WorksheetsInvestment Instruments Part I
Total questions: 26
Worksheet time: 13mins
When an investor buys a company’s stock, what do they become?
Part owner of the company
A creditor to the company
An employee of the company
A customer of the company
What happens when you buy a company’s stock?
You become a part owner of the company
You lend money to the company
You become an employee
You receive a fixed interest payment
What is another term for stocks?
Equity instruments
Debt instruments
Fixed income securities
Derivatives
What does having equity in a company mean?
Being a part owner of the company
Being a creditor to the company
Being a customer of the company
Being an employee of the company
What is the relationship between stocks and equity?
Stocks represent equity in a company
Stocks are a form of debt
Stocks are government bonds
Stocks are insurance policies
What is the primary difference between common and preferred stocks?
Voting rights and dividend priority
Company size
Industry sector
Geographic location
Which type of stockholder receives dividends before the other?
Preferred stockholder
Common stockholder
Majority stockholder
Minority stockholder
If a company goes bankrupt, who gets paid first from the assets?
Preferred shareholders
Common shareholders
Customers
Suppliers
What happens to preferred shareholders in the event of company bankruptcy?
They have a prior claim on assets
They lose all rights
They become company managers
They receive voting rights
Which of the following is an example of a company that has been fast growing in recent decades?
General Motors
Sears
Kodak
What is the theory behind the rising value of a company’s stock?
As the company becomes more valuable, the stock price increases
As the company hires more employees, the stock price decreases
As the company pays more dividends, the stock price falls
As the company issues more shares, the stock price rises
Which of the following is NOT a way to make money from stocks?
Receiving interest payments
Receiving dividends
Selling the stock at a higher price
Benefiting from stock price appreciation
What is a potential risk for investors if a company stops paying dividends?
It may signal financial trouble within the company
The company will be acquired
The company will split its stock
The company will increase its profits
Which of the following is true about the price movement of growth stocks?
Always stable
Much wilder ride in terms of price
Never increases
Only decreases
Which of the following is an example of a defensive stock area?
Utilities
Homebuilders
Steel producers
Automobile manufacturers
What is the relationship between cyclical stocks and the economy?
Their price is related to the overall health of the economy
Their price is unrelated to economic changes
They are always defensive stocks
They are driven by rumors
Why might investors prefer stocks with stabilizing dividends during bad economic times?
Because dividends provide consistent income.
Because stock prices always rise in bad times.
Because dividends are not taxed.
Because these stocks are risk-free.
What do over-the-counter marketplaces operate under?
A defined set of regulations.
No rules at all.
Only company policies.
International treaties only.
What is a basket of stocks put together in a diversified, smart, and systematic fashion called?
Portfolio
Savings account
Real estate investment
Loan
Which of the following best describes a debt-based investment?
Loaning money to an entity in return for interest
Buying shares in a company
Purchasing real estate
Trading commodities
What is the primary risk associated with bonds?
The issuer may default on payments
The bondholder may lose voting rights
The bondholder may have to pay extra taxes
The bond may turn into a stock
Which of the following is NOT a reason companies issue corporate bonds?
Funding a new project
Expanding their business
Paying off government debt
Building another factory
What is the nominal yield of a bond equal to?
The coupon rate of the bond
The market price of the bond
The maturity value of the bond
The purchase price of the bond
What is assumed if you receive the principal back at maturity?
No financial problems for the issuer
The bond was sold early
Interest rates increased
The bond was defaulted
Why might people be less willing to pay par value for your bond if interest rates go up?
Other companies issue bonds that pay more.
Your bond becomes riskier.
Your bond matures sooner.
Your bond is tax-free.
What is the opposite effect on bond prices when interest rates go up?
Bond prices go down
Bond prices go up
Bond prices stay the same
Bond prices become unpredictable
