The required return on a risky investment includes a real rate of return, an inflation premium and a risk premium.
T or F
T
If the risk-free rate of return is less than the inflation rate, the real rate of return is negative.
T or F
T
A petroleum refinery in the Gulf region is forced to shut down for several months because of hurricane damage. This is an example of
event risk.
Which one of the following statements is correct?
A) The S&P 500 Index is based on 500 large companies that trade on U.S. exchanges.
B) Because of mergers and bankruptcies, the S&P 500 Index no longer contains 500 stocks.
C) The S&P 500 Index is carefully
A
An individual investor who wishes to borrow money to buy stocks must open a
margin account.
Which of the following statements concerning market and limit orders are correct?
I. Market orders guarantee both a price and an execution.
II. Market orders guarantee an execution but not a price.
III. Limit orders guarantee a price but not an execution.
II, III and IV only
American investors can participate in international stock markets by
A) purchasing shares in a mutual fund that invests in foreign companies.
B) purchasing shares of a U.S. based company such as Coca Cola or McDonald's with extensive international operati
D
The Sarbanes-Oxley Act of 2002 strengthens accounting disclosure requirements and ethical guidelines for financial officers. T or F
T
Jessica purchased 200 shares of stock at $38 using her 70% margin account. Her maintenance margin is 40%. Jessica has no other securities in her account. At what price will she receive a margin call?
B
Debit balance = 38
200
.30= 2280
In a margin call, the debit balance would be 60% of the new value. 2280/0.6 = 3800 (per share price = 3800/200 = 19)
Assume the foreign exchange rate for the euro was U.S. $1.00 = .70 euro last month. This month, the exchange rate is U.S. $1.00 = .72 euro. All things equal, the dollar value of European stocks
decreased.
Josh purchased 100 shares of XOM at the beginning of 2007. He received dividends per share of $1.37 (2007), $1.55 (2008), $1.66 (2009), $1.74 (2010), $1.85 (2011). At the end of 2011, just after receiving the last dividend, he sold the stock for $84.76. A
PV = 1.37 FV=-1.85, N=4 and calculate I/Y
Bonds represent a lower level of risk than do stocks in the same company.
True