FCS 3450 Spring 2010 Homework #4

Name______Date______

TRUE-FALSE

_____1. / Long-term objectives are defined as objectives that can be accomplished within one year.
_____2. / An emergency fund is an amount of money that can be obtained quickly in case of immediate needs.
_____3. / A line of credit is a short-term loan that is approved before the money is actually needed.
_____4. / There is no relationship between safety and risk when choosing an investment.
_____5. / A speculative investment is usually defined as one that is made in the hope of earning a relatively large profit in a short time.

MULTIPLE CHOICE

_____6. / Corporate bonds
  1. are tax exempt from federal taxation.
  2. must be repaid at maturity.
  3. pay dividends on a quarterly basis.
  4. are debt obligations, and, therefore, risk free.

_____7. / Which of the following investments would have the greatest potential for safety?
  1. Government bonds
  2. Stocks
  3. Commodities
  4. Options

_____8. / Which of the following investments would have the greatest potential for risk?
  1. Preferred stock
  2. Corporate bonds
  3. Options
  4. Bank accounts

_____9. / Which of the following statements is false?
  1. Asset allocation is the process of spreading your assets among several different types of investments.
  2. Asset allocation eliminates the risk associated with an investment program.
  3. The time your investments can work for you is a major factor to consider when choosing investment alternatives.
  4. Your age is a factor that should be considered when establishing an investment program.

_____10. / Standard & Poor’s is an example of a(n)
  1. investor service.
  2. corporate report.
  3. government publication.
  4. newspaper.

TRUE-FALSE

_____1. O / One reason corporations sell common stock is to finance their business start-up costs.
_____2. / A corporation is required by law to pay dividends to stockholders.
_____3. / The record date is the date when a stockholder must be registered on the corporation’s books in order to receive dividends.
_____4. / The cumulative feature of preferred stock allows the investor to exchange their preferred stock into a specified number of shares of common stock.
_____5. / The book value for a share of stock is determined by deducting all liabilities from the corporation’s assets and dividing the remainder by the number of outstanding shares of common stock.

MULTIPLE CHOICE

_____6. / At an annual meeting, stockholders can either vote in person or by ______.
  1. ad hoc ballot.
  2. proxy.
  3. record ballot.
  4. cumulative feature.

_____7. / A stock split
  1. always guarantees that the investor will make money.
  2. enables management to bring a stock’s price into an “ideal” price range.
  3. is always used to raise the stock’s market price.
  4. doesn’t affect the market value of a share of the corporation’s stock.

_____8. / A feature that enables preferred stock investors to receive omitted dividends is called a ______feature.
  1. cumulative
  2. participation
  3. conversion
  4. callable

_____9. / A stock that follows the business cycle of advances and declines in the economy is called a(n) ______stock.
  1. blue-chip
  2. income
  3. growth
  4. cyclical

_____10. / When stocks are traded between investors, they are traded in the ______market.
  1. investment banking
  2. primary
  3. secondary
  4. efficient.

TRUE-FALSE

_____1. / A bond debenture is a legal document that details all of the conditions relating to a bond issue.
_____2. / One reason corporations sell corporate bonds is to help finance their ongoing business activities.
_____3. / A mortgage bond is sometimes referred to as a secured bond.
_____4. / A sinking fund is a fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue.
_____5. / A revenue bond is a bond backed by the full faith, credit, and unlimited taxing power of the government that issued it.

MULTIPLE CHOICE

_____6. / A government security issued in minimum units of $100 with maturities that may be as long as one year is called a
  1. treasury bill.
  2. treasury note.
  3. treasury bond.
  4. municipal bond.

_____7. / A bond that may provide tax-free interest income is called a
  1. corporate debenture bond.
  2. corporate indenture bond.
  3. Federal T-bill.
  4. municipal bond.

_____8. / The current yield for a bond
  1. is stated on the bond certificate.
  2. is determined by dividing annual income amount by a bond’s current market price.
  3. is not a factor when evaluating a bond investment.
  4. takes into account the relationship among a bond’s maturity value, the time to maturity, the current price, and the dollar amount of interest.

_____9. / Which of the following statements is true?
  1. All bonds must be resold in the primary market.
  2. Bonds may be purchased in either the primary or secondary market.
  3. Bonds cannot be resold, and must be held until maturity.
  4. Generally, commissions to purchase a $1,000 bond are between $50 and $75.

_____10. / A bond that is sold at a price far below its face, makes no interest payments, and is redeemed for its face value at maturity is called a ______bond.
  1. registered
  2. coupon
  3. indenture
  4. zero-coupon