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Chapter Quiz
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Businesses benefit from securities markets primarily by:
A)having a convenient place to invest in stocks and bonds.
B)obtaining the capital they need to finance their operations.
C)securing memberships on the various exchanges.
D)participating in the mutual funds of investment bankers.
The more risky a corporation's bond is perceived to be, the ________ the interest rate paid to bondholders will be.
C)more volatile
D)less volatile
Which of the following is a disadvantage of selling stock as a means of long-term financing?
A)Stockholders never have to be repaid.
B)Dividends are paid out of after-tax profits.
C)Issuing stock generally reduces the market value of the firm on the balance sheet.
D)Selling stock can improve the condition of a firm's balance sheet.
Bill and Hillary are both interested in investing in corporate securities. Bill is in his early 60s and will retire soon. Hillary, on the other hand, is in her early 20s and just started her first job after graduating from college. Which of the two investors would be well advised to choose the more conservative investment?
C)There is not enough information to answer.
D)It depends on whether they want to invest in stocks or bonds.
The $1,000 face value bonds issued by the Springfield Fabrication Corporation are perceived by investors as being less attractive than other bonds sold by other businesses at the same time. The most likely selling price for these bonds in the market would be:
C)$ 875.
________ are investors who anticipate increases in stock prices.
Most personal investment advisors suggest that ________ are probably the best way for smaller investors to get started.
A)individual stocks
B)mutual funds
C)corporate bonds
D)government bonds
Buying stock on margin allows an investor to buy shares of a stock that he or she believes will go up in value with borrowed funds. This _______________ the potential return to the investor and ________________ the risk.
A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases
When investors give their computers instructions to sell automatically when their stock reaches a given price is termed:
A)market turmoil
B)program trading
C)commodity trading
D)exchange-traded fund level
Every time someone sells a stock believing that the price of that security will soon decrease, someone else:
A)is buying that stock believing that the price will increase.
B)is buying that stock believing that the price will decrease.
C)is buying that stock in order to increase the price.
D)is buying that stock in order to decrease the price.

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