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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 61

True/False

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A bond represents a contract of indebtedness issued by a corporation that promises payment of a principal amount plus interest at a specified future date.

A) True
B) False

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Question 62

Multiple Choice

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To reduce the risk of investing in an individual stock, an ownership position in many different companies can be achieved by purchasing shares in a(n)

A) indexed security.
B) mutual fund.
C) diversification bond.
D) stock cooperative.

E) A) and B)
F) None of the above

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Question 63

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Corporations issuing ________ bonds pledge a tangible asset as collateral to reduce the risk incurred by a bondholder.

Using information not available to the public to unfairly benefit in the stock market represents

When given a choice, businesses prefer to obtain long-term financing through retained earnings or by borrowing from a lending institution such as a bank instead of issuing stock.

Mineral Mining Corporation makes regular monetary deposits that will accumulate and provide for an orderly retirement of their bonds when they come due in 2025. Mineral Mining appears to be utilizing a

What agency sets the margin rates for purchasing stock in the U.S.?

Discuss the role of investment bankers in the securities markets.

Raising long-term funds through the sale of bonds requires the firm to make debt repayment when and if the organization has sufficient cash flow.

According to the Connecting Through Social Media box, one goal of the JOBS Act of 2012 (Jumpstart Our Business Startups Act) is to make crowdinvesting more accessible to small businesses.

Well-known foreign exchanges that also exchange the securities of U.S. firms include the Sydney Exchange and the Tokyo Exchange.

The high start-up costs of online businesses cause online brokers to charge higher commissions than traditional brokerage firms.

Buying on margin is a relatively risk-free way of investing in the stock market.

The risk/return trade-off investors assume means

A company with cash flow shortages must pay common stockholders their dividends before paying preferred stockholders their dividends.

Firms are at a disadvantage when issuing bonds because the interest rate that they must pay to bondholders is not tax deductible.

When acquiring funds through the sale of a bond, the business incurs a legal obligation to pay regular interest payments.

Corporations that issue preferred stock incur a legal obligation to pay dividends to those stockholders.

Which of the following accurately describes an advantage of selling bonds to raise long-term capital?

Most investment advisors put mutual funds high on the list of recommended investments for experienced investors, but consider them too risky for beginning investors.