Chapter 3

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Jan 9, 2024

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Exam Name___________________________________ TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) Most brokers charge higher commissions for online trades than for telephone transactions. 1) 2) Online trading has greatly lowered the cost of buying and selling stock and has greatly increased the speed of transactions. 2) 3) For most stocks, charts and tables of historical prices are only available through subscription services. 3) 4) You can utilize the internet to develop financial plans and goals, analyze and select individual investments and organize your portfolio. 4) 5) An investor who mistakenly buys the wrong stock because the symbols are similar has 24 hours to undo the trade. 5) 6) The tools and calculators available on the FINRA website are useful but quite expensive to use. 6) 7) The cost of using industry - sponsored websites such as FINRA usually exceeds the benefits for small investors. 7) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 8) An internet tool that selects stocks to meet specific criteria such as dividend payout or price - earnings ratio is known as a(n) A) screener. B) advisor. C) compiler. D) sorter. 8) 9) Which of the following actions are possible on the internet? A) stock trading directly between individual investors without the use of a brokerage B) accessing financial statements for publicly traded companies C) accessing historical data on popular indexes D) only B and C are correct 9) 10) Individuals can now use the internet to buy and sell I. stocks. II. bonds. III. mutual funds. IV. stock options. A) I and IV only B) II and III only C) I, II and III only D) I, II, III and IV 10) 1
11) Information that can be found on the internet at no cost includes I. P/E ratios. II. recent news about a company. III. financial statements. IV. future earnings and stock prices. A) I and IV only B) II and III only C) I, II and III only D) I, II, III and IV 11) 12) Which of the following can be considered a pitfall for investors new to on - line trading? A) Online trading is available to the average investor. B) Online trading is fast and efficient. C) Online investors pay lower costs per trade than investors using a broker. D) Online investors tend to trade too frequently. 12) ESSAY. Write your answer in the space provided or on a separate sheet of paper. 13) What are some of the tools available to investors on the internet ? (Name at least 4.) TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 14) Analytical information would include information such as estimates of growth in sales and future earnings. 14) 15) Reviewing industry and company information may provide guidance on the future outlook of a particular firm. 15) 16) A listing of a firm's major product lines and projections of future sales would both be considered descriptive information. 16) 17) Descriptive information might include the company's lines of business, a list of major competitors, and recent changes in management. 17) 18) Current price information on shares of a company's stock is often accompanied by statistics on the recent price behaviour of that stock. 18) 19) Investors who are aware of current economic, political, and market events tend to make better investment decisions. 19) 20) Often, on short - term trades of less than one year, you'll pay taxes on profits at the higher ordinary income tax rates, not the lower capital gains rate. 20) 21) Investors can usually find the financial statements of a firm on the firm's website. 21) 22) A "pump and dump" scheme involves buying shares of stock, hyping that stock via the internet and then quickly selling the shares at a profit. 22) 2
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 23) Charting is the technique of A) monitoring a stock based on the underlying economic conditions. B) determining the amount of money that must be saved based on a given financial goal. C) sorting through databases of securities to select one based on certain parameters. D) plotting the performance of a security over time. 23) 24) Which of the following types of information is NOT available from printed publications? A) real - time price quotes for widely held stocks and exchange traded funds B) interest rates offered by local and national banks C) stories concerning business leaders D) price quotations for stocks of major companies 24) 25) Which of the following is a general rather than a financial newspaper? A) The Wall Street Journal B) The Financial Post C) The Toronto Star D) Barron's 25) 26) Which of the following is published by the Canadian Government? A) Economic Report of the Prime Minister B) Survey of Current Business C) Canadian Business Bulletin D) Bank of Canada's "Weekly Financial Statistics" 26) 27) The FD in Regulation FD refers to A) financial disclosure. B) fair dividends. C) financial disability. D) fair disclosure. 27) 28) Which of the following websites facilitates the review of financial information in a Canadian company's financial reports? A) CNN B) finance.yahoo.com C) wsj.com D) SEDAR website 28) 29) Which of the following is usually available on a company's website? A) red herrings B) annual reports C) brokerage reports D) back - office reports 29) 30) The published analysis and recommendations of an individual brokerage firm is called a A) back - office research report. B) broker's subscription report. C) comparative data source. D) prospectus. 30) 31) Assume you wanted to find the most current price for Home Depot's stock. Your most likely source would be A) Investor's Business Daily . B) Yahoo! Finance . C) The Wall Street Journal . D) The Granville Market Letter . 31) 32) Recommendations of "strong buy, buy, hold, reduce, sell" are most likely to be found in A) brokerage back - office research reports. B) Barron's . C) Yahoo! Finance . D) Kiplinger Washington Letter . 32) 3
33) Subscription letters are A) descriptive in nature but do not offer investment advice. B) available free on the internet. C) published on an annual basis. D) sometimes geared to specific industries and companies. 33) 34) Which of the following sites is especially valuable for information concerning mutual funds? A) www.bondsonline.com B) www.morningstar.com C) www.investopedia.com D) www.moody's.com 34) 35) Supersites that accumulate tremendous amounts of investing information that typically includes price history, investment screening tools and other personal finance features are known as A) financial portals. B) institutional news sites. C) comparative data sources. D) subscription services. 35) 36) Which of the following services provides bond ratings? A) Standard & Poor's B) Canadian Economic Observer C) Yahoo! Finance D) Value Line Investment Survey 36) TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 37) An index measures the current value of a group of stocks in relation to a base value established previously. 37) 38) All the Standard & Poor's indexes are based on the total market values of the companies rather than on the price of a single share. 38) 39) The Dow Jones Corporate Bond Index and the Dow Jones Industrial Average are both price - weighted averages whose divisors are adjusted periodically to maintain continuity. 39) 40) Standard & Poor's and Mergent both publish extensive data on bonds. 40) 41) In addition to the Dow Jones Industrial Average, the Standard & Poor's 500 and NASDAQ indexes are widely quoted measures of market performance. 41) 42) The Value Line Index is a value - weighted index based on a small sample of the 1700 stocks covered by the Value Line investment reports. 42) 43) The Dow - Jones Corporate Bond Index is entirely based on industrial firms. 43) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 44) Stock market averages reflect the arithmetic average price behaviour of a group of stocks A) at a given point in time. B) relative to a base price of 100. C) relative to other indexes. D) relative to a base value set at an earlier point in time. 44) 4
45) Averages and indexes differ from one another in that an index A) is the arithmetic average price behaviour of a group of stocks at a given point in time. B) is of value in and of itself, while an average must be compared to a historical figure to have any meaning. C) measures the current price behaviour of a group of stocks in relation to a base value set at an earlier point in time. D) always moves up before a corresponding average moves up, and always moves down before a corresponding average moves down. 45) 46) The Dow Jones Industrial Average (DJIA) consists of 30 stocks whose price behaviour A) reflects the changes in value of manufacturing stocks only. B) typically has little correlation with the rest of the stock market. C) leads the movements in the general economy by one to two weeks. D) broadly reflects the overall price behaviour of the stock market. 46) 47) Suppose that Pfizer and Boeing are part of the Dow - Jones Industrial Average (DJIA). If, on a given day, Boeing closes at $320 and Pfizer at $40, A) the DJIA will include eight shares of Pfizer for each share of Boeing. B) the effect of each stock on the DJIA cannot be determined without knowing the number of shares outstanding for each company. C) the difference in price will not affect the DJIA. D) changes in the price of Boeing shares will have eight times the effect on the DJIA as changes in the price of Pfizer. 47) 48) The Dow Jones Industrial Average (DJIA) is based on the prices of A) 500 stocks. B) 100 stocks. C) 200 stocks. D) 30 stocks. 48) 49) Which of the following statements about the Dow Jones Industrial Average (DJIA) are correct? I. Higher - priced stocks tend to affect the DJIA more than lower - priced stocks. II. A one - point change in the DJIA correlates to a $1 change in average share value. III. Changes in the DJIA are made to reflect company mergers and acquisitions. IV. The DJIA divisor was determined when the DJIA was created and remains constant. A) I and III only B) II and IV only C) I, III and IV only D) I, II, III and IV 49) 50) Which of the following statements is correct? A) The S&P 500 Index is based on 500 large companies that trade on US exchanges. B) The S&P 500 Index is carefully constructed to reflect the values of large, medium and small capitalization companies. C) Because of mergers and bankruptcies, the S&P 500 Index no longer contains 500 stocks. D) The S&P 500 is based on the 500 largest US companies as measured by market value. 50) 5
51) Assume that the S&P 500 composite stock index closes at 2,500. This means that A) an investor would have to pay $2,500 to purchase one share of each of the stocks represented in the index. B) the average value of a company reflected in the Index has doubled from when the Index was at 1,250. C) the share prices of the stocks in the index have risen 25 times since the 1941 - 1943 base period. D) the average stock in the index is selling for $25.00. 51) 52) Which of these market indexes follows the largest number of companies? A) S&P 500 index B) Dow Jones Industrial Average C) Nasdaq 100 D) Nasdaq Composite Index 52) 53) The Value Line Composite Index A) considers only the percentage changes in the prices of the stocks in the index. B) adjusts the number of shares in each stock to produce an equal weighting. C) divides the sum of the closing share prices by a divisor and then multiplies the quotient by 100. D) divides the sum of the closing share prices by an adjusted divisor. 53) 54) EAFE stands for A) England, America, Far East. B) Europe, Australia, Far East. C) England, America, France, European Community. D) Europe, Asia, Far East. 54) 55) Which of the following statements is true concerning bonds? A) Bond yield data is more useful to an investor when compared over time. B) A bond's yield remains constant even when a bond is sold prior to maturity. C) A bond yield represents only the interest earned on a bond. D) Bonds with similar characteristics generally have widely disparate bond yields. 55) 56) Which of the following indexes would best reflect the performance of a large, diversified portfolio with equal amounts of money invested in each company? A) the Value Line Composite Index B) the NASDAQ 100 C) the Russell 3000 D) the S&P 500 Index 56) 57) Which of the following indexes reflects a large sample of small, medium and large companies? A) DJIA B) Value Line composite C) Russell 3000 D) NYSE composite 57) 58) Which of the following is a measure of the performance of small companies? A) Russell 3000 B) Russell 1000 C) Russell 2000 D) Value Line 1700 58) 6
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