LPF - Exam 3 Review 2023 Questions and Answers Solved
Correctly
(T or F) An option gives you the right to buy or sell the underlying asset at a set
price on or before the option's maturity date
True
(T or F) Purchasing derivatives is a form of speculating
True
(T or F) Long-term capital gains have favorable tax treatment over earned income
True
Which of the following investors will potentially receive dividends on their
investments?
Stockholders
When you purchase an asset that generates a return, it is generally considered to
be
An investment
Long term capital gains are taxed at _____ percent
15
Just as valuable as the tax break on capital gains income is the fact that you don't
have to claim it -- and, therefore, you don't pay taxes on the asset until you
Sell it
Latisha invested $1,000 in XYZ stock. Two years later she sold the stock for
$1,200. During the time she owned the stock, she received a total of $80 in
dividends. What was her total return on this investment?
28%
You recently purchased a stock for $30. It is now worth $40, and it paid a $5
dividend during the time you held it. Your rate of return on this stock is closest to
which of the following?
50%
One should keep in mind that when it comes to tax advantages, ______ is/are
better than _____
Capital gains; ordinary income
If you were to purchase common stocks issued by large, nationally known
companies with sound financial histories with solid dividend and growth records
you would own what are called
Blue-chip stocks
(T or F) The market price of the stock is a reflection of the potential earnings per
share of the firm
True
(T or F) Holding several types of stock can greatly reduce the risk in your
portfolio
True
(T or F) A stock market index is a measure of the performance of a group of
stocks that represent the market or a sector of the market
True
, Nathan noticed that a company that has great potential just declared a _____
because its stock price was getting too high for the small investor to buy the
stock. The company will substitute more shares for the existing shares of stock
without increasing the market value of the firm
Stock split
A _____ increases the number of stock shares outstanding by replacing each
existing share of stock with a stated number of new shares
Stock split
You have just purchased 10 shares of a stock selling at $50 per share. Since that
time, the company was found to be in violation of several environmental laws and
has several major lawsuits outstanding. Which of the following statements is
most correct?
You could lose up to your $500 investment
Common stockholders are entitled to elect the company's board of directors.
Usually one share of stock is equal to _____ vote(s)
One
A _____ is a measure of the performance of a group of stocks that represent the
market
Stock market index
All of the following are stock market indexes EXCEPT
The Russell 100
A bond has a par value of $1,000, a market price of $300, and a 9% coupon rate. It
will mature in 5 years. What is the current yield of the bond?
48.27%
Suppose you just purchased a corporate bond with a par value of $1,000 for
$951.25. It carries a 7% coupon rate and will mature in 5 years. What is the yield
to maturity?
8.23%
What is the par value of a corporate bond that was issued with an 9% annual
coupon, pays $45 in semiannual interest, and is due in 15 years?
1,000.00
Michael Milkman has suggested that you consider the purchase of some bonds
that are rated BB or below. He is asking you to purchase _____ bonds
All of the above:
Junk; very risky; high-yield
Because there is no default or call risk associated with government bonds, they
generally pay _____ rate of interest than other bonds
A lower
XYZ company issued bonds three years ago with a 7% coupon rate. Today, the
market rate of interest was lowered to 4%. What most likely will happen next?
XYZ company will call their bonds in
The _____ is the face value of a bond, and the amount that is returned to the
bondholder at maturity
Par value
The largest single player and payer in the bond market
Is the US government
Correctly
(T or F) An option gives you the right to buy or sell the underlying asset at a set
price on or before the option's maturity date
True
(T or F) Purchasing derivatives is a form of speculating
True
(T or F) Long-term capital gains have favorable tax treatment over earned income
True
Which of the following investors will potentially receive dividends on their
investments?
Stockholders
When you purchase an asset that generates a return, it is generally considered to
be
An investment
Long term capital gains are taxed at _____ percent
15
Just as valuable as the tax break on capital gains income is the fact that you don't
have to claim it -- and, therefore, you don't pay taxes on the asset until you
Sell it
Latisha invested $1,000 in XYZ stock. Two years later she sold the stock for
$1,200. During the time she owned the stock, she received a total of $80 in
dividends. What was her total return on this investment?
28%
You recently purchased a stock for $30. It is now worth $40, and it paid a $5
dividend during the time you held it. Your rate of return on this stock is closest to
which of the following?
50%
One should keep in mind that when it comes to tax advantages, ______ is/are
better than _____
Capital gains; ordinary income
If you were to purchase common stocks issued by large, nationally known
companies with sound financial histories with solid dividend and growth records
you would own what are called
Blue-chip stocks
(T or F) The market price of the stock is a reflection of the potential earnings per
share of the firm
True
(T or F) Holding several types of stock can greatly reduce the risk in your
portfolio
True
(T or F) A stock market index is a measure of the performance of a group of
stocks that represent the market or a sector of the market
True
, Nathan noticed that a company that has great potential just declared a _____
because its stock price was getting too high for the small investor to buy the
stock. The company will substitute more shares for the existing shares of stock
without increasing the market value of the firm
Stock split
A _____ increases the number of stock shares outstanding by replacing each
existing share of stock with a stated number of new shares
Stock split
You have just purchased 10 shares of a stock selling at $50 per share. Since that
time, the company was found to be in violation of several environmental laws and
has several major lawsuits outstanding. Which of the following statements is
most correct?
You could lose up to your $500 investment
Common stockholders are entitled to elect the company's board of directors.
Usually one share of stock is equal to _____ vote(s)
One
A _____ is a measure of the performance of a group of stocks that represent the
market
Stock market index
All of the following are stock market indexes EXCEPT
The Russell 100
A bond has a par value of $1,000, a market price of $300, and a 9% coupon rate. It
will mature in 5 years. What is the current yield of the bond?
48.27%
Suppose you just purchased a corporate bond with a par value of $1,000 for
$951.25. It carries a 7% coupon rate and will mature in 5 years. What is the yield
to maturity?
8.23%
What is the par value of a corporate bond that was issued with an 9% annual
coupon, pays $45 in semiannual interest, and is due in 15 years?
1,000.00
Michael Milkman has suggested that you consider the purchase of some bonds
that are rated BB or below. He is asking you to purchase _____ bonds
All of the above:
Junk; very risky; high-yield
Because there is no default or call risk associated with government bonds, they
generally pay _____ rate of interest than other bonds
A lower
XYZ company issued bonds three years ago with a 7% coupon rate. Today, the
market rate of interest was lowered to 4%. What most likely will happen next?
XYZ company will call their bonds in
The _____ is the face value of a bond, and the amount that is returned to the
bondholder at maturity
Par value
The largest single player and payer in the bond market
Is the US government
