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Question 1 

Using science to analyze nature
A) reduces our sense of awe because it explains how things work.
B) is a practice that requires a high degree of education.
C) is futile because scientific knowledge is imperfect.
D) adds depth to our understanding and therefore adds to our appreciation of nature.

Answer

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Question 2 

Which federal agency oversees and regulates the buying and selling of stocks and bonds?
A) Federal Trade Commission
B) Commerce Department
C) Federal Reserve Board
D) Securities and Exchange Commission
E) New York Stock Exchange

Answer

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Question 3 

What is the cheapest way for you to buy a stock?
A) through a full-service stockbroker
B) through a discount broker
C) through your bank
D) through a New York Stock Exchange broker
E) through JP Morgan

Answer

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Question 4 

The first time a company issues stock, it does so through a(n) ________.
A) primary market issuance
B) initial public offering
C) tertiary market sale
D) auction house
E) instant prospectus opportunity

Answer

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B) The first sale of stock to the public by a company is called an initial public offering (IPO). A financial advisory firm (often referred to as the underwriter) serves as an intermediary between a company issuing the stock and the investors who purchase the stock.

Question 5 

Of the following, which is LEAST likely to buy stock in an IPO?
A) a mutual fund
B) a corporate pension plan
C) an insurance company
D) an individual investor
E) an institutional buyer

Answer

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 D) Individual investors usually avoid the risk of the IPO. If they like the stock, they will buy it later, on the secondary market.

Question 6 

In a bond offering, financial advisors MOST often buy bonds of the company ________.
A) at higher than face value
B) at face value
C) at lower than face value
D) at twice face value
E) at par value

Answer

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 C) In addition to a managing fee, financial advisors make their money by initially
purchasing all the bonds at a discounted price and then quickly selling them to
investors at a higher price.

Question 7 

If the demand for a stock is high and the supply of the stock is low, the price of the stock will ________.
A) rise
B) decline
C) stay about the same
D) fluctuate randomly
E) halve

Answer

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A) rise

Question 8 

Bonds issued by state and local governments are called ________.
A) municipal bonds
B) debenture bonds
C) treasury bonds
D) convertible bonds
E) T-bills

Answer

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Question 9 

Blue chip stocks ________.
A) are issued by companies that pay large dividends
B) are issued by companies that generate sustained positive cash flow
C) are issued by utility companies
D) are issued by companies producing staples such as food, drugs, and insurance and usually maintain their value regardless of the state of the economy
E) are issued by companies that have a long history of consistent growth and stability

Answer

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E) Blue chip companies pay regular dividends and maintain a reasonably steady share price. General Electric, IBM, The Walt Disney Company, and 3M are examples of companies that are considered blue chip stocks.

Question 10 

An automobile company stock can best be characterized as being a ________ stock.
A) growth
B) cyclical
C) defensive
D) blue chip
E) value

Answer

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B) cyclical