W!SE Practice - Investing

A stock split is when the existing stock divides into a larger number of shares and the price of each share is then reduced accordingly.

​Stock Splits

Multiple Choice

An investor bought 40 shares of ABC corporation's stock at $80 a share. Two weeks later, the investor receives notice that the corporation has approved a 2-for-1 stock split. Based on this information, the investor would own at the moment of the split--

• 20 shares of the stock and the price of each share is $80.

• 40 shares of the stock and the price of each share is $40.

• 80 shares of the stock and the price of each share is $40.

• 80 shares of the stock and the price of each share is $80.

The Securities and Exchange Commission oversees securities exchanges, securities brokers and dealers, investment advisors, and mutual funds in an effort to promote fair dealing, the disclosure of important market information, and to prevent fraud. The federal government requires all IPOs to be registered with the Securities and Exchange Commission (SEC).

Securities and Exchange Commission

Multiple Choice

A pharmacy is to drugs as the American Stock Exchange is to--

• interest

• stock advisors

• securities

• mutual funds

Multiple Choice

Before the Kiss Corporation can issue stocks or bonds, it must register the issue with--

• its Board of Directors

• the Federal Reserve

• the World Bank

• the Securities and Exchange Commission (SEC)

EE U.S. Savings Bonds

Multiple Choice

The interest earned on United States Series EE Savings Bonds is--

• exempt from state and local taxes

• paid in a lump sum at the time the face value on the bond is reached

• equal to the money paid to purchase it

• deducted at the time of the bond's purchase

Treasury Bills (T-Bills)

Multiple Choice

Buying a treasury bill (T-bill) is best for investors who are looking for--

• a place to invest between $100-$500.

• a secure, low risk investment.

• a higher yield on their investment than corporate bonds offer.

• an investment that matures in 10-30 years.

Margin is a speculative method whereby an investor borrows up to 50% of the money needed from a brokerage firm in order to buy a wanted stock and pays a fee for the privilege.

Margin (Investing Term)

Multiple Choice

Using a brokerage firm, a qualified investor buys 1000 shares of a common stock at $50 a share on 50% margin. This means that the--

• investor will pay only $5000 for the shares

• investor is buying 2000 shares

• brokerage firm is lending the investor 50% of the money

• brokerage firm will own 50% of the 1000 shares of stock that were purchased

James Bond wants a loan. 😉

Remember...

Multiple Choice

When a corporation or government agency borrows money from an investor and pays interest and principal to that same investor, it is a:

• common stock

• savings account

• bond

• certificate of deposit

Multiple Choice

The price of a security may be affected by--

• wages

• current events

• renovations

• destinations

Stock prices generally rise and fall with earnings, or profits, in the long term. Strong earnings generally result in the stock price moving up (and vice versa). Sometimes a company with a rocketing stock price might not be making much money, but the rising price means that investors are hoping that the company will be profitable in the future.

Know This!

Multiple Choice

A factor that is likely to affect the market price of a stock is--

• wages

• the age of the corporation

• corporate profits

• the number of corporate employees

Multiple Choice

Why does a corporation issue bonds?

• To expand ownership of the corporation

• To raise money for expansion or other company operations

• To comply with Securities and Exchange Commission requirements

• To keep from being bought by another corporation

Multiple Choice

In comparing the difference in the rate of return between a safe and secure investment and a speculative investment, the investor should be aware that the return on a--

(Remember: The greater the risk, the greater the reward!)

• speculative investment is usually higher than for a conservative or safe investment.

• safe investment fluctuates and a speculative one is usually stable.

• speculative investment remains constant throughout the life of the product.

• safe investment is not taxable and a speculative one is taxable.

Multiple Choice

To determine the time value of depositing $100 in a savings account, a person needs to know the interest rate and--

• her total income.

• whether the account is FDIC protected.

• the rate of inflation.

• whether the bank offers overdraft protection.

Multiple Choice

By investing money in short-term savings instruments, your money will be available to invest in a higher interest instrument in the near future. Which investment would you choose today if you believe interest rates will go up?

• long-term bonds

• short-term savings instruments

• stocks

• variable-rate loans

Multiple Choice

Lamar believes that interest rates are going to fall in the near future and remain low for a considerable period of time. He should invest in--

• A long-term, fixed rate certificate of deposit

• A variable rate certificate of deposit