Answers26-27 Ignite Financial Literacy Personal Finance - EL3403Homeowners Insurance

Stocks vs. Bonds Answers

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21
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What does it mean that stocks and bonds are relatively liquid?

A
They are easier to buy and sell than other forms of investment.
B
They tend to go up and down in value.
C
The amount of income they can bring changes frequently.
D
There are more of them to choose from than other forms of investment.
22
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What is risk, as pertains to investing?

A
The time period needed to find a buyer for an investment.
B
The cost of purchasing an investment.
C
The chance you take that your investments will lose their value.
D
The opportunity cost of tying your money up in investments.
23

Cheryl wants to purchase a par value $500 bond from Agram Imports. Agram Imports bonds have a market rate of 102.114 and offer 8.1% interest. If Cheryl’s broker charges a commission of 2.5% of the market value of each bond sold, what is the current yield on Cheryl’s bond?

A
0.077
B
0.078
C
0.081
D
0.040
24

Edgar owns 234 shares of Cawh Consolidated Bank, which he bought for $21.38 apiece. Each share pays a yearly dividend of $3.15. Edgar also owns two par value $1,000 bonds from Cawh Consolidated Bank. The bonds had a market value of 105.166 when he bought them, and pay 8.3% interest yearly. Which aspect of Edgar’s investment in Cawh Consolidated Bank offers a greater percent yield, and how much greater is it?

A
The stocks have a yield 6.43 percentage points greater than that of the bonds.
B
The stocks have a yield 6.84 percentage points greater than that of the bonds.
C
The bonds have a yield 1.05 percentage points greater than that of the stocks.
D
The bonds have a yield 9.13 percentage points higher than that of the stocks.
25

Five years ago, Benjamin invested in Parchar Special Effects. He purchased four par value $1,000 bonds from Parchar Special Effects at a market rate of 96.230. Each bond had an interest rate of 7.2%. Benjamin also purchased 200 shares of stock in the same company, each of which cost $19.08 and had a yearly dividend of $2.04. Today, bonds from Parchar Special Effects have a market rate of 104.595, and stock in Parchar Special Effects costs $22.62. If Benjamin liquidates his portfolio and sells all of his investments, which aspect of his investment will have yielded him a greater total profit, and how much greater is it?

A
The bonds yielded $940.20 more in profits than the stocks.
B
The bonds yielded $33.00 more in profits than the stocks.
C
The stocks yielded $373.20 more in profits than the bonds.
D
The stocks yielded $973.40 more in profits than the bonds.
26

Which of the following statements is true?

A
Bonds have more risk than stocks, but offer more return.
B
Stocks have more risk than bonds, but offer more return.
C
Stocks tend to offer a greater risk, while bonds tend to offer a greater return.
D
Bonds tend to offer a greater risk, while bonds tend to offer a greater return.
27

Drew has invested in Iwad Records. He owns three par value $1,000 bonds from them, which are currently selling for 99.773. He also owns 600 shares of Iwad Records stock, the current value of which is $5.28 per share. If, when Drew made his investment, Iwad Records bonds had a market price of 94.561 and stock in the same company sold for $5.00 per share, which investment has increased in value more, and by how much? (HINT: difference/original)

A
The value of Drew’s bonds has increased by $4.83 more than the value of his stocks.
B
The value of Drew’s bonds has increased by $9.87 more than the value of his stocks.
C
The value of Drew’s stocks has increased by $11.64 more than the value of his bonds.
D
The value of Drew’s stocks has increased by $34.92 more than the value of his bonds.
28

Sandra owns a bond issued by Animite Energy with a par value of $1,000. The bond pays 7.6% interest yearly and has a market rate of 93.411 when Sandra bought it. What is the current yield on Sandra’s bond?

A
0.076
B
0.074
C
0.081
D
0.089
29

Stock in Chambers Translation cost $18.89 per share when Anthony bought it. He earns $410.40 per year from his 360 shares in Chambers Translation. What is the percent yield on Anthony’s stock?

A
6.03%
B
2.17%
C
0.0603%
D
0.0217%
30

Stock in Chambers Translation cost $18.89 per share when Anthony bought it. He earns $410.40 per year from his 360 shares in Chambers Translation. What is the percent yield on Anthony’s stock?

A
6.03%
B
2.17%
C
0.0603%
D
0.0217%
31

Which of the following statements about length of investment is correct?

A
Bonds tend to be better long-term investments than stocks because bonds are unlikely to lose their value.
B
Stocks tend to be better long-term investments than bonds because bonds do not have the same growth potential that stocks do.
C
Bonds tend to be better long-term investments than stocks because bonds, unlike stocks, are guaranteed to keep up with inflation.
D
Stocks tend to be better long-term investments than bonds because stocks can be bought and sold more readily than bonds.
32

Why does the government issue only bonds, while companies issue both stocks and bonds?

A
The US government does not involve itself in the stock market because it does not want to risk losing money if there should ever be a crash in the stock market.
B
Because the stock market is used as a form of gambling, the government refuses to associated itself with the stock market as a way to discourage gambling.
C
Stock in a company gives the holder part-ownership of the company, with voting rights on big decisions, and profits when the value goes up. The people already vote on happenings in the government and inherently have ownership of the government.
D
A stock is a part ownership in a company, and the leaders of the government won’t have the people owning the government.

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