Chapter 2 Practice Questions
1. A value investor is most likely to purchase a stock with which of the following attributes?
A. An unusually low price/earnings ratio
B. A history of paying dividends reliably
C. The potential for an extremely high rate of growth
D. A relatively low price/earnings ratio in light of the potential for growth
2. Which of the following is true of a short sale?
A. It typically involves borrowing shares, selling them, buying back the same type of shares, and returning them to the original lender.
B. It requires an initial purchase of a fraction of the total number of shares in which the investor takes a short position.
C. The investor must buy securities on a specified date to cover the short.
D. The total net profit, if any, equals the decline in the price of the security between the time the shares are sold and the time shares of the same type are purchased.
3. Ann “Indy” Vijalin-Vestor has an online brokerage account. Ann is pursuing a specific investment strategy that involves buying stock in companies whose share prices have dropped precipitously following bad publicity. Of the following investment strategies, Ann is most likely to be following a(n):
A. Momentum strategy
B. Distressed strategy
C. Special situation strategy
D. Arbitrage strategy
4. An investment in emerging market equities is least subject to which of the following risks?
A. Currency risk
B. Reinvestment risk
C. Systematic risk
D. Political risk
5. Which of the following is not an IRS requirement for a Real Estate Investment Trust?
A. It must be a corporation in good standing under state law.
B. It must receive at least 75% of gross income from investments in real estate or mortgages on real property.
C. It must pay out at least 90% of taxable income to investors each year.
D. It must invest at least 75% of assets in real estate.
6. If a FINRA member, acting in a fiduciary capacity, receives