Test Bank Chapter 21 Stocks, Bonds, And Mutual Funds

Chapter 21

Stocks, Bonds, and Mutual Funds

True/False Questions
 

1. Stock represents shares of ownership in a company. 
True    False

2. Cumulative preferred stock is not entitled to dividends in arrears. 
True    False

3. The general public is allowed to trade stock on the floor of the stock exchange. 
True    False

4. Each time the stock of a company trades on the exchange, the company receives additional money. 
True    False

5. The stock yield is the monthly dividend divided by the closing price per share. 
True    False

6. The price-earnings ratio of stocks is not standard. 
True    False

7. A company that has no PE ratio has no earnings. 
True    False

8. The previous day's close of a stock is listed in today's transactions. 
True    False

9. Stocks are quoted in decimals. 
True    False

10. A commission is charged only when one is buying a stock. 
True    False

11. Bonds do not repay the face value in the future. 
True    False

12. Stocks are traded over the Internet. 
True    False

13. Bond quotes are stated in percents of face value. 
True    False

14. A bond selling for more than the face value is selling at a premium. 
True    False

15. The yearly interest on a bond is the current selling price of the bond times the stated yearly interest rate. 
True    False

16. The current yield on a bond is the yearly interest of the bond divided by the cost of the bond at closing. 
True    False

17. A bond quote of 74.375 is $743.50. 
True    False

18. A bond yield is the total annual interest of a bond divided by the total current cost of the bond. 
True    False

19. If someone buys a bond for less than $1,000, that person will receive less annual interest. 
True    False

20. Bond price-earnings ratios are similar to those of stocks. 
True    False

21. A mutual fund is an investment company that buys stocks and bonds and then sells shares in those securities to the public. 
True    False

22. The NAV is the dollar value of 10 shares of a mutual fund. 
True    False

23. The NAV helps an investor keep track of the value of his or her investment. 
True    False

24. The offer price of a mutual fund is always the NAV and commission. 
True    False

25. A low-load fund is bought directly from the investment company. 
True    False

26. Partnerships are businesses owned by three or more people.

True False

27. Partnership profits may be distributed by equal share, ratio, original investment, or by any other means agreed to by the partners.

True False

Multiple Choice Questions
 

26. Preferred stock can: 
A. Be cumulative
B. Have equal rights to common stock
C. Never receive dividends in arrears
D. Never have preference to dividends over common stockholders
E. None of these

27. Dividends in arrears mean: 
A. No past dividends have been omitted
B. Preferred has been paid but not holders of common stock
C. Common stock must receive additional dividends not paid
D. A specific amount of dividends has not been paid
E. None of these

28. Stockbrokers: 
A. Do not act as middlemen
B. Cannot trade stock
C. Charge a commission for buying and selling
D. Are always right in all their stock recommendations
E. None of these

29. A stock price will rise if: 
A. Supply of stock is greater than demand
B. The price-earnings ratio is 10 or greater
C. Stock yield is greater than 8%
D. Demand for stock is greater than supply
E. None of these

30. Stocks are always quoted in: 
A. Percents
B. Quarters of a dollar
C. Decimals
D. Quarter lots
E. None of these

31. Stock yield is found by the annual dividend divided by the: 
A. Opening price per share
B. Closing price per share
C. Price-earnings ratio
D. Net change for the day
E. None of these

32. The price-earnings ratio is calculated by the closing price per share of stock divided by the: 
A. Quarterly earnings per share
B. Dividend per year
C. Annual earnings per share
D. Net change
E. None of these

33. A mutual fund is made up of 
A. Many stocks
B. 10 stocks
C. 100 stocks
D. 500 stocks
E. None of these

34. Commissions charged on the trading of stock are: 

A. Only on buying of stock

B. On buying and selling of stock
C. Only on sale of stock
D. Fixed
E. None of these

35. Bond quotes are stated in: 
A. Dollars
B. Fractions of a dollar
C. Percents of face value
D. Percents of purchase price
E. None of these

36. Bonds are usually in denominations of: 
A. $100
B. $1,000
C. $10,000
D. $100,000
E. None of these

37. The yearly interest of a bond is the face value of the bond: 
A. Divided by the stated yearly interest rate
B. Plus the stated yearly interest rate
C. Times the stated yearly interest rate
D. Minus the stated yearly interest rate
E. None of these

38. A bond quote of 82.25 in dollars is equal to: 
A. $82.25
B. $8.25
C. $8,025.50
D. $822.50
E. None of these

39. A bond that closed today at 94 down 2 closed yesterday in dollars at: 
A. $960
B. $940
C. $950
D. $930
E. None of these

40. ARUN stock closed at $8.11 + $.33. Yesterday's closing price was: 
A. $8.44
B. $8.40
C. $7.78
D. $7.87
E. None of these

41. The stock of WAL-MAT pays a dividend of $.88. The stock opened at $18.25 and closed at $18.33. The stock yield is: 
A. 4.8%
B. 4.2%
C. 4.1%
D. 4.9%
E. None of these

42. Jangles Co. earned $1.80 per share. Assuming a closing price of $40, the PE ratio is: (Round to the nearest whole answer.)
A. 7
B. 22
C. 72
D. 20
E. None of these

43. The bond of Tuckpeck is 8¼ 14. The bond traded for a high of 93.25 and closed at 93. The current yield of the bond to the nearest tenth of a percent is: 
A. 8.8%
B. 8.7%
C. 8.9%
D. 8.6%
E. None of these

44. TOX bond 7.55 yields 11%. The bond traded at a low of 71.25 and closed today at 71.625 + .75. The closing price yesterday was: 
A. 65.125
B. 72.375
C. 69.875
D. 70.875
E. None of these

45. A bond closed at 102.25. The current yield is 10.4%. The annual interest is: 
A. $102.90
B. $106.34
C. $105.80
D. $104.60
E. None of these

46. Bee Sting bought 400 shares of Google at $399.75 per share. Assume a commission of 2% of the purchase price. What is the total to Bee? 
A. $159,900
B. $156,702
C. $163,980
D. $163,098
E. None of these

47. Jeff Ryan bought 200 shares of BUI for $19.50. Eight weeks later he sold the stock for $20.75. Assuming a 3% commission, his bottom line was a gain of: 
A. $250.00
B. $374.50
C. $8.50
D. $257.50
E. None of these

48. Ace Corporation pays its cumulative preferred stock $1.95 per share. There are 40,000 shares of preferred and 80,000 shares of common. In 2012, 2013, and 2014, because of slowdowns in the economy, Ace paid no dividends. Now, in 2015, the board of directors has decided to pay out $600,000 in dividends. The common stockholders receive: 
A. $312,000
B. $288,000
C. $366,000
D. $444,000
E. None of these

49. Royal Co. receives a dividend of $4.88 per share. Today the closing price of the stock is $59.95. The current stock yield to the nearest tenth of a percent is: 
A. 8.1%
B. 8.0%
C. 8.2%
D. 8.3%
E. None of these

50. The stock of VIC Corporation is trading at $39.63. The price-earnings ratio is 16 times earnings. The earnings per share for VIC Corporation are: 
A. $2.84
B. $2.48
C. $4.96
D. $6.34
E. None of these

51. Al Roy bought five bonds of Jort Co. 11 3/4 at 93.25 and four bonds of Inst. System 12x08 for 81.125. If the commission on the bonds is $2.50 per bond, the total cost of all the purchases is: 
A. $4,662.50
B. $3,425.00
C. $7,930.00
D. $7,907.50
E. None of these

52. Exxon sells its bonds at 108.375. The amount of premium or discount the bond is selling for is: 
A. $17.35
B. $13.75
C. $13.25
D. $13.57
E. None of these

53. Ron bought one bond of Bee Company for 82.25. The original bond was 6 3/4 15. The current yield is (to the nearest tenth of a percent): 
A. 8%
B. 8.2%
C. 8.3%
D. 9%
E. None of these

54. Abby Ring buys five bonds of Moe Co. 12 3/4 15 at 89.375 with a commission of $5.00 per bond. Her total annual interest is: 
A. $127.50
B. $637.05
C. $1,275
D. $637.50
E. None of these

55. Loretta Scholten buys nine bonds of Leo Co. 7 ¼ 16 at 103.375. The commission is $3.00 per bond. The current yield to the nearest tenth of a percent is: 
A. 7.0%
B. 7.1%
C. 7.2%
D. 7.3%
E. None of these

56. Amy purchased 100 shares of Monsanto Company for $66.10 per share. Today the stock is selling for $80.45. Assuming a charge of $7.00 to buy and sell, how much did Amy earn if she sold her shares today?
A. $6,617

B. $8,038

C. $1,421

D. $14,655

E. None of these

57. In April 2007, Sandi sold 1,600 shares of Federal Express at $105.00 per share. In May 2009, the stock reached a low during the Great Recession and was selling for $32.00 per share. Sandi used the proceeds from the 2007 sales and repurchased Federal Express at $32.00 per share in May 2009. What is the value of Sandi’s stock holdings in Federal Express if the shares are selling for $91.00 today?

A. $168,000

B. $51,200

C. $477,750

D. $239,000

E. None of these

58. Fidelity Investments is selling a real estate income mutual fund for $10.94 per share. The fund charges a load of 2.5%. What is the offer price?

A. $10.94

B. $10.67

C. $11.21

D. $11.48

E. None of these

59. McDonald’s Corp (MCD) stock is selling for $90.24 per share. They offer a dividend of $2.80 per share. What is the stock yield? (Round to nearest tenth.)

A. 3.1%

B. .031%

C. 5.8%

D. .059%

E. None of these

60. Zolt Inc. (zolt) stock is selling for $8.22 per share with an EPS of .45 cents per share. What is Zolt’s PE ratio? (Round to nearest tenth.)

A. 18.3

B. 19.5

C. 8.3

D. 20.0

E. None of these

61. John, Sally and Jane form a partnership. They agree to distribute profits using a 2:3:2 ratio. If profits are $70,000, Sally’s share would be;

1. $10,000
2. $20,000
3. $30,000
4. $70,000
5. Some other amount

62. John, Sally and Jane form a partnership. They agree to distribute profits by paying Sally a $50,000 salary and distributing the balance using a 2:1:2 ratio. John’s share of the profits is:

1. $4,000
2. $8,000
3. $14,000
4. $54,000
5. Some other number

63. John, Sally and Jane form a partnership. The partnership earns a $70,000 profit. Partners share profits by previous year’s capital balance. Capital balances were $100,000 for John, $75,000 for Sally and $225,000 for Jane. Jane’s share of this year’s profit is:

1. $17,500
2. $13,125
3. $39,375
4. $35,000
5. Some other amount

Short Answer Questions
 

61. 1. No-load fund
2. Bond premium
3. Bonds
4. Bond yield
5. Cash dividend
6. Common stock
7. Cumulative preferred
8. NAV
9. Decimals
10. Price-earnings ratio
11. Sym
12. Stock yield
A. Total interest divided by total cost
B. Dollar value of one share of a mutual fund
C. Symbol of stock
D. No sales charge
E. What shares are quoted in
F. Payment to stockholder
G. Dividend in arrears is paid before common price
H. Dividend per share divided by closing price
I. Denominations of $1,000
J. Price per share divided by earnings per share
K. Bond sells for more than face value
L. A type of stock 

62.   
Assume $1.19 EPS.
Calculate the PE number (round to nearest whole). 

63.   
Assume $1.19 EPS.
What was yesterday's closing price? 

64.   
Assume $1.19 EPS.
Calculate the yield percent (round to nearest tenth percent). 

65.   
Assume $1.19 EPS.
What was sales volume? 

66.   

Assume $1.19 EPS.
What was the lowest price at which the stock traded for the year? 

67.   
Assume $1.19 EPS.
For the year, what was the highest price at which the stock traded? 

68.   
What is the total interest for one year on this bond? 

69.   
Calculate the bond yield (to the nearest tenth percent) based on the closing price. 

70.   
In dollars, what was the closing price? 

71.   
What is the rate of interest? 

72.   
In what year does the bond mature? 

73.   
Is the bond trading at a premium or a discount? 

74.   
In dollars, what was yesterday's close? 

75. Assume a bond sells at 97.75 (pays 8% interest). If Bill Smith buys four bonds (assume no commission), what is the total dollar cost? 

76. Assume a bond sells at 97.75 (pays 8% interest). What is the total interest Bill would receive at the end of each year if he buys four bonds? 

77. Assume a bond sells at 97.75 (pays 8% interest). Calculate the bond yield to the nearest tenth percent. 

 78. Complete the following:
Assume: 22,000 shares of cumulative preferred ($1.75 per share)
49,000 shares of common
  
A. _________________
B. _________________
C. _________________
D. _________________
E. _________________
F. _________________ 

79. Jeff Sellers bought 200 shares of ATT stock at $29.38. Eight months later, he sold the stock at $31.63. Assuming a 2% commission charge, what is the bottom line for Jeff? 

80. Jim Ryan buys a Sears bond at 109.125. What is the amount of premium or discount the bond is selling for? 

81. Jan Flynn bought four bonds of Reebok Company (11 3/4 16) at 88.25. Assuming a commission of $4 per bond, (A) what was Jan's total cost and (B) how much interest will Jan receive from the bonds after one year? 

82. Disney Stock currently sells for $68 per share with a price-earnings ratio of 14. What does Disney earn per share? 

83. If a mutual fund has an NAV of $12.75 and an offer price of $13.10, what would be the cost of 300 shares? 

84. The current market value of Plum Fund Investment was $6,850,000. The fund has current liabilities of $950,000. There are 700,000 shares outstanding. What is the NAV (round to the nearest cent) of this fund? 

85. Norm Cota bought 600 shares of ATT stock at $32 per share. Assume a commission of 5% of the purchase price. What is the total cost to Norm? 

86. Jones Company earns $6 per share. Today the stock is selling at $48. The company pays an annual dividend of $.83. Calculate (A) the price-earnings ratio and (B) the yield on the stock (to the nearest tenth percent). 

87. The stock of Beatrice Co. is trading at $38.50. The price-earnings ratio is 9 times earnings. Calculate the earnings per share (to the nearest cent) for Beatrice Co. 

88. Angel Ford bought 6 bonds of VBF Company at 8 1/2 and 18 at 82 and 6 bonds of RC Company 8 3/4, 17 at 87. Assume the commission on the bonds is $4 per bond. What is the total cost of all the purchases? 

89. Jamie King bought one bond of Easter Company for 110. The original bond was 6 1/2 18. Jamie wants to know the current yield to the nearest tenth percent. 

90. Cumulative Preference stockholders receive $.90 per share. There are 40,000 shares. For the last four years no dividends have been paid. This year $170,000 is paid out in dividends. How much in dividends to preferred is still in arrears? 

91. Assume the company earns $1.62 per share.
  
Calculate the PE number. 

92. Assume the company earns $1.62 per share.
  
What was yesterday's closing price? 

93. Assume the company earns $1.62 per share.
  
Calculate the yield percent (round to nearest tenth percent). 

94. Assume the company earns $1.62 per share.
  
What was the sales volume? 

95. Assume the company earns $1.62 per share.
  
What was the lowest price at which the stock traded for the year? 

96. Assume the company earns $1.62 per share.
  
Today what was the highest price at which the stock traded for the year? 

97. Assume the company earns $.70 per share.
  
Calculate the PE number. 

98. Assume the company earns $.70 per share.
  
What was yesterday's closing price? 

99. Assume the company earns $.70 per share.
  
Calculate the yield percent (round to the nearest tenth percent). 

100. Assume the company earns $.70 per share.
  
What was the sales volume? 

101. Assume the company earns $.70 per share.
  
What was the lowest price at which the stock traded for the year? 

102. Assume the company earns $.70 per share.
  
Today what was the highest price at which the stock traded for the year? 

103.   
What is the total interest for one year on this bond? 

104.   
Calculate the bond yield (to nearest tenth percent) based on the closing price. 

105.   
In dollars, what was the closing price? 

106.   
What is the bond interest rate? 

107.   
In what year does the bond mature? 

108.   
Is the bond trading at a premium or a discount? 

109.   
In dollars, what was yesterday's close? 

110.   
What is the total interest for one year on this bond? 

111.   
Calculate the bond yield (to nearest tenth percent) based on the closing price. 

112.   
In dollars, what was the closing price? 

113.   
What interest rate is the bond paying? 

114.   
In what year does the bond mature? 

115.   
Is the bond trading at a premium or a discount? 

116.   
In dollars, what was yesterday's close? 

117. Assume: Bond sells at 98 ½ (pays 15% interest). If Bill Smith buys four bonds (assume no commission), what is the total dollar cost? 

118. Assume: Bond sells at 98 ½ (pays 15% interest). What is the total interest Bill will receive at the end of each year? 

119. Assume: Bond sells at 98 ½ (pays 15% interest). Calculate the bond yield (to nearest tenth percent). 

120. Assume: Bond sells at 98 3/4 (pays 14% interest). If Bill Smith buys four bonds (assume no commission), what is the total dollar cost? 

121. Assume: Bond sold at 98 3/4 (paid 14% interest). Bill bought four bonds. What is the total interest Bill would receive at the end of each year? 

122. Assume: Bond sells at 98 3/4 (pays 14% interest). Calculate the bond yield (to nearest whole percent). 

123.   
Assume: 25,000 shares of cumulative preferred ($2.50 per share)
50,000 shares of common
A. _______________
B. _______________
C. _______________
D. _______________
E. _______________
F. _______________ 

124.   
Assume: 15,000 shares of cumulative preferred ($1.80 per share)
80,000 shares of common
A. ___________________
B. ___________________
C. ___________________
D. ___________________
E. ___________________
F. ___________________ 

125. Nancy Ford bought 300 shares of Braniff stock at $3 per share. Assume a commission of 3% of the purchase price. What is the total cost to Nancy? 

126. The Ranger Co. earns $4.50 per share. Today, the stock is trading at 42 1/2. The company pays an annual dividend of $.85. Can you calculate (A) the price-earnings ratio (round to whole number) and (B) the yield on the stock? 

127. The stock of Morris Co. is trading at $32.25. The price-earnings ratio is 14 times earnings. Could you calculate the earnings per share (to the nearest cent) for Morris Co.? 

128. Linda Summers bought four bonds of AMT Co. 11 3/4 18 at 85 and five bonds of RT Co. 14 S 17 for 91. If the commission on the bonds is $2.50 per bond, what was the total cost of all the purchases? 

129. Bill Bone buys five bonds of UIC Co. at 92. What is the premium or discount per bond for Bill? 

130. Jeff Sano bought one bond of Blue Co. for 125. The original bond was 6 3/4 12. Jeff wants to know the current yield to the nearest tenth percent. Can you help Jeff with the calculation? 

131. Joe Boyd is considering whether to buy stocks or bonds. The stock he is looking at is trading at $43.50 with an annual dividend of $3.60. The bond is trading at 92.125 with an annual interest rate of 8 3/4%. Can you calculate for Joe his rate of return to the nearest hundredth percent for stocks and bonds? 

132. If Bill Margin sells five bonds at 104.50, what amount will he receive? (Disregard commissions.) If the bonds pay 13% annually, what is the current yield to the nearest tenth percent? 

133. Tim Sport bought four bonds of ABC 6 1/2 16 at 78.125. Can you help Tim calculate his (A) total annual interest, (B) total cost, and (C) current yield to the nearest tenth percent? 

134. Moe Corporation pays its cumulative preferred stock $2.10 per share. There are 30,000 shares of preferred and 80,000 shares of common. In 2014, 2015, and 2016 no dividends were paid. Now, in 2017, $600,000 was declared. How much did each class of stock receive?

135. Randy Smith bought 180 shares of a mutual fund with an NAV of $14.85. This fund has a load charge of 6%. What is the offer price, and what did Randy pay for the investment?

136. Angel Hart bought 190 shares of a mutual fund with an NAV of $14.10. This fund also has a load charge of 6 3/4%. (A) What is the offer price, and (B) what did Angel pay for the investment? 

137. Mindy bought 600 shares of Disney Stock at $106.44 per share. Assume a commission of 2% to buy shares. What is the cost to buy the stock?

138. The stock of Oracle is selling for $38.50 per share. The earnings per share are 9 times earnings. Calculate the price-earnings ratio to the nearest tenth for Oracle.

139. Susan Schmitt bought 180 shares of a mutual fund with an NAV of $14.85. This fund has a load of 6%. What is the offer price to Susan?

140. Jamie bought 200 shares of ATT stock at $29.38 per share. Eight months later she sold the stock at $31.63 per share. Assume a 2% commission is charged on both buying and selling the stock. What was Jamie’s ROI?

141. From the following, calculate the NAV of a mutual fund:

Current market value $9,220,000

Current liabilities 910,000

Number of shares outstanding 950,000

 142. John, Sally and Jane form a partnership. They agree to distribute profits using both salary and original investment. Profits for this year totaled $51,000. John earns a $30,000 salary and Sally earns a $40,000 salary. All three partners invested $100,000 to start the partnership. What is Sally’s share of the profits?