Q&A Hero

Q: All else equal, investors who are risk averse will pay more for a security with a higher level of risk. a. True b. False

Q: An investor who short sells a stock will receive a margin call if the price of the stock decreases substantially. a. True b. False

Q: When an investor short sells a stock, which entails borrowing a stock from another investor and selling it in the market with the promise to replace the stock at some later date, the investor who owns the stock that is borrowed must be informed that his or her stock is being used for a short sale. a. True b. False

Q: An investor who trades on margin generally will receive a margin call when the stock price increases significantly because the broker needs to determine whether the investor wants to liquidate the position to take advantage of the profits that are available. a. True b. False

Q: Margin trading allows investors to magnify the returns earned on their investments. This means that if a stock that is purchased on margin experiences a price increase of 15 percent, the investor actually receives a return greater than 15 percent, even if no dividends are paid, and vice versa. a. True b. False

Q: The hypothecation agreement, which is the legal document an investor signs when he or she trades stock on margin, includes the maximum amount by which the price of the stock can increase before the amount borrowed from the broker must be repaid. a. True b. False

Q: Because the computations for different market indexes are essentially the same, it really doesn't matter which index (e.g., DJIA or S&P 500) is used to determine how the performance of your investment portfolio compares to the market. a. True b. False

Q: There are a number of different stock market indexes that differ primarily because they include different combinations of stocks; but, the computation for each index is essentially the same. a. True b. False

Q: Discount brokers can offer trades at lower commissions than full service brokers because they require all of their clients to trade electronically rather than through a broker. a. True b. False

Q: A limit order, which is an order to trade at no worse than the price specified by the investor, is the most common type of order placed by investors. a. True b. False

Q: The simple arithmetic average return differs from the geometric average return in that the geometric average takes into consideration compounding, or reinvestment, while the arithmetic average does not. a. True b. False

Q: The current yield for a bond is computed by dividing the current interest payment associated with the bond by the current market price of the bond. a. True b. False

Q: The holding period return associated with an interest-paying bond is computed by determining the change in the market value of the bond over a particular time period. a. True b. False

Q: Even though the simple arithmetic average does not consider compounding, it is useful for determining the average return for a group of investments at one point in time. a. True b. False

Q: Because the simple arithmetic average return does not consider compounding, its value is always less than or equal to the geometric average return. a. True b. False

Q: The return on an investment is generated by any income produced by the investment and any change in the value, or the price, of the investment. a. True b. False

Q: The relative amount of personal funds, or initial equity, an investor can borrow from the broker when purchasing stocks on margin is called the initial margin requirement. a. True b. False

Q: The relative amount of personal funds, or initial equity, an investor has to "put up" when purchasing stocks on margin is called the initial margin requirement. a. True b. False

Q: When an investor trades on margin, he or she borrows from the broker some of the funds needed to purchase securities. a. True b. False

Q: The average return earned by a portfolio of stocks can be computed by summing the returns associated with the individual stocks and then dividing the result by the number of stocks in the portfolio. a. True b. False

Q: When the market is rising, it is called a bull market. a. True b. False

Q: More stock certificates are registered in the names of individual investors than in street names (i.e., brokerage firms). a. True b. False

Q: When an investor places a stop order, he or she is telling the broker to "stop" an order that was placed previously but hasn't been executed yet. a. True b. False

Q: Because stocks must be traded in round lots, or multiples of 100 shares, on the organized exchanges, individual investors can only trade in multiples of 100 shares at a time. a. True b. False

Q: When an investor places an order to trade stock with his or her broker, as long as the market is open, it is always executed as soon as possible. a. True b. False

Q: A market order, which is an order to trade at the best price available when the transaction reaches the market, is the most common type of order placed by investors. a. True b. False

Q: An investor who wants to have a "hands on" approach to managing his or her investment portfolio in order to take advantage of market anomalies would want to follow the passive management style of investing. a. True b. False

Q: Financial instruments that offer steady interest or dividend payments are called income securities because they are good income-producing investments. a. True b. False

Q: Speculators are investors who view investments as instruments that produce growth over a long period of time. a. True b. False

Q: The primary reason people invest is to supplement current income. a. True b. False

Q: Once realistic goals have been formulated based on investment objectives and risk attitudes, the costs associated with the selection and purchase of the investment instruments is minimal. a. True b. False

Q: Investors are individuals who try to make a quick profit based on short-term market adjustments. a. True b. False

Q: An investor purchased a share of AutheTec stock (AUTH) for $12.50. Three months later the stock was sold for $14.25. What is the holding period return earned by the investor? a. 14% b. 20% c. 18% d. 16%

Q: All of the following are examples of transactions costs for buying securities except a. time costs b. bid/ask spread c. brokerage fees d. telephone calls e. all of the above are example of transaction costs

Q: The total value of a firm's stock which can be computed by multiplying the number of shares outstanding by the market price per share is called what? a. Market weighted b. Market capitalization c. Market beta d. Market return

Q: To determine the weighted average returns of stocks held in a portfolio, the weights are determined as the fraction a. of the total portfolio value of each stock at the midpoint of the holding period. b. of the total portfolio value of each stock at the end of the holding period. c. of the total portfolio average value of each stock during the holding period. d. of the total portfolio invested in each stock at the beginning of the holding period.

Q: The expected return on a portfolio is a. the sum of the square root of the expected returns on the individual stocks included in the portfolio times the beta of the individual stocks. b. the simple arithmetic average of the expected returns on the individual stocks included in the portfolio. c. the geometric average of the expected returns on the individual stocks included in the portfolio. d. the weighted average of the expected returns on the individual stocks included in the portfolio.

Q: The Securities Investor Protection Corporation insures the cash and securities held by the brokerage company from theft or loss of the security. Each investor is covered to a maximum of ____. a. $100,000 b. $200,000 c. $500,000 d. $1,000,000

Q: A ____ order is an order to buy or sell a stock at no worse than a specified price. a. price b. limit c. market d. stop

Q: A ____ order is an order to execute at the best price available when the transaction reaches the market. a. limit b. stop c. trade d. market

Q: To be broker or to trade securities you must a. abide by ethical standards established by the SEC. b. abide by any licensing or registration requirements of state in which you trade. c. be licensed by the exchanges on which the traded securities are listed. d. All of the above.

Q: Asset allocation recommendations shift from investments like ____ to ____ as the individual investor gets closer to retirement. a. stocks; equity b. stocks; cash c. cash; stocks d. bonds; stocks

Q: When the financial markets become more unstable and unpredictable than normal, many professional investment managers shift their asset allocations from ____ to ____. a. stocks; short-term debt b. bonds; stocks c. stocks; derivatives d. bonds; derivatives

Q: Refer to Portfolio. What was the two-year holding period return for the portfolio? Assume any dividend payments are included in the market value shown above. a. 38.5% b. 27.8% c. 35.8% d. 30.7% e. None of the above.

Q: Refer to Portfolio. What was the one-year holding period return for the portfolio in 2009? Assume any dividend payments are included in the market value shown above. a. 11.8% b. 15.0% c. 25.2% d. 10.6% e. u22125.0%

Q: Refer to Portfolio. What was the one-year holding period return for the portfolio in 2011? Assume any dividend payments are included in the market value shown above. a. 11.8% b. 20.1% c. 39.9% d. 10.5% e. 25.2%

Q: Refer to Foxy Ladies Investment Club. What is the portfolio's three-year holding period return (from January 2010 through December 2012)? a. 71.8% b. 23.9% c. 68.3% d. 22.8% e. None of the above.

Q: Refer to Foxy Ladies Investment Club. What was the portfolio's geometric average return per year from 2010 through 2012? a. 20.0% b. 21.8% c. 68.3% d. 18.9% e. Not enough information is given to compute the geometric average return.

Q: Refer to Foxy Ladies Investment Club. What was the portfolio's simple arithmetic average return per year from 2010 through 2012? a. 20.0% b. 21.8% c. 68.3% d. 18.9% e. Not enough information is given to compute the simple arithmetic average return.

Q: Refer to Foxy Ladies Investment Club. What was the 12-month holding period return for Merck during 2012? a. 39.2% b. 29.5% c. u221237.3% d. 41.0% e. 26.2%

Q: Refer to Foxy Ladies Investment Club. What was the 12-month holding period return for Coca-Cola during 2010? a. u221230.0% b. 43.7% c. u221229.0% d. 30.6% e. u221241.4%

Q: The one-year holding period returns for Cherokee Adventures for 2010 and 2011 are given below. If Cherokee's geometric average return for 2010 through 2012 was 15 percent, what was its implied one-year holding period return for 2012? Year 1-year holding period return 2010 −5.0% 2011 28.5 2012 ? a. 12.8% b. 11.8% c. 24.6% d. 16.0% e. Not enough information is given to answer this question.

Q: A portfolio contains three stocks (Stock A, Stock B, and Stock C). The overall value of the portfolio increased 20 percent during 2010u23afthe value of Stock A increased by 15 percent, the value of Stock B increased by 22 percent, and the value of Stock C increased by 30 percent. If 40 percent of the total funds in the portfolio were in Stock A at the beginning of 2010, what was the percent of funds (weight) invested in stock B? a. 50% b. 30% c. 10% d. 60% e. 40%

Q: Use the following information to compute the geometric arithmetic average return for Topwater Boats for 2007 through 2012. Year 1-year holding period return 2007 u221210% 2008 12% 2009 22% 2010 27% 2011 24% 2012 28% a. 28.0% b. 17.2% c. 20.6% d. 16.3% e. None of the above.

Q: The simple arithmetic average return for the common stock of Saltwater Expeditions Incorporated for the eight-year period from 2005 through 2012 was 21 percent. The one-year holding period returns from 2005 through 2011 are given below. What is the implied one-year holding period return for 2012? Year 1-year holding period return 2005 17% 2006 22 2007 25 2008 20 2009 38 2010 25 2011 24 2012 ? a. 21.4% b. 24.4% c. 3.0% d. 13.0% e. u22123.0%

Q: An investor earned a 5 percent holding period return on a stock he originally purchased for $50. The stock paid a dividend equal to $3. What was the price of the stock when it was sold? a. $52.50 b. $50.50 c. $50.00 d. $49.50 e. $47.50

Q: A bond with an annual coupon rate of 12 percent and face value of $1,000.00 was purchased for $990.00 and sold two years later for $1,050.00. What was the holding period return? a. 15.1% b. 18.2% c. 30.3% d. 28.5% e. 30.0%

Q: An investor earned a holding period return equal to 10 percent on a stock that she purchased for $27.50. During the time she held the stock, the company paid a $2 dividend. For what price did the investor sell the stock? a. $26.75 b. $26.25 c. $30.25 d. $29.50 e. $28.25

Q: At the beginning of 2010, Sally purchased Besham stock on margin. The initial margin requirement is 60 percent and the broker loan rate is 10 percent. Sally invested $15,000 of her own funds and margined the maximum amount allowed by the broker to purchase Besham stock. At the time, the purchase price of the stock was $50 a share. No dividends were paid during the year, and the stock was sold for $48 a share at the end of the 2010. What is the one-year holding period return for this investment? a. 60.0% b. 10.0% c. 4.0% d. 6.7% e. 0.0%

Q: At the beginning of 2010, Steve purchased ACME stock on margin. The initial margin requirement is 50 percent and the broker loan rate is 8 percent. Steve invested $15,000 of his own funds and margined the maximum amount allowed by the broker to purchase ACME stock. At the time, the purchase price of the stock was $25 a share. No dividends were paid during the year, and the stock was sold for $32 a share at the end of the 2010. What is the one-year holding period return for this investment? a. 28.0% b. 56.0% c. 24.0% d. 40.0% e. 48.0%

Q: You have an arrangement with your brokerage firm that allows you to purchase stock on margin with an initial margin requirement of 25 percent and a broker loan rate of 10 percent. What is the maximum amount of stock you can purchase on margin if you have $20,000 to invest? a. $150,000 b. $72,000 c. $80,000 d. $22,000 e. $200,000

Q: A stock purchased for $52 paid a dividend of $1 six days after it was purchased. The stock was sold for $51 ninety days after it was purchased. What is the annualized rate of return? Assume the dividend was not reinvested. a. 3.9% b. 0.0% c. u22127.7% d. 15.7% e. u221215.7%

Q: Your brokerage firm allows market trading with an initial margin requirement equal to 60 percent plus an 8 percent broker loan rate. You have $6,000 to invest. How many shares of ABC can you purchase on margin? ABC stock currently sells for $50 a share. a. 100 b. 200 c. 92 d. 194 e. 108

Q: Use the following information to compute the simple arithmetic average return for Topwater Boats for the period from 2007 through 2012? Year 1-year holding period return 2007 u221210% 2008 12 2009 22 2010 27 2011 24 2012 28 a. 28.0% b. 17.2% c. 20.6% d. 16.3% e. None of the above.

Q: Tristar Growth Mutual Fund reported annual holding period returns of 22 percent in 2010, 25 percent in 2011, and 31 percent in 2012. What was the simple arithmetic average return generated by Tristar for the period 2010 through 2012? a. 31.0% b. 33.3% c. 26.0% d. 28.0% e. 25.0%

Q: Staci purchased a stock on April 12 for $78.00 and sold it on October 13 the same year, for $76.75. What is Staci's holding period return assuming she received a dividend of $2.20 per share on June 14, which was not reinvested? a. u22121.6% b. 4.4% c. 1.2% d. 9.0% e. 2.4%

Q: An investor purchased 1,000 shares of AZT stock on January 5, 2012 for $83.25 per share. On March 20, a dividend of $0.75 per share was paid. Fifty days later, on May 9, 2012, the stock was sold for $85.00. What is the holding period return? Assume the dividend is not reinvested. a. 21.6% b. 3.0% c. 9.5% d. 15.1% e. 1.0%

Q: Steve purchased a bond for $975.00. Ninety days later he received interest income of $40.00, and then immediately sold the bond for $990.00. What is the annualized rate of return Steve earned on this investment? a. 5.6% b. 22.6% c. 16.4% d. 10.1% e. 12.3%

Q: Use the information below to solve for the earnings per share for Landstar. 52 Weeks Yld Vol Net Hi Lo Stock Sym % PE 100s Hi Lo Close Chg 405/16153/8Lands LSTR ? 41 2760 43 389/16421/8+313/16 a. $1.03 b. $0.38 c. $0.98 d. $1.05 e. None of the above.

Q: Use the information below to solve for the earnings per share for Adobe. 52 Weeks Yld Vol Net Hi Lo Stock Sym % PE 100s Hi Lo Close Chg 743/837 Adobe ADBE ? 17 4230 5611/16525/8557/8+33/16 a. $4.38 b. $2.18 c. $3.29 d. $3.10 e. None of the above.

Q: Use the information below to solve for the dividend yield for Midas. 52 Weeks Yld Vol Net Hi Lo Stock Sym Div % PE 100s Hi Lo Close Chg 355/8193/4Midas MDS .08 ? 20 41 35 341/2341/2u22127/16 a. 0.23% b. 0.41% c. 1.60% d. 0.92% e. None of the above.

Q: Use the information below to solve for the dividend yield for Lowes. 52 Weeks Yld Vol Net Hi Lo Stock Sym Div % PE 100s Hi Lo Close Chg 65 391/16Lowes LOW .92 ? 18 21590 52 487/849 u221221/8 a. 1.9% b. 1.4% c. 2.6% d. 0.9% e. None of the above.

Q: Angela Johnson bought Microsoft stock many years ago when the company was very young; so, clearly, she has done very well with her investment. Now that Microsoft is more established, its stock price has started to falter somewhat. Angela really thinks that Microsoft will continue to be a good investment in the future, so she plans to stay in the stock for the time being. However, at the same time, she wants to protect the profits she has already amassed. She follows the market every day, so she is confident she can initiate a sell order when necessary to ensure she receives the gains she has realized to this point. Unfortunately, Angela is leaving the country for an extended vacation in China, where she will be out of touch with the investment world, and she is worried that something might happen to Microsoft during the time she is gone that will substantially decrease the "paper" profits she now has. Given that Angela believes Microsoft will continue its upward movement but she also wants to protect her "paper" profits, which of the following orders should she place with her broker before she leaves for China? a. Market sell b. Stop (sell) c. Limit (sell) d. Fill or kill e. Margin sell

Q: An investor receives a margin call because a. the value of the stock that was sold short has decreased below a price specified by the broker. b. the brokerage firm wants to provide her with information about a new public stock issue that it will be handling in the future. c. interest rates in the financial markets have increased substantially, and the brokerage firm wants her to immediately repay the loan she has outstanding. d. the Federal Reserve intends to sell a special issue of Treasury securities and it needs investors to subscribe to the issue as quickly as possible. e. the price of the stock she purchased on margin has decreased enough so that the actual margin is below the maintenance margin.

Q: A long-term investment strategy where investors purchase securities with the intent to keep them for a long period before liquidation is called a. Speculation. b. Shorting the stock. c. Buy-and-hold. d. Margin trading. e. Option trading.

Q: When the market is rising we call it a ____ market, which suggests the economy is performing well; when the market is falling we call it a ____ market, which suggests the economy is performing poorly. a. Bull; bear b. Growth; decline c. Bear; bull d. Boom; recession e. Strong; moderate

Q: When one investor borrows stock from another investor and then immediately sells it in the market, but with a promise to replace the stock at some later date, he or she has executed a transaction that is called ____. a. Margin trading b. Short selling c. A hypothecation arrangement d. "Going long" e. An irregular transaction

Q: The ____ index measures the aggregate return for the 30 largest industrial firms in the United States. a. S&P 500 b. Dow Jones Industrial c. NYSE composite d. AMEX e. NASDAQ small cap

Q: The total return earned from the time an investment is purchased until it is liquidated is called a(n) ____. a. Ask yield b. Current yield c. Holding period return d. Coupon rate e. Dividend yield rate

Q: An order that gives instructions to cancel the order if the price conditions are not met when the order reaches the market is called a ____ order. a. Market b. Stop c. Limit d. Day e. Fill or kill