AnswersPersonal Finance - EL3403Investing and Financial Markets

Investing and Financial Markets Answers

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1
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How do bonds generate income for investors?

A
Bonds depreciate in value.
B
Bonds protect investors from bankruptcy.
C
Bonds pay interest to the bank that sold the bond.
D
Bonds pay a specified amount to the investor at maturity.
2
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Once stocks are on the market, which best explains how their prices are set?

A
Prices are controlled by the issuing company.
B
Prices are set by the financial market.
C
Prices follow economic trends.
D
Prices fluctuate on the basis of demand.
3

Which is true about investments and risk?

A
Low-risk investments have a high return over the long run.
B
High-risk investments usually fail.
C
Safe investments are always somewhat profitable.
D
Every investment carries some degree of risk.
4

If a company pays dividends on a stock, does that mean that the stock has appreciated in value? Why or why not?

Y
Yes, the payment of dividends indicates that a stock’s value has increased.
N
No, the payment of dividends indicates that a company has earned profits.
Y
Yes, the payment of dividends indicates that a company’s assets have grown.
N
No, the payment of dividends indicates that a company can repay investors.
5

Which describes an investor’s primary goal of buying a loan?

A
to grow a business
B
to earn a profit off the interest
C
to bolster the economy
D
to provide capital to a business
6

Bonds are considered to offer a guaranteed return, as they must be honored by law, but which is still a potential risk that investors face?

A
The issuer may not raise enough capital.
B
The issuer could refuse to pay dividends.
C
The issuer could go bankrupt.
D
The issuer may not make a profit.
7

Which types of investments are securities?

A
both debt and equity
B
debt only
C
equity only
D
neither debt nor equity
8

best

T
They both use taxes to support a country’s growth.
T
They both invest money to earn a profit.
T
They both receive capital to use for growth.
T
They both act as angel investors for start-ups.
9

What can be traded in a commodities market?

A
stock
B
bonds
C
oil
D
debt
10

Which best describes what a market index does?

A
An index measures market performance.
B
An index measures economic trends.
C
An index measures growth.
D
An index measures the performance of a single stock.
11

Since stocks can be traded online, which purpose is best served by markets?

A
Markets regulate transactions.
B
Markets are where the trades actually occur.
C
Markets sell the assets to be traded.
D
Markets ensure that the transactions are secure.
12

Which statement best describes how an investor makes money off debt?

A
An investor makes money by issuing bonds.
A
An investor makes money by earning interest.
A
An investor makes money by raising capital.
A
An investor makes money by being repaid for the principal.
13

Which best describes what a market index does?

A
An index measures market performance.
B
An index measures economic trends.
C
An index measures growth.
D
An index measures the performance of a single stock.
14

Once stocks are on the market, which best explains how their prices are set?

A
Prices are controlled by the issuing company.
B
Prices are set by the financial market.
C
Prices follow economic trends.
D
Prices fluctuate on the basis of demand.
15

Are the buying and selling of stocks centralized activities? Why or why not?

A
Yes, the New York Stock Exchange is the primary exchange for all the world’s most important trades.
B
No, people can buy stocks anywhere, and they do not need to go through a market.
C
Yes, the world’s stock markets are coordinated exchanges, and they are dependent on one another.
D
No, there are many stock markets around the world, and they are independent of one another.
16

Which best describes how an investor makes money from an equity investment?

A
by earning interest
B
by selling the asset for a profit
C
by raising capital
D
by growing the asset
17

Which are the most likely uses of capital invested in a business? Check all that apply.

A
paying taxes
B
hiring workers
C
repaying investors
D
producing goods
E
distributing goods
F
buying materials
18

Which best describes what generally occurs in financial markets?

A
Debt and loans are traded.
B
Assets are traded.
C
Commodities are traded.
D
Shares are traded.
19

Which factors can affect a stock’s price? Check all that apply.

A
market performance
B
the company’s financial health
C
the quantity products produced
D
location of the company
E
the economy
20

Capital appreciation refers to

t
the increased value of an asset.
t
the ability to make a profit from owning stock.
t
the distribution of earnings to shareholders.
t
the profitable sale of shares.

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