The
calculation of a rate of return assumes dividend income is reinvested at the
current dividend yield.
True
False
False
Realized
returns include both dividends and price changes.
True
False
False
Movements
in stock prices are often illustrated using relative (percentage) price changes
instead of absolute price changes.
True
False
False
The
S&P 500 stock index is more sensitive to changes in the prices of small
stocks than the stocks of large companies.
True
False
False
Studies
of realized rates of return assume that Dividend income is not reinvested.
True
False
False
The
Russell 3000 is a broad-based measure of bond prices.
True
False
False
With
dollar-cost averaging, the investor purchases more securities when their prices
rise.
True
False
False
If
a bond has a call feature, it usually also has a call penalty, which must be
paid to the bondholder in partial compensation for the early retirement of the
bond.
True
False
False
The
structure of yields generally suggests that long-term bonds have greater yields.
True
False
False
Under
current law, American corporations may not issue bearer bonds with coupons
attached.
True
False
False
Risk
to bondholders comes from
1. possibility of default
2. higher interest rates
3. higher inflation
1. possibility of default
2. higher interest rates
3. higher inflation
|
|
A.
|
1 and 2
|
|
|
B.
|
2 and 3
|
|
|
C.
|
all of the above
|
|
|
D.
|
1 and 3
|
In
general, income bonds are less risky than
|
|
A.
|
preferred stock
|
|
|
B.
|
short-term
debt obligations
|
|
|
C.
|
secured
debt
|
|
|
D.
|
mortgage
bonds
|
An
increase in the targeted federal funds rate implies that the Fed is buying
securities.
True
False
False
Economies
go through regular, identifiable cycles that can be forecasted with accuracy.
True
False
False
One
means to invest in anticipation of inflation is to
|
|
A.
|
sell
stocks short
|
|
|
B.
|
buy
fixed income securities
|
|
|
C.
|
hoard
money
|
|
|
D.
|
acquire ETFs specializing in commodities
|
The
money supply, defined as M1, includes currency, coins, and checking accounts.
True
False
False
Large
increases in the money supply may be associated with
|
|
A.
|
increased
inflation
|
|
|
B.
|
decreased inflation
|
|
|
C.
|
increased
employment
|
|
|
D.
|
increased
unemployment
|
The
anticipation of inflation suggests that the investor should
|
|
A.
|
buy
bonds
|
|
|
B.
|
avoid
real estate investments
|
|
|
C.
|
anticipate higher interest rates
|
|
|
D.
|
sell
stocks of gold companies
|
If
the country's exports increase, GDP declines.
True
False
False
______________________________________9
marks____________________________2 mistakes
Bond
averages that are expressed in percentages are not comparable to the S&P
500.
True
False
False
Which
of the following is the least broad-based measure of stock prices?
|
|
A.
|
S&P
500 stock index
|
|
|
B.
|
Russell
3000
|
|
|
C.
|
Dow
Jones industrial average
|
|
|
D.
|
Nasdaq market index
|
Aggregate
securities prices may be measured by using value-weighted or geometric
averages.
True
False
False
Over
time, holding period returns tend to overstate the true annualized rate of
return.
True
False
False
Averaging
down will prove to be profitable only if the price of the stock subsequently
rises.
True
False
False
A
bond with a balloon payment cannot not have a sinking fund.
True
False
False
Mortgage
bonds are secured by property.
True
False
False
A
fallen angel is
|
|
A.
|
a firm
being liquidated
|
|
|
B.
|
a firm
in financial difficulty
|
|
|
C.
|
a quality bond whose credit rating has
declined
|
|
|
D.
|
a junk
bond in default
|
A
call penalty (i.e., call premium) protects the
|
|
A.
|
investor against premature retirement of
the bond
|
|
|
B.
|
issuer
from the bondholder requesting payment
|
|
|
C.
|
investor
from default
|
|
|
D.
|
issuer
from rising interest rates
|
Calculation
of the returns earned on a high-yield security should include the sale price of
bond as well as interest received.
True
False
False
The
sum of cash, currency, and demand deposits is
|
|
A.
|
M1
|
|
|
B.
|
M3
|
|
|
C.
|
M2
|
|
|
D.
|
M4
|
Open
market operations is the buying and selling of securities by the Federal
Reserve.
True
False
False
Monetary
and fiscal policy may affect stock prices through their impact on corporate
earnings.
True
False
False
Inflation
is a period of
|
|
A.
|
rising stock
prices
|
|
|
B.
|
declining
interest rates
|
|
|
C.
|
rising prices of consumer goods
|
|
|
D.
|
rising
confidence in the dollar
|
An
increase in stock prices is a lagging indicator of economic activity.
True
False
False
When
the Federal Reserve seeks to expand the money supply, it
|
|
A.
|
runs a
deficit
|
|
|
B.
|
buys securities
|
|
|
C.
|
runs a
surplus
|
|
|
D.
|
sells
securities
|
To
determine the realized return on an investmen, the investor needs to know
1. income received
2. the cost of an investment
3. the sale price of the investment
1. income received
2. the cost of an investment
3. the sale price of the investment
|
|
A.
|
2 and 3
|
|
|
B.
|
1 and 2
|
|
|
C.
|
all of the above
|
|
|
D.
|
1 and 3
|
A
strategy of averaging down will be profitable if
|
|
A.
|
the
price of the stock continues to fall
|
|
|
B.
|
the price of the stock subsequently rises
|
|
|
C.
|
the
firm retains earnings
|
|
|
D.
|
the
firm pays more dividends
|
The
S&P 500 stock index is value-weighted.
True
False
False
Stock
indices do not consider taxes on capital gains.
True
False
False
A
negatively sloped yield curve suggests
1. short-term rates exceed long-term rates
2. long-term rates exceed short-term rates
3. the Federal Reserve is following a tight monetary policy
4. the Federal Reserve is following an easy monetary policy
1. short-term rates exceed long-term rates
2. long-term rates exceed short-term rates
3. the Federal Reserve is following a tight monetary policy
4. the Federal Reserve is following an easy monetary policy
|
|
A.
|
2 and 4
|
|
|
B.
|
2 and 3
|
|
|
C.
|
1 and 4
|
|
|
D.
|
1 and 3
|
Since
bonds are legal obligations, there is little risk associated with purchasing
these securities.
True
False
False
One
source of risk associated with investments in bonds is the possibility of
default.
True
False
False
Interest
on a convertible bond may be exchanged for stock instead of cash.
True
False
False
If
a firm repurchases bonds at a discount, the difference between the principal
amount and the purchase price produces taxable income.
True
False
False
Bonds
with comparable ratings but different terms to maturity tend to have different
yields.
True
False
False
Monetary
policy affects securities prices by
1. affecting investors' required return
2. increasing the federal deficit
3. affecting firms' capacity to generate earnings
1. affecting investors' required return
2. increasing the federal deficit
3. affecting firms' capacity to generate earnings
|
|
A.
|
1 and 2
|
|
|
B.
|
2 and 3
|
|
|
C.
|
all of
the above
|
|
|
D.
|
1 and 3
|
Deflation
is a period of
|
|
A.
|
rising
prices
|
|
|
B.
|
rising
unemployment
|
|
|
C.
|
declining
unemployment
|
|
|
D.
|
falling prices
|
If
the Federal Reserve sells securities, that reduces commercial banks' capacity
to lend.
True
False
False
Deflation
is a period of rising employment.
True
False
False
When
the Federal Reserve seeks to contract the money supply, it may
|
|
A.
|
sell
securities and lower the targeted federal funds rate
|
|
|
B.
|
buy
securities and raise the targeted federal funds rate
|
|
|
C.
|
buy securities
and lower the targeted federal funds rate
|
|
|
D.
|
sell securities and raise the targeted
federal funds rate
|
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