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Multiple Choice question on investments

1. A financial intermediary transfers

A. savings to households.
B. savings to borrowers.
C. stocks to brokers.
D. new stock issues to buyers.

2. If an individual buys stock on margin and its price rises, the investor

A. must put up additional collateral.
B. must pay tax on the unrealized gain.
C. must pay interest on the borrowed funds.
D. may take delivery of the stock.

3. Since commercial banks have a large amount of debt outstanding, they

A. are highly financially leveraged.
B. earn very little for their stockholders.
C. pay high interest rates on deposits.
D. pay dividends to their stockholders.

4. A stock is currently selling for $10 a share. What is your gain/loss if you take a long position and the stock price rises to $14 a share?

A. You would lose $4 per share.
B. You would gain $4 per share.
C. You would gain $24 per share.
D. You would lose $6 per share.

5. Which of the following assets is the most liquid?

A. Money and antiques
B. Bonds and real estate
C. Savings accounts and checking accounts
D. Stocks and bonds

6. When investing in securities, an investor may place a limit order that

A. limits the amount of commissions.
B. specifies when the stock will be purchased.
C. establishes the exchange on which the security is to be bought or sold.
D. states a price at which the investor seeks to buy or sell the stock.

7. Terry buys 100 shares of XYZ stock on margin at $20 per share. If the margin requirement is 45 percent, the interest rate is 10 percent, and he holds the security for 1 year, how much interest must he pay?

A. $2,000 C. $110
B. $200 D. $90

8. The reserves of commercial banks must be held against

A. the bank as equity. C. savings deposits.
B. losses. D. commercial loans.

9. Which of the following statements about specialists is correct?

A. A specialist stresses one type of investment.
B. A specialist only buys stock.
C. A specialist analyzes corporate securities.
D. A specialist makes a market in securities.

10. The term structure of interest rates involves the relationship between

A. risk and yields.
B. yields and bond ratings.
C. term and yields.
D. stock and bond yields.

11. A stock is currently selling for $36 a share. What is your gain/loss if you sell the stock short and the price rises to $62?

A. You would lose $26 per share.
B. You would gain $26 per share.
C. You would gain $13 per share.
D. You would lose $6 per share.

12. Which of the following is indicated by an upward sloping yield curve?

A. Lower prices for short-term maturity
B. Higher prices for long-term maturity
C. Lower interest rates for long-term maturity
D. Higher interest rates for long-term maturity

13. A stock is currently selling for $40 per share. What is your gain/loss if you buy a round lot and the price declines to $28?

A. You would lose $600.
B. You would lose $1,200.
C. You would gain $1,200.
D. You would gain $6,000.

14. Which of the following statements about pension plans is correct?

A. A pension plan that grants mortgage loans is an example of a financial intermediary.
B. A pension plan that grants mortgage loans can't suffer losses.
C. A pension plan that grants mortgage loans is called a savings and loan association.
D. A pension plan that grants mortgage loans isn't an example of a financial intermediary.

15. Money market mutual funds invest in

A. corporate bonds.
B. corporate stock.
C. federal government treasury bills.
D. federal government bonds.

16. Entering an order to sell stock at $17 when the bid is $18-$19 is an example of a

A. market order. C. margin payment.
B. short sale. D. limit order.

17. Which of the following statements about organized security markets is correct?

A. Organized security markets are examples of financial intermediaries.
B. Organized security markets transfer resources from savers to borrowers.
C. Organized security markets are secondary markets.
D. Organized security markets aren't subject to regulation.

18. The minimum margin requirement is established by

A. brokerage firms. C. the SEC.
B. Congress. D. the Federal Reserve.

19. If an investor sells short, then he or she

A. buys an odd lot of a security.
B. sells securities from his or her portfolio.
C. anticipates a price increase.
D. anticipates a price decrease.

20. Which of the following is a federally insured investment?

A. A savings account in a national commercial bank
B. A certificate of deposit in excess of $100,000
C. A life insurance policy
D. Commercial bank assets

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1. A financial intermediary transfers

A. savings to households.
B. savings to borrowers.
C. stocks to brokers.
D. new stock issues to buyers.

1) B. Savings to borrowers

2. If an individual buys stock on margin and its price rises, the investor

A. must put up additional collateral.
B. must pay tax on the unrealized gain.
C. must pay interest on the borrowed funds.
D. may take delivery of the stock.

2) D. may take delivery of the stock

3. Since commercial banks have a large amount of debt outstanding, they

A. are highly financially leveraged.
B. earn very little for their stockholders.
C. pay high interest rates on deposits.
D. pay dividends to their stockholders.

3) A. are highly financially leveraged
Financial leverage means use of debt to finance the investments.

4. A stock is currently selling for $10 a share. What is your gain/loss if you take a long
position and the stock price rises to $14 a share?

A. You would lose $4 per share.
B. You would gain $4 per share.
C. You would gain $24 per share.
D. You would lose $6 per share.

4) B. You would gain $ 4 per share
Long position means ownership of share. If stock price rises to $14 a share, gain per share = $ 14 - $10 (cost price) = $4

5. Which of the following assets is the most liquid?

A. Money and antiques
B. Bonds and real estate
C. Savings accounts and checking accounts
D. Stocks and bonds

5. C. Savings accounts and checking accounts
Liquidity means the ease with which the asset can be converted to cash at its market price. Real estate and antiques are very illiquid. Stocks and bonds are more illiquid than Savings and Checking accounts.

6. When investing in securities, an investor may place a limit order that

A. limits the amount of commissions.
B. specifies when the stock will be purchased.
C. ...

Solution Summary

Answers Multiple Choice question on investments dealing with financial intermediary, margin, commercial banks, long position, limit order, reserves of commercial banks, specialists, term structure of interest rates, short sell, upward sloping yield curve, pension plans, Money market mutual funds, organized security markets, minimum margin requirement, federally insured investment.

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