Personal Finance - Exam 4

True or False: Before investing, you should consider paying off debt

True

All true regarding preferred stock:

Preferred stockholders have rights to the assets of the corporation before common stockholders, preferred stockholders have priority over common stockholders in receiving dividends, and the price of preferred stock is less volatile than the price of common stock

True or False: Common stockholders usually don't have moved divedends right than preferred stock

False

One of the differences between common and preferred stock is that preferred stock...

Offers a more predictable income

Initial public offering

Has the potential to be sold later for a profit in the secondary market, and it can result in losing the investment

Secondary market

The largest market where existing securities are sold

In the secondary market, stock prices are...

Determined by supply and demand

Corporate bonds

Offer a predictable return to investors in the form of interest or coupon payments

Divedends are a portion of...

Earnings returned to the investor

Growth stocks tend to

Offer great opportunities for capital appreciation

When a firm performs well, investors holding its shares are ____ willing to sell them and therefore the demand for the stock _________.

Less, increases

True or False: One of the attractive features of a mutual fund is that they offer a small investor a diversified portfolio and professional management

True

All of the following gains from investments are taxed as ordinary income

Interest, coupon payment, short term capital gains

True or False: The return you will earn on certain stocks and bonds is uncertain because specific prices are not guaranteed

True

It is December 10th and you have a stock that you purchased January 5th. What should you do?

Sell the stock on January 6th of the next year

To measure an investment's risk use all of the following

Range of returns, standard deviation, subjective measures of risk

The risk-return relationship means...

The higher the risk, the higher the return

The stock exchange with the most stringent listing requirements:

NYSE

Floor traders

Execute trades to fulfill orders placed by other investors

______ does not have a physical location; it is an electronic communications network to buy and sell stock

Nasdaq

If a stock is near its 52-week low:

That means the stock has a stock price that is near the lowest for the past year

The yield represents which of the following

Annual return from dividends

Fees charged by brokerage firms...

Vary according to the services offered

Placing an order to buy or sell stocks, you must specify all of the following

Ticker symbol, buy or sell, whether the order is a market order or a limited order

______ order: an order to buy or sell a stock at its prevailing market price

Market

Stocks that are subject to more uncertainty tend to

have a wider range in prices over time

Fundamental analysis

the valuation of stocks based on an examination of fundamental characteristics such as revenue or earnings

Income statement

Shows the firm's operating results over a period of time

True or False: Fiscal policy: The means by which the U.S. government imposes taxes on individuals and corporations and by which it spends its money

True

True or False: Interest rates can affect economic growth and therefore do not have a direct impact on stock

True

Stocks typically or generally perform better when interest rates are ___

Low

CPI is used as part of ________ ________

Economic analysis

Consumer Price Index

One of the most commonly used measures of inflation

True or False: When you buy a stock on margin, your gain is magnified if the stock goes up in value

True

True or False: A mutual fund is a diversified portfolio of stocks and/or bonds depending on what the manager has purchased

True

Advantages for investing in mutual funds

Small initial investment, expertise of portfolio manager, meet specific investment goals

When you begin to save for retirement and general wealth building, it is wise to invest in mutual funds because

They provide instant diversification

Advantages of investing in mutual funds include all of the following

Diversification of your investment, professional management, meet specific investment goals

Net asset value (NAV)

The market value of the securities that a mutual fund has purchased minus any liabilities owed

Funds that sell shares directly to investors and repurchase those shares whenever investors wish to sell them are called ____ ___

Open end

Close-end mutual funds

do not repurchase shared from investors, are bought and sold on stock exchanges, may sell above NAV, may sell below NAV

Once a fund closes

Shares trade just like a stock

The amount by which a closed-end fund's share price in the secondary market is above the fund's NAV called

Premium

Stock brokers typically do not recommend no-load funds because

No-load funds do not pay an upfront fee to the broker for selling them

True or False: While not all mutual funds have loads or commission, they all have management fees and expenses that are charged to the mutual fund shareholders

True

When evaluating a mutual funds which are investing in the same types of securities/markets, you should compare:

Historical performance, management fees, 12b-1 expenses

True statements about mutual funds

All have a manager expense ratio, the calculation of net asset vale is the same, all have a minimum investment

Index funds incur _____ expenses and are ___ ________ managed compared to other funds

Fewer, not actively

A stock markets fund's prospectus typically states that the fund is subject to all of the following risks:

Substantial declines in individual stocks, the general decline in the stock market, and market risk

Return from investing in a mutual fund

Dividend distributions, capital gains distributions, and redeeming shares

Mid-size capitalization funds

Mutual funds that focus on medium size firms