Equity Security Characteristics

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Proponents of which of the following technical theories assume that small investors are usually wrong?

A)Volume of trading.

B)Short interest.

C)Breadth of market.

D)Odd lot.

Answer: D)Odd lot.

A technical analyst would be most interested in which of the following?

A)Price-to-earnings ratios.

B)Working capital.

C)Capitalization ratios.

D)200-day moving averages.

Answer: D)200-day moving averages.

One method used by some analysts to estimate the future value of a stock is the dividend growth model. This model would probably be most useful in the case of a:

A)AAA corporate bond.

B)small-cap stock.

C)large-cap stock.

D)cumulative preferred stock.

Answer: C)large-cap stock.

A client approaches the IAR handling the advisory account with a request to find a preferred stock that will offer a 6% income return. The IAR suggests a stock paying a $.28 quarterly dividend. That stock will meet the income objective if it has a current market price of

A)$6.72

B)$18.67

C)$4.67

D)$11.91

Answer: B)$18.67

A technical analyst (chartist) with a long position in a particular stock would most likely enter a sell stop order below that stock's:

A)200-day moving average.

B)previous high.

C)support level.

D)resistance level.

Answer: C)support level.

When using the Dividend Discount Model,

A)the discount rate is generally lower than the expected rate of return

B)future expected dividends are discounted to compute the present value of the stock

C)the degree of accuracy in forecasting the price of preferred stock is less than that obtained by using the dividend growth model

D)best results are obtained from stocks that pay irregular dividends

Answer: B)future expected dividends are discounted to compute the present value of the stock

Which of the following is used in technical analysis in an attempt to modify fluctuations of stock prices over the long term into a smoothed trend?

A)trend lines.

B)support and resistance.

C)moving averages.

D)consolidation.

Answer: C)moving averages.

Rank the following from most suitable to least suitable for a client whose primary objective is income:

Cumulative preferred stock

Cyclical common stock

Large-cap stock

Warrant

A)I, II, III, IV

B)I, III, II, IV

C)III, II, IV, I

D)III, I, IV, II

Answer: B)I, III, II, IV

1. Cumulative Pref. Stock

2. Large-Cap Stock

3. Cyclical Common Stock

4. Warrant

A technical analyst is least likely to consider which of the following when selecting securities?

A)Short interest ratio.

B)Advance/decline line.

C)Trend lines.

D)Corporate earnings.

Answer: D)Corporate earnings.

During inflationary periods, what would one expect to happen to the market value of non-convertible preferred stock?

A)Its market value increases

B)Interest rates and the price of bonds have no impact on the market value of stock

C)Its market value remains the same

D)Its market value decreases

Answer: D)Its market value decreases

An analyst uses the Dividend Growth Model to assist in determining appropriate stocks to recommend. This analyst would consider all of the following factors EXCEPT:

A)required rate of return.

B)growth of the dividend.

C)dividend payout ratio.

D)current dividend.

Answer: C)dividend payout ratio.

Which of the following would be of least interest to a technical analyst?

A)Short interest ratio.

B)Advance/decline line.

C)PE ratio.

D)Trading volume.

Answer: C)PE ratio.

The chief analyst at your firm suggests that some of the IARs add emerging market securities to some client's portfolios. Among the benefits of doing so would be:

A)diversification.

B)positive correlation.

C)tax efficiency.

D)increased income.

Answer: A)diversification.

A technical analyst is least concerned with:

A)open short positions.

B)new highs and lows.

C)declaration of increased dividends.

D)trading volume.

Answer: C)declaration of increased dividends.

In the assessment of a company's stock, a technical analyst takes into consideration all of the following EXCEPT:

A)market price.

B)earnings.

C)price momentum.

D)volume.

Answer: B)earnings.

Which of the following events is of the greatest importance to a technical analyst?

A)The stock's price recently penetrated its resistance level.

B)Standard & Poor's raised the credit rating of the issuer.

C)The company announced the resignation of its chief financial officer.

D)The issuer's current book value increased.

Answer: A)The stock's price recently penetrated its resistance level.

A fundamental analyst would be interested in all of the following EXCEPT:

A)statistics of the U.S. Department of Commerce on disposable income.

B)corporate annual reports.

C)daily trading volumes on the NYSE.

D)innovations within the automotive industry.

Answer: C)daily trading volumes on the NYSE.

Which of the following statements about technical analysis are TRUE?

Technical analysis tries to identify trends and predict market changes.

Technical analysis is often accomplished by reviewing data in the form of charts.

Technical analysis looks primarily at past performance to predict future trends.

A)I and III.

B)I, II and III.

C)II and III.

D)I and II.

Answer: B)I, II and III.

If a technician believed in the importance of volume, which of the following would indicate bullish sentiment?

A)Prices decrease on light volume.

B)Prices increase on light volume.

C)Prices increase on heavy volume.

D)Prices decrease on heavy volume.

Answer: C)Prices increase on heavy volume.