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Economics Ch. 11 Pretest

All of the following are examples of financial intermediaries EXCEPT?
A stock certificate
The main advantage of diversification as an investment policy is that it
reduces risk to investors
An accurate statement about bonds would be that
they are usually a low-risk investment
The interest rate the bond issuer pays to the bondholder is called the
coupon rate
Savings bonds differ from most other bonds in that
the buyer does not receive periodic interest payments in exchange for a lower purchase price
To finance the building of a new police station, a local government is most likely to issue a
municipal bond
Investing in a money market mutual fund is a higher risk than investing in a certificate of deposit because unlike CD’s, money market funds
are not insured by the FDIC
An example of equity
a share of stock
An example of blue clip stock might be
a large, well-known company traded on the NYSE
The Dow Jones industrial average consist of
30 stocks that are considered representatives of the market as a whole
When you invest in a mutual fund
you money is invested in a variety of stocks and bonds
You do not have to pay state taxes on interest earned on
treasury bills
All of the following are low-risk investment EXCEPT
junk bonds
All of the following are basic components of bonds EXCEPT
liquidity
A stock split is most likely top occur when
the price of a stock becomes too high
A stock that reinvests its earnings in the business instead of paying regular dividends is called
a growth stock
The most trades are made
on the New York Stock Exchange
You borrow $500 from your parents to start a bagel delivery service to the hockey rink in the early mornings. you are acting as
an entrepreneur
Leslie puts this money in a savings account because her main priority is
liquidity, since she’ll need to use the money in a short time
You lend $100 to your cousin Manny, who has a reputation for failing to pay back loans. You are taking a
credit risk
You want to invest but you are concerned because your neighbor has not had any business experiences. How can you offset your risk ?
Ask for a higher interest rate
Because you want to reduce the risk of losing all your savings if an investment fails, you decide to invest in?
a mutual fund
Since bonds are considered among the safest investments, you would expect that they would?
have lower interest rate
Why would a person invest in junk bonds
junk bonds can pay very high interest rates
Your friend Jorge has just inherited $1000 and would like to invest the money in the stock market. You suggest that he?
contact a brokerage firm, who will put him in touch with a stockbroker
Karen wants to buy stock, but is worried about the current “bear market”. this means that
many investors are selling their stocks in anticipation for lower profits
The Great Crash can be attributed to all of the following reasons EXCEPT
the small number of people buying stocks on margin
You are a financial advisor whose client wants to stock that pays regular dividends. you advise him to buy
income stocks
You are a financial advisor whose client is concerned about losing his investment if a company goes out of business. you advise him to buy
preferred stock
You hear on the news that The Dow has fallen to just below 8000 points. this means that
the Dow is relatively high levels compared to the early 1980s, but short of its all-time high.

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