Question 1.1. (TCO 1) If most investors are risk-averse, _____. (Points : 3) a.

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Question 1.1. (TCO 1) If most investors are risk-averse, _____. (Points : 3)

a. the riskier the investment, the more the investor will pay for it

b. they will require a higher rate of return for a riskier investment

c. the riskier the investment, the less compensation the investor requires

d. only financial institutions invest in risky assets

Question 2.2. (TCO 1) A direct equity claim arises through investment in _____. (Points : 3)

a. bonds and other debt instruments

b. common stocks, warrants, and options

c. preferred stock and commodity futures

d. mutual funds

Question 3.3. (TCO 1) An investment in common stock carries a higher return than a bank certificate of deposit. The difference in returns is called _____. (Points : 3)

a. the risk-free rate

b. the real rate of return

c. the risk premium

d. the beta

Question 4.4. (TCO 1) A means of exchanging assets, which may or may not include a specified location, and in which the seller may or may not own the assets being sold, is called _____. (Points : 3)

a. an organized exchange

b. an options market

c. a market

d. None of the above

Question 5.5. (TCO 1) In the _____ market, existing assets are exchanged between investors, while in the _____ market, participants buy their assets directly from the source of the asset. (Points : 3)

a. primary; secondary

b. secondary; primary

c. tertiary; primary

d. primary; OTC

Question 6.6. (TCO 1) The process of selling a new issue of securities so that the price is guaranteed to the selling firm is referred to as _____. (Points : 3)

a. underwriting

b. best efforts

c. direct by issuer

d. shelf registration

Question 7.7. (TCO 1) The exchange with the largest dollar volume in major companies, and which has the most restrictive listing requirements, is _____. (Points : 3)

a. the New York Stock Exchange

b. the American Exchange

c. the NASDAQ Stock Market

d. the Securities Exchange

Question 8.8. (TCO 1) Investors are more encouraged to buy _____ due to long-term capital gains. (Points : 3)

a. high-yield stocks

b. growth stocks

c. municipal bonds

d. U.S. government bonds

Question 9.9. (TCO 1) Which of the following is NOT a characteristic of the Dow Jones Industrial Average? (Points : 3)

a. It includes only very high quality common stock.

b. It generally follows the trend of the market.

c. The companies included comprise over 25% of the companies listed on the New York Stock Exchange.

d. It is a value-weighted average.

Question 10.10. (TCO 1) The success of a short investment position depends on _____. (Points : 3)

a. a level stock price

b. a declining stock market

c. an increasing stock price

d. declining interest rates

Explanation / Answer

Question 1.1. Option b - they will require a higher rate of return for a riskier investment Question 2.2. Option b - common stocks, warrants, and options Question 3.3. Option c - the risk premium Question 4.4. Option b - an options market Question 5.5. Option b - secondary; primary Question 6.6. Option a - underwriting Question 7.7. Option a - the New York Stock Exchange Question 8.8. Option b - growth stocks Question 9.9. Option c - The companies included comprise over 25% of the companies listed on the New York Stock Exchange. DJIA is a price-weighted average of 30 significant stocks traded on NYSE and the NASDAQ. Question 10.10. Option c - an increasing stock price

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