Question

6) A difference between preferred stock and bonds is:

A. preferred stock typically includes voting rights, bonds do not

B. preferred stock has no maturity date, bonds do have a maturity date.

C. both (A) and (B) are correct

D. none of the above.

7) In a secondary market:

A. investors trade with other investors

B. companies issue IPOs or SEOs

C. both A and B

D. none of the above

8) An advantage of buying a company’s bonds instead of its common stock is:

A. bonds have higher priority with regards to cash flows

B. bonds include voting rights, while common stock does not.

C. the potential for gain is greater with bonds than stocks.

D. none of the above

9) The primary role of derivatives markets in the economy is:

A. to allow corporations to raise new capital

B. to provide liquidity for the trading of stocks and bonds

C. to share or transfer risk in the economy.

D. none of the above.

10) If a financial asset that was perceived as low risk becomes viewed as higher risk:

A. the expected return will increase and the price will increase.

B. the expected return will increase and the price will decrease.

C. the expected return will decrease and the price will increase.

D. the expected return will decrease and the price will decrease.

Answer 1

6.C. both (A) and (B) are correct

Preferred Stock has voting rights, bonds do not

And preferred stock has no maturity date buy bonds have

7.A. investors trade with other investors

A company issues IPO in primary market, investors trade with each other in secondary market

8. A. bonds have higher priority with regards to cash flows

Both interest and principal is paid to bondholders first

9. C. to share or transfer risk in the economy

Derivative market is for transferring risk

10.B. the expected return will increase and the price will decrease

Higher risk attracts higher returns