Which one of these statements related to preferred stock is correct?
a. Preferred shareholders normally receive one vote per share of stock owned
b. Preferred shareholders determine the outcome of any election that involves a proxy fight
c. Preferred shareholders are considered to be the residual owners of a corporation
d. Preferred stock normally has a stated liquidating value of $1,000 per share
e. Cumulative preferred shares are more valuable than comparable noncumulative shares
Cumulative preferred shares are more valuable than comparable noncumulative shares
A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market?
a. Auction
b. Private
c. Over-the-counter
d. Regional
e. Insider
What is Over-the counter?
An agent who arranges a transaction between a buyer and a seller of equity securities is called a:
a. Broker
b. Floor trader
c. Capitalist
d. Principal
e. Dealer
What is a Broker?
Kate is attempting to sell her house for $260,000. Fred lives across the street in an identical house. Fred recently stated to his wife that Kate's house is probably worth only $250,000 but that once she sells her house, he would like to put their house on the market at $285,000 and then move into a condominium. Which one of the following behaviors applies to Fred?
a. Myopic loss aversion
b. House money effect
c. Money illusion
d. Self-attribution bias
e. Endowment effect
What is Endowment effect?
Up until three years ago, A.C. Dime opened an average of 10 new retail stores a year. One of every 10 new stores had to be closed within two years due to poor sales. This 90 percent success ratio was fairly steady for over 30 years. Starting three years ago, the firm has opened 40 new stores and every one had significant profits within six months. Management believes their recent success is not just a random event and that all future stores will be profitable. Thus, the managers have decided to open a minimum of 15 new stores each year. The managers are suffering from:
a. Arbitrage limitations
b. Anchoring and adjustment
c. Aversion to ambiguity
d. The clustering illusion
e. Myopic aversion
What is The clustering illusion?
Preferred stock may have all of the following characteristics in common with bonds with the exception of:
a. The lack of voting rights
b. A possible conversion option into common stock
c. Annuity payments
d. A fixed liquidation value
e. Tax-deductible payments
What is Tax-deductible payments
NASDAQ has:
a. An electronic network that transmits orders directly to the trading floor
b. Both floor and commission brokers
c. Three separate markets
d. A single designated market maker for each listed stock
e. Level 3 data available online for easy access by all investors
Three Separate markets
A floor broker on the NYSE does which one of the following?
a. Supervises the commission brokers of a specific financial firm.
b. Trades for his or her personal inventory.
c. Executes orders on behalf of a commission broker.
d. Maintains an inventory and assumes the role of a market maker.
e. Is charged with maintaining a liquid, orderly market.
Executes orders on behalf of a commission broker
Which one of the following best illustrates an error which you, as a project manager, might make due to confirmation bias?
a. Overestimating the best outcome expected from a project while underestimating the possibility of a less favorable outcome.
b. Assuming that a new project will be profitable since similar projects in the past were successful.
c. Assuming that your expectations of the future outcome from a project are more accurate than the expectations of others within your organization.
d. Listening to the advice of subordinates with whom you agree while ignoring the advice of subordinates with whom you tend to disagree.
e. Downplaying the cost of future failure of an existing project since the project has already paid for itself.
Listening to the advice of subordinates with whom you agree while ignoring the advice of subordinates with whom you tend to disagree.
You are employed as a commission-based sales clerk for a cosmetics retail store. You know that, on average, exactly 50 percent of the customers that enter your store will make at least one purchase. Thus far this morning, you have waited on eight customers without making a single sale. You are convinced that the next customer you wait on will buy something. This belief is known as:
a. Aversion to ambiguity
b. The law of small numbers
c. Anchoring and adjusting
d. Gambler's fallacy
e. False consensus
What is Gambler's fallacy?