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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 71

True/False

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According to the Securities Act of 1933 it is against the law for a firm that is publicly trading securities to deny an investor from knowing how the firm is doing financially.

A) True
B) False

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Question 72

Multiple Choice

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Corporations benefit from securities markets primarily by

A) creating an efficient mechanism to invest in stocks and bonds.
B) obtaining the capital they need to finance their operations.
C) securing memberships on various stock exchanges.
D) participating in the mutual funds of investment bankers.

E) A) and B)
F) All of the above

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Question 73

True/False

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Corporate management decisions are influenced by the desire to keep stockholders happy.

Gregory bought a share of stock in the Marshall Manufacturing for $70. When he sold the stock later that year, he received $90. The par value of the stock is $5. Gregory capital gain is $25.

When you place a limit order, it means you are willing to buy or sell the stock at the best price available.

Bonds that pay very high interest rates and typically have a higher risk of default are known as

Dividends on preferred stock are

Which of the following describes a benefit enjoyed by investors in mutual funds?

Index funds invest in one specific type of investment; for example, an index fund might only invest in income stocks, companies whose stocks pay dividends.

Dividends represent a portion of a firm's profits that are distributed to bondholders first then stockholders.

Examples of institutional investors are pension funds, mutual funds, and insurance companies.

Investing online is usually ________ than trading through a traditional stock brokerage firm.

If an investor owns a bond that pays a higher rate of interest than other bonds of similar risk, the investor should be able to sell the bond on the secondary market for more than its face value.

________ are the firm's after tax profits that are distributed to stockholders.

Jason, a stockbroker at Securitas Financial Services, called you the other day asking if you would like to purchase an IPO. "The hot new company, Leafy Greens, is going public, and I thought you might want to get in on it," he exclaimed. If you agree to buy shares of this company, this trade will occur on the secondary market.

Americans have invested over $15 trillion in mutual funds.

Avery, an executive assistant at the Newport Group, photocopied documents detailing a major merger that will be finalized in two weeks. Avery is thrilled to read about the merger, plans to call her broker immediately and buy stock in the company, and suggests that you should also act on her stock tip. Since you are not employed at her firm your purchase is legal.

Which of the following describes a mutual fund that charges no commission to buy or sell its shares?

Junk bonds are offered at higher interest rates than government bonds or corporate bonds with good ratings.

Most mutual funds provide investors an opportunity to buy shares directly without using a stockbroker.