Week 11 Ch17

Part I:What is a corporate bond? Why would a company use bonds as a source of financing?

Part II:Suppose you are a business owner and you need new equipment and immediate funds to meet short-term operating expenses. From what sources could you gain the capital you need? Which would you choose and why?

Astock's _______ value is calculated asowners' equity divided by the number of shares of common stock it has outstanding.

A.

book

B.

par

C.

market

D.

common

E.

dividend

If you have$10,000 and invest it at8% for threeyears, it will be worth$11,411.66 at the end of that time. This BEST describes_______.

A.

the time value of money

B.

collateral

C.

the rule of 72

D.

market capitalization

E.

price appreciation

A payment to shareholders from acompany's earnings is known as_______.

A.

retained earnings

B.

interest

C.

a dividend

D.

price appreciation

E.

a capital gain

Which of the following investments gives the investor the right to vote on major issues concerning thecompany?

A.

Corporate bond

B.

Mutual fund

C.

Common stock

D.

Municipal bond

E.

Exchange-traded fund

Charlotte, a younglawyer, has started investing for her retirement. She is ready to take some risks to enjoy the opportunity for high capital appreciation. Which of the following investments would be a likely choice forher?

A.

Money market mutual fund

B.

U.S. corporate bonds

C.

Certificates of deposit

D.

Balanced mutual fund

E.

Aggressive growth mutual fund

Which of the following government agencies is responsible for the regulation of U.S. securitiesmarkets?

A.

Securities and Exchange Commission(SEC)

B.

Financial Industry Regulatory Authority(FINRA)

C.

Internal Revenue Service(IRS)

D.

National Association of Securities Dealers(NASD)

E.

Federal Reserve System

_______ specialize in raising capital for companies and other entities by the issuing and reselling of new securities.

A.

Angel investors

B.

Investment banks

C.

Secondary security markets

D.

Venture capitalists

E.

Stock brokers

A prolonged time period in which stock prices fall and investors appear to lose faith in the market as a whole is referred to asa(n) _______ market.

A.

bear

B.

secondary

C.

bull

D.

primary

E.

outcry

Bentley has watched the price of Grundy Company stock increase steadily since he bought it two yearsago, and he decides that it is time to sell his shares and take the profits. This sale will take place in the_______ market.

A.

secondary

B.

bull

C.

outcry

D.

primary

E.

bear

Which of the following market indices measures the performance of the smallestpublicly-traded U.S. companies based on marketcapitalization?

A.

Russell 2000 Index

B.

S&P 500

C.

NASDAQ Composite Index

D.

Dow Jones Industrial Average(DJIA)

E.

NYSE Composite Index

Brantley's stockbroker calls him and tells him about an upcoming IPO that she believes is undervalued and suggests that Brantley buy some shares. If Brantley takes hisbroker's suggestion and buys theshares, this would take place in the_______ market.

A.

primary

B.

hybrid

C.

secondary

D.

outcry

E.

tertiary

The first electronicexchange, where investors can buy and sellstock, is the_______.

A.

Russell 2000

B.

S&P 500

C.

NASDAQ

D.

DJIA

E.

NYSE

In order to reduce her investmentrisk, Madison owns stock in several differentcompanies, both large and small. She has also invested in some mutual funds and owns both corporate and municipal bonds. This approach is referred to as_______.

A.

diversification

B.

therisk-return relationship

C.

compound growth

D.

equity financing

E.

price appreciation

The saying"Don't put all your eggs in onebasket" BEST describes_______.

A.

price appreciation

B.

diversification

C.

compound growth

D.

equity financing

E.

therisk-return relationship

Jada consults a new stockbroker who recommends that a sound investment strategy would be to subtract her age from 100 and invest that portion of her portfolio instocks, and the balance in bonds. This is an example of_______.

A.

debt financing

B.

the rule of 72

C.

insider trading

D.

the time value of money

E.

asset allocation

The borrower guarantees the repayment of a loan by pledging an asset to the lender. This BEST describes_______.

A.

a secured loan

B.

equity financing

C.

a bond indenture

D.

asset allocation

E.

an unsecured loan

In order to secure a loan from the bank for hisbusiness, Rob has to maintain a portion of the loan amount in an account with the bank. This is an example of_______.

A.

venture capital

B.

compound growth

C.

a compensating balance

D.

a secured loan

E.

equity financing

The legal contract between a bond issuer and the purchaser of the bond that specifies the terms of the bond is referred to as the_______.

A.

book-entry ownership

B.

prospectus

C.

bond indenture

D.

collateral

E.

portfolio

The amount of the bond that must be repaid to the bondholder on the maturity date of the bond is known as its_______.

A.

indenture

B.

face value

C.

market value

D.

book value

E.

coupon rate

Short-term corporate bonds typically mature in less than_____ year(s) after they areissued, whereaslong-term bonds have a maturity date of______ years or more.

A.

10; 25

B.

5; 10

C.

1; 5

D.

2; 7

E.

5; 15

Melissa is considering purchasing a corporate bond with a C rating according to Standard& Poor's because it has an attractive interest rate. This bond would be classified as a_______ bond.

A.

low-risk

B.

blue-chip

C.

junk

D.

no-load

E.

conservative capital growth

The board of commissioners has approved a bond issue in the amount of$340,000 for the renovation of North Side High School. This is an example of a_______ bond.

A.

junk

B.

trust

C.

secured

D.

corporate

E.

municipal

The first public offering of a privatecompany's stock is known asa(n) _______.

A.

initial securities sale(ISS)

B.

primary public offering(PPO)

C.

initial public offering(IPO)

D.

primary market offering(PMO)

E.

initial prospectus offer(IPO)

HansomProducts' stock is trading for$130 pershare, and the company currently has 2 million shares of common stock outstanding. The Board of Directors decides to increase the number of shares that are outstanding by issuing more shares to currentstockholders, and every shareholder with one share of stock is given an additionalshare, but the price of shares is reduced to$65.00 each. This is an example of_______.

A.

a stock split

B.

price appreciation

C.

an initial public offering

D.

compound growth

E.

asset allocation

Which of the following scenarios would BEST describe insidertrading?

A.

The price ofO'Donnell Brothers stock has risen sharply since Ryker bought his shares and he decides to sell them in order to earn a tidy profit.

B.

Ethan overhears that the CEO is going to be indicted for securities fraud and quickly sells the shares of stock he owns in the company before the news of the indictment is released.

C.

Brantley is distressed that the price of his Apple stock has fallen and he contacts his stockbroker to put in an immediate order to sell his shares.

D.

Gena's stockbroker calls her and suggests that she should change the asset allocation in her portfolio and purchase more bonds.

E.

Charlotte contacts an investment broker to determine the steps she needs to follow in order to take hercompany's stock public.