QUESTION In the securities market, what is a capital gain? What will be an ideal response? ANSWER Answer: A capital gain occurs when an investor buys a security for a certain price and sells it at a higher price. The profit made from the sale is the capital gain. Explanation: Capital gain is the […]
Date: September 3rd, 2020
QUESTION Explain the difference between a stock and a bond. What will be an ideal response? ANSWER Answer: A stock represents a share of ownership in a company. A bond is a certificate that shows the owner has lent money to a company or government agency. Explanation: Stocks represent shares of ownership in a […]
Date: September 3rd, 2020
QUESTION Within the securities market, what is considered a “short-term IOU,” what is considered a “long-term IOU,” and which offers lower risk for investors? What will be an ideal response? ANSWER Answer: Short-term IOUs are money market instruments, such as U.S. treasury bills or bank CDs, that mature within one year. Long-term IOUs are […]
Date: September 3rd, 2020
QUESTION Investment banks can take a financial loss when new issues of stocks they purchase are sold to investors at a lower price. How can they decrease their risk? What will be an ideal response? ANSWER Answer: Investment banks can form a syndicate to purchase and sell a particular stock issue. Rather than one […]
Date: September 3rd, 2020
QUESTION What is the difference between investment-grade bonds and speculative-grade bonds? What will be an ideal response? ANSWER Answer: Investment-grade bonds are relatively safe with little chance the issuer will default on them. Speculative-grade bonds are considered higher risk with a greater probability of default. Due to their higher level of risk, they pay […]
Date: September 3rd, 2020
QUESTION What does it mean for a bond issuer to default? What will be an ideal response? ANSWER Answer: When a bond issuer defaults, it cannot make the scheduled interest payments on the bonds or repay the principal on the bonds. Explanation: A bond issuer that defaults is unable to meet scheduled interest payments […]
Date: September 3rd, 2020
QUESTION Which of the following is NOT a benefit of a mutual fund? A) They can be traded by investors at will. B) They are managed by professionals with investment expertise. C) They distribute risk across a variety of securities. D) They offer a wide range of investment strategies. E) They are an economical way […]
Date: September 3rd, 2020
QUESTION What is the difference between a stock’s par value and its market value? What will be an ideal response? ANSWER Answer: The par value of a stock is set by the issuing corporation; it is an arbitrary figure. The market value of a stock is the price it is currently selling for. The […]
Date: September 3rd, 2020
QUESTION Which of the following lists mutual fund types from lowest potential risk to highest potential risk? A) balanced < index < sector < money market B) index < balanced < money market < sector C) money market < index < balanced < sector D) sector < index < balanced < money market E) money […]
Date: September 3rd, 2020
QUESTION What are serial bonds, and what benefit do they offer the issuer? What will be an ideal response? ANSWER Answer: Serial bonds are bonds that mature at different dates. By not maturing at the same time, the issuer does not have to repay the bonds all at once. This helps the issuer avoid […]
Date: September 3rd, 2020
