3 The Stock Marker: What Does It Do and How Has It Performed? TRUE OR FALSE TF During the 1980s and l. thereal returns from stock market investment-bm1rwone bani. long-term average of 7 2. An investor may lower the risk of his or her portfolio by holding shares of many different finns sn uncon- t worse than the percen 0 nected industries. Wile the srock market may vary substantially from dayfocks are hel er ln priods of me the variation in return is relatively small. 4. About one-half of all households in the United States now own stock either directly or through investmen in a mutual fund. O 5. Periods of low inflation and low interest rates will generally be accompanied by a poorly performing tock market. 6 The random walk theory of the stock market suggests that current stock prices already reflect the best known information about the future values of stocks 7. The highest return and lowest risk can generally be earned by an investor who is willing to frequently buy 8. A corporation can tie the compensation of top corporate officers to stock performance through the use of 0D9. Mutual funds allow small investors with limited investment budgets to obtain lower risk and more diver and sell large quantities of individual stocks for quick profit. stock options. sity in their portfolios than if the investors had to purchase individual stocks. When a corporation originally issues stock, this is done in the primary market. The more familiar see- ondary markets are where investors trade the ownership rights embodied in stocks that were previously 10. issued. 11. When a person purchases a stock, they are effectively lending a corporation money, which will be repaid to the stockholder at a future date. 29