Finance Saving & Investing
Questions and Answers
- 1.
A stock split occurs when the shares of stock owned by existing stockholders are divided into a larger number of shares.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
A stock split is a process where the number of shares owned by existing stockholders is increased by dividing the existing shares into a larger number of shares. This is done to make the stock more affordable and increase liquidity. Therefore, the given statement is true.Rate this question:
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- 2.
Conservative investors are attracted to small-cap stocks.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Conservative investors are typically risk-averse and tend to prefer investing in larger, well-established companies with a proven track record. Small-cap stocks, on the other hand, are generally considered to be more volatile and risky. Therefore, it is unlikely that conservative investors would be attracted to small-cap stocks.Rate this question:
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- 3.
A bear market occurs when investors are pessimistic about the economy.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
In a bear market, investors are generally pessimistic about the economy and expect stock prices to decline. This leads to a decrease in overall market confidence, resulting in a downward trend in stock prices. Bear markets are typically characterized by prolonged periods of falling stock prices, high volatility, and a general sense of negativity in the market. Therefore, it is true that a bear market occurs when investors are pessimistic about the economy.Rate this question:
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- 4.
Large-cap funds include stocks of companies with assets of at least $500 million.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Large-cap funds include stocks of companies with assets of at least $500 million. This means that these funds invest in the stocks of large, well-established companies that have a market capitalization of $500 million or more. These companies are typically considered to be more stable and less risky compared to smaller companies. By investing in large-cap funds, investors can gain exposure to these established companies and potentially benefit from their long-term growth and stability. Therefore, the statement "Large-cap funds include stocks of companies with assets of at least $500 million" is true.Rate this question:
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- 5.
To pay for a new school, a local government may issue a ______________.
- A.
Stock
- B.
Mutual fund
- C.
Municipal bond
- D.
Penny stock
Correct Answer
C. Municipal bondExplanation
A municipal bond is a type of debt security issued by a local government to raise funds for public projects, such as building a new school. When investors purchase municipal bonds, they are essentially lending money to the government in exchange for regular interest payments and the return of the principal amount at maturity. This allows the government to finance the construction of the school without relying solely on tax revenues. Municipal bonds are considered a relatively safe investment because they are backed by the government's ability to levy taxes to repay the debt.Rate this question:
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- 6.
Government bonds have a high risk default.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Government bonds are generally considered to have a low risk of default. This is because governments have the ability to raise taxes or print money to repay their debts. Additionally, governments are seen as more stable and less likely to default compared to other entities such as corporations or individuals. Therefore, the statement that government bonds have a high risk of default is false.Rate this question:
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- 7.
Preferred stock offers investors all the following advantages EXCEPT ___________.
- A.
Dividends before common stockholders receive any
- B.
A higher yield than common stock
- C.
More potential growth than common stock
Correct Answer
C. More potential growth than common stockExplanation
Preferred stock offers investors all the following advantages except more potential growth than common stock. Preferred stock typically offers a fixed dividend payment, which is paid before common stockholders receive any dividends. It also tends to have a higher yield than common stock, making it more attractive for income-seeking investors. However, preferred stock is generally considered to have less potential for growth compared to common stock, as it lacks the same voting rights and may not participate in the company's growth as much.Rate this question:
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- 8.
Diversification is a key reason for buying a ______________.
- A.
Corporate bond
- B.
Municipal bond
- C.
Treasury note
- D.
Mutual fund
Correct Answer
D. Mutual fundExplanation
Mutual funds offer diversification by pooling money from multiple investors and investing in a diversified portfolio of securities such as stocks, bonds, and other assets. This diversification helps spread the risk across different investments, reducing the impact of any single investment's performance on the overall portfolio. Therefore, buying a mutual fund is a key reason for diversification.Rate this question:
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- 9.
A company that issues stock to a small group of people is a _______________.
- A.
Public corporation
- B.
Private corporation
- C.
Sole proprietorship
- D.
Partnership
Correct Answer
B. Private corporationExplanation
A company that issues stock to a small group of people is a private corporation. This means that the ownership of the company is limited to a select group of individuals and is not available to the general public. Private corporations often have fewer shareholders and are not required to disclose as much information as public corporations. They are typically smaller in size and have more control over their operations and decision-making processes.Rate this question:
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- 10.
A company that sells its shares openly in stock markets, where anyone can buy them, is a ________.
- A.
Public corporation
- B.
Securities exchange
- C.
Sole proprietorship
- D.
Private corporation
Correct Answer
A. Public corporationExplanation
A company that sells its shares openly in stock markets, where anyone can buy them, is known as a public corporation. This means that the company is publicly owned and its ownership is distributed among a large number of shareholders. The shares of a public corporation are traded on stock exchanges, allowing individuals and institutional investors to buy and sell them freely. This type of company is subject to public scrutiny and must comply with regulations and reporting requirements.Rate this question:
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- 11.
One advantage of preferred stock is ______________.
- A.
Less risk than common stock
- B.
Higher yield than corporate bonds
- C.
Greater growth potential than common stock
Correct Answer
A. Less risk than common stockExplanation
Preferred stock is considered less risky than common stock because preferred stockholders have a higher claim on the company's assets and earnings in the event of liquidation. They are entitled to receive their dividends before common stockholders and have a fixed dividend rate. Additionally, preferred stockholders have a priority in receiving their investment back if the company goes bankrupt. This makes preferred stock a safer investment option compared to common stock, which is more volatile and subject to greater market fluctuations.Rate this question:
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- 12.
The _____________ is the dollar amount that the bondholder will receive at the bond's maturity.
- A.
Face value
- B.
Yield
- C.
Premium
- D.
Debt
Correct Answer
A. Face valueExplanation
The face value of a bond is the dollar amount that the bondholder will receive at the bond's maturity. It is the predetermined value that is stated on the face of the bond certificate and represents the principal amount that the issuer of the bond has agreed to repay to the bondholder. The face value is also used to calculate the interest payments that the bondholder will receive over the life of the bond.Rate this question:
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- 13.
Payments that result from the sale of securities in a fund's portfolio are called ______________.
- A.
Income dividends
- B.
Net asset values
- C.
Capital gains
- D.
Shares
Correct Answer
C. Capital gainsExplanation
Payments that result from the sale of securities in a fund's portfolio are called capital gains. This refers to the profits made by the fund when it sells securities at a higher price than the purchase price. Capital gains can be generated when the fund manager sells stocks, bonds, or other investments in the portfolio. These gains can be distributed to the fund's shareholders in the form of cash payments or reinvested back into the fund.Rate this question:
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- 14.
Which of the following should be performed as part of a financial check up ___________.
- A.
Balance your budget
- B.
Have insurance
- C.
Start an emergency fund
- D.
All answers are correct
Correct Answer
D. All answers are correctExplanation
A financial check-up involves evaluating and assessing one's financial situation. In order to have a comprehensive check-up, all of the mentioned actions should be performed. Balancing the budget helps to ensure that income and expenses are aligned and financial goals can be met. Having insurance provides protection against unexpected events that could lead to financial difficulties. Starting an emergency fund helps to build a safety net for unforeseen expenses. Therefore, all of these actions are essential components of a financial check-up.Rate this question:
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- 15.
Which of the following are the 5 components of risk?
- A.
Inflation risk, interest rate risk, business failure, financial market, global investment
- B.
Inflation risk, interest rate risk, liquidity, real estate
- C.
Global investment, liquidity, real estate, bonds
- D.
Inflation risk, interest rate risk, business failure, bear market
Correct Answer
A. Inflation risk, interest rate risk, business failure, financial market, global investmentExplanation
The correct answer is Inflation risk, interest rate risk, business failure, financial market, global investment. These five components represent different aspects of risk. Inflation risk refers to the potential loss of purchasing power due to rising prices. Interest rate risk involves the possibility of losses due to changes in interest rates. Business failure refers to the risk of a company going bankrupt or experiencing financial difficulties. Financial market risk encompasses the volatility and uncertainty in the overall market. Global investment risk refers to the potential losses associated with investing in foreign markets.Rate this question:
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- 16.
Income stocks ____________.
- A.
Pay high dividends
- B.
Are more stable companies
- C.
Are associated some company growth
- D.
All answers are correct
Correct Answer
D. All answers are correctExplanation
Income stocks are a type of investment that typically pay high dividends to shareholders. These stocks are often associated with more stable companies that have a consistent track record of generating profits. Additionally, income stocks can also be linked to some level of company growth, as the ability to pay high dividends often indicates that the company is performing well financially. Therefore, all of the given answers are correct in describing income stocks.Rate this question:
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- 17.
Small-cap stocks ________________.
- A.
Lower investment risk
- B.
Are from large corporations
- C.
Are from smaller, less established companies
- D.
Are from companies with capitalization of $500 million or more
Correct Answer
C. Are from smaller, less established companiesExplanation
Small-cap stocks are from smaller, less established companies. This means that these stocks belong to companies with a lower market capitalization, typically around $300 million to $2 billion. Investing in small-cap stocks can carry higher risks compared to larger, more established companies, as smaller companies may have limited resources, less market presence, and higher volatility. However, they also have the potential for higher returns if the company experiences significant growth.Rate this question:
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- 18.
The market condition that occurs when investors are pessimistic about the economy and sell stock is called a __________.
- A.
Bull market
- B.
Bear market
- C.
Total return
- D.
Security
Correct Answer
B. Bear marketExplanation
A bear market refers to a market condition where investors are pessimistic about the economy and tend to sell stocks. During a bear market, stock prices generally decline, and there is a prevailing sense of negativity and caution among investors. This pessimism often leads to a downward trend in the market as more and more investors sell their stocks, causing prices to fall further.Rate this question:
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- 19.
The market condition that occurs when investors are optimistic about the economy and buy stock is called a __________.
- A.
Bear market
- B.
Bull market
- C.
Economic decline
- D.
Efficient market
Correct Answer
B. Bull marketExplanation
A bull market is a market condition characterized by optimism among investors, leading them to buy stocks. During a bull market, there is generally an upward trend in stock prices, as investors have confidence in the economy and expect it to perform well. This positive sentiment drives demand for stocks, resulting in an overall increase in market prices.Rate this question:
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Current Version
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Mar 20, 2023Quiz Edited by
ProProfs Editorial Team -
Mar 11, 2014Quiz Created by
Tcarteronw
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