1 Answered Test Questions:
1. For which of the following reasons are both fundamental and technical analyses criticized?
Answers:
• Because neither can accurately predict future stock price movements
• Because it is difficult to decide which one will help a person make more money
• Because the numbers needed are not readily available
• Because there are other strategies which work better
87 NOT Answered Yet Test Questions:
(hold on, will be updated soon)2. Which of the following would not be an example of managing risk?
Answers:
• Investing completely in a new biotech firm
• Diversifying an investment to ten different companies
• Purchasing three mutual funds
• Buying both stocks and bonds
3. Why is it important to write down trading goals?
Answers:
• So that they may become more real and not be forgotten
• So that you may be able to throw them out if you are unable to meet them
• So that you may be able to tell people you are a successful trader because you set goals
• So that you may be able to ensure success
4. Which of the following is a risk of trading stocks on a foreign stock exchange as compared to trading it domestically?
Answers:
• Growth rate risk
• Taxation risk
• Legal risk
• Exchange rate risk
5. What is meant by a "leading indicator"?
Answers:
• A market statistic which changes after a change in stock prices
• A report put out by the stock market
• Insider information
• A market statistic which typically indicates ahead of time what the market will do
6. What is the main advantage of a stop loss order?
Answers:
• It limits all risk.
• It protects the investor's profit without his having to monitor the stock price constantly.
• It limits an investor's profit.
• It creates opportunities for a straddle.
7. What would be the objective of a conservative trader's portfolio?
Answers:
• Short selling stocks
• Long term returns over time
• Risky trading
• Short term returns
8. What happens to an investment if risk is mitigated properly?
Answers:
• Nothing specific happens to any one investment; risk mitigation is an overall portfolio tool.
• The stocks you purchase are guaranteed to increase.
• It makes for a zero sum game, with no losses or profits.
• Risk is assigned to someone else.
9. Which of the following is a way to quantify the risk of a given security?
Answers:
• Looking at what peers think of the stock
• Using technical analysis
• Using fundamental analysis
• Calculating the probability and magnitude of potential loss
10. What is a good indicator of a stock being volatile?
Answers:
• The stock price has highs of $50 and lows of $35 in the previous year.
• The graph of the stock indicates it hits new highs and lows almost monthly.
• The management is not qualified.
• The stock does not declare dividends.
11. What is the purpose of using screening factors?
Answers:
• They help focus on a specific industry.
• They guarantee against any losses.
• They help investors decide when to exit an investment.
• They are preset criteria that any investment must meet before an investor will consider it a viable investment.
12. Which of the following would a fundamental analyst examine?
Answers:
• Managerial reviews
• Financial forecasts
• Company strategy plans
• Company financial statements
13. What is the "gap" trading strategy?
Answers:
• Trading a stock when its opening price is different from the previous day's closing price
• Trading stock in the company GAP
• Looking for consistent companies who return large dividends
• Buying and selling the same stock at different prices at the same moment
14. How often should a trader revaluate the holdings in their portfolios?
Answers:
• Daily
• Continuously, but not daily
• Yearly
• Never
15. What is meant by a "margin account"?
Answers:
• A stock account with a guaranteed margin return
• A type of stock which sells at a discount
• A type of account that can only trade options
• A type of stock trading account which essentially borrows money from the stock brokerage to purchase stocks
16. What is another name for a market cycle?
Answers:
• Market Nomination
• Economic Cycle
• Gap Cycle
• Straddle
17. What is the type of analysis conducted using past earnings, past stock prices, and other qualitative and quantitative facts about a company called?
Answers:
• Technical Analysis
• Valuation
• Break Even Analysis
• Fundamental Analysis
18. Why would an investor invest only in companies which have a history of paying dividends?
Answers:
• Because it creates an income stream
• Because it is a low risk investment
• Because it creates a return on investment
• All of the above
19. What strategy would an investor with a short time frame most likely use?
Answers:
• Buying mutual funds
• Buying certificates of deposit
• Investing in large blue chip stocks for the dividends
• Day trading
20. What is a "trailing stop" order?
Answers:
• An order in which an investor actively changes the stop loss price of the order based on current market prices
• A multi tiered stop loss order
• A stop order placed after the purchase of the underlying stock
• A stop order placed before buying the underlying stock
21. Which of the following would be a stock trading goal?
Answers:
• Making lots of money
• Earning 20% return on the invested capital within 1 year
• Trading only in bear markets
• Selling call options
22. Why would an investor not utilize a stock trading strategy?
Answers:
• Because they cost money
• Because of the belief that they do not work, and are a wasted effort
• Because not enough data available
• Because they are only for the wealthy
23. What do decreasing interest rates typically mean for the stock market?
Answers:
• Stock prices will decrease in general.
• Stock prices will increase in general.
• There will be no effect on stock prices at all.
• Drastic changes in stock prices will be witnessed but it is not possible to determine in which direction.
24. How can market cycles be utilized in trading stocks?
Answers:
• They offer no help in trading stocks.
• By indicating when to invest in bonds
• By recognizing the declines in the market when stocks can be purchased at a lower price
• By letting an investor know when to sell their IBM stock
25. What should a trader do if one portfolio is outperforming another?
Answers:
• Sell off all stock in the worst portfolio.
• Switch the portfolios around so they all have the same return.
• Depends on the goals of each portfolio; they could still all be meeting expectations.
• Do extensive analysis on the stocks.
26. Why should goals be changeable?
Answers:
• They should not be; they should be set only once.
• Because it allows people never to have to achieve them
• Lest you should forget your goals.
• So that you may be able to refine your goals on the basis of the progress you are making
27. What is meant by "stop loss order"?
Answers:
• A stock order to purchase a stock at a specific price
• An order to purchase a stock after it has lost a percentage
• An order placed at a price lower than the current price to liquidate a stock and maintain a profit
• An order to purchase a stock at a specific price
28. What would be the risk tolerance level of a retired government worker in general?
Answers:
• High
• Moderate
• Varies indefinitely
• Low
29. What are the obstacles to achieving stock trading goals?
Answers:
• The stock market itself
• Inability to trade on foreign exchanges
• A career as a stock broker
• People or things which will require the trader to maneuver around them to reach their goals
30. What would be the appropriate limit price for the following example: A stock is currently trading at $20, and the investor believes he can buy it for 10% less.
Answers:
• $18
• $20
• $22
• $17
31. Why is it important to recognize what stage of the market cycle a company is in?
Answers:
• Because companies are required by law to report the stage
• Because it helps decide whether to hire or fire employees
• Because it indicates what the potential growth/decline rate is going to be in the near term
• It is not important at all.
32. What factors does technical analysis primarily rely on?
Answers:
• Financial reports
• Management reports
• Past Price and volume
• Market indicators
33. Why would an investor use a limit order to buy?
Answers:
• Because they want to pay more than the current price
• Because they want to sell the stock in the future
• Because they want to purchase a certain stock at a price lower than its current price without constantly monitoring the stock price
• Because they want to limit their market risk
34. What is the primary goal of technical analysis?
Answers:
• Identifying trends to predict short term price movements
• Helping build a retirement plan
• Identifying stocks with potential for large increases in the next two years
• Finding indications of interest rate direction
35. Why would a trader liquidate a portfolio?
Answers:
• Because it is illegal to hold it too long
• To avoid being labeled as a day trader
• Because it has made too much money already
• Because he is no longer interested in the classification of stock
36. What is portfolio management?
Answers:
• Having a suite of investments to reach a goal while minimizing risk
• Buying shares all in one industry
• Actively trading stocks in your portfolio
• Selling securities which are not performing
37. What is meant by "technical analysis"?
Answers:
• An analysis which uses fundamental information about a company
• An analysis which is done on a stock after it is purchased
• An analysis technique which utilizes both qualitative and quantitative factors
• A stock price analysis technique using technical aspects of a stock
38. What market stage would a company focus on for increasing sales?
Answers:
• Growth
• Idea stage
• Decline
• Peak
39. Which of the following is not one of the cycles in the market?
Answers:
• Growth
• Idea stage
• Decline
• Rapid recession
40. How can a trader implement a goal always to earn 10% on stocks, and never to lose more than 2%?
Answers:
• By setting limit and stop loss orders on all transactions using those criteria
• By actively watching the stocks and try to judge when to sell
• BY using it as a loose guideline
• By asking their friends to keep them on track
41. What happens to a stop loss order when the trigger price is reached?
Answers:
• The order converts to a market order to sell.
• The seller is notified to log into their account to execute the order.
• The stock is purchased.
• An options contract is sold for the security at the trigger price.
42. What is the purpose of a stop loss order?
Answers:
• To set a purchase price on a stock
• To write an option contract at the trigger price
• To sell a stock at the purchase price before losing money
• To protect profits already made on a stock investment
43. What form of analysis would a "Value Investor" utilize to identify stock opportunities?
Answers:
• Fundamental Analysis
• Technical Analysis
• Capital Asset Pricing Model
• All of the above
44. When is the straddle trading strategy appropriate?
Answers:
• When the price may move by a small amount
• When an investor believes there will be a large decrease in stock prices
• When an investor believes there will be a large increase in stock prices
• When an investor believes there will be a large stock price movement, but does not know in which direction
45. Which of the following would be a good example of risk mitigation?
Answers:
• Purchasing only small cap stocks
• Purchasing stocks in three industries
• Purchasing stocks all in one industry
• Purchasing only blue chip stocks
46. What would a company at the peak of the business cycle consider doing?
Answers:
• Selling off the division
• Reworking the product or offering an additional product, as the current product is likely to start declining
• Spending on marketing to increase sales
• Hiring additional staff
47. What is a "speculative stock"?
Answers:
• A stock which has a proven track record for slow growth
• A stock which is high risk and has the potential for large returns or large losses
• A stock with a guaranteed return
• A stock which trades on the NASD
48. What is meant by "day trading"?
Answers:
• Trading during market hours
• Trading stocks on foreign markets
• Purchasing stocks and selling them on the same day
• Holding stocks for a short period of time, not more than a week
49. What is the duration of a market cycle?
Answers:
• One year
• Depends on the product, market, economic situation, and cannot be stated
• Limited to 10 years at the most
• Typically two years
50. What is meant by using the straddle stock trading strategy?
Answers:
• Selling a call option and purchasing a put option
• Purchasing two call options at different prices
• Owning both call and put stock options at the same stock price
• Purchasing two put options at different prices
51. Which of the following would most likely be a way to classify various portfolios?
Answers:
• By the tax laws which apply
• By the number of shares outstanding
• By the time the securities were purchased
• By the time horizon of the investments contained in it
52. Which of the following is an advantage of having multiple portfolios instead of only one?
Answers:
• It lowers the trader's tax obligations.
• It makes it easier for the trader to trade and profit.
• It eliminates all risk.
• Goals can be set for each portfolio and tracked separately.
53. What is the primary theory behind fundamental analysis?
Answers:
• All stocks rise in price eventually.
• Profits can be made in the near term by purchasing mispriced securities.
• Interest rates are the primary indicator of stock prices.
• The management needs direction.
54. What would be the appropriate order to place in the following example?
An investor owns a stock currently trading at $20. They purchased it at $10. They want to ensure they have at least an 80% return.
Answers:
• Place a stop loss at $18
• Place a sell limit order at $16
• Place a buy limit order at $10
• Place a buy limit order at $22
55. Is a stop loss order a buy or sell order?
Answers:
• A buy order
• A sell order
• Can be either
• Is neither
56. Why would a stock trader want to create various portfolios?
Answers:
• So that each portfolio may be taxed separately
• So that each portfolio may contain one stock
• So that each portfolio may be set up to meet specific goals
• So that they may be able to sell all the stocks within a portfolio more easily
57. What is the ideal number of portfolios for an experienced trader?
Answers:
• 1
• 5
• 20
• 100
58. What is meant by a "lagging indicator"?
Answers:
• A market statistic which indicates what changes will typically take place after changes in the stock market
• A report put out by the stock exchange
• One stock price dictating the price of another stock
• Insider information
59. What is a sudden and unexpected drop in stock prices on the stock market referred to as?
Answers:
• Market mechanics
• Market normalization
• Stock market magnitude
• Stock market crash
60. Why do investors often expect stock prices to rise at the beginning of the year?
Answers:
• Because the new year means companies can restart and forget the past
• Because the management is always more driven
• Because the year end sales typically bolster profits and increase demand
• Because employee cuts are made reducing expenses typically after the holidays
61. What is the "date of declaration" with reference to stocks?
Answers:
• The date a stock is initially sold
• The date of the financial report release
• The date the fiscal year ends
• The date a dividend is declared
62. In a bear market, what is a short term rally referred to as?
Answers:
• Bear Market Rally
• Bull Market Rally
• Bull Market
• Bear Market
63. What would credit risk be used to assess?
Answers:
• The management's personal credit score
• The company's ability to pay its long term debts
• The correctness of a technical analysis
• A business's ability to acquire debt capital
64. What is a secular trend?
Answers:
• A near term trend
• A predicted trend in the future
• A past trend
• A long term trend
65. What does the acronym "OTCBB" stand for?
Answers:
• On the Counter Buying Board
• On the Courier Bulletin Board
• Over the Counter Bulletin Board
• Other Time Counting Buying Board
66. What is the relationship between fundamental and technical analyses?
Answers:
• They are mutually exclusive, and an analyst would use one or the other, never both.
• They must both be used together.
• They can both be used to complement each other, but cannot be used together.
• They are very exclusive techniques that should both be avoided.
67. How is risk measured?
Answers:
• It is measured by classifying risk into one of the three levels of risk.
• Individually; each investor assesses their own risk tolerance level.
• As a letter: a,b,c or d
• Someone else assesses your risk level.
68. What impact does the "herd" have on market trends?
Answers:
• It has no impact.
• It makes the market move in an upward direction.
• It leads to an increase in taxation.
• It dictates which way the market will run.
69. What is "capitalization"?
Answers:
• The value of a company based on the number of shares outstanding and the stock price
• The amount of capital the founders have placed in the company
• The amount of debt the company holds
• The retained earnings value of the company
70. What is the most important principle to be followed in goal setting?
Answers:
• Set goals far beyond your reach as motivation
• Don't set too many goals
• Set goals but then don't worry about them
• Set realistic and achievable goals
71. What type of transaction is a limit order?
Answers:
• A buy order
• A sell order
• Can be either
• Is neither
72. Why are younger people more apt to take on riskier investments?
Answers:
• They have a longer time horizon to allow for the risky investments to increase over time, and are immune to the short term changes.
• They do not know the value of money in the long run.
• They have less knowledge and do not know the potential for loss.
• There are short term gains to be made.
73. What is the primary method to mitigate risk?
Answers:
• Diversifying investment holdings
• Day trading
• Purchasing only tech stocks
• Purchasing stock in the company you work for
74. Which type of analysis relies on charting?
Answers:
• Fundamental
• Technical
• Both Fundamental and Technical
• Neither Fundamental nor Technical
75. When the stock market is moving upwards consistently, what may temporarily happen?
Answers:
• A market crash
• A market correction
• A market magnitude
• A market normalization
76. What stage of the market cycle is characterized by product exploration?
Answers:
• Growth stage
• Decline
• Peak
• Idea stage
77. What is the difference between a stock trader and a stock investor?
Answers:
• There is no difference. Both terms refer to people who invest in stocks.
• Stock traders are the same as stock brokers but stock investors are not.
• Stock traders profit on short term price changes, stock investors profit on long term growth.
• A stock investor invests only in blue chip stocks, a stock trader only in risky stocks.
78. Why is an investor unlikely to hold growth, value, small cap, and index portfolios all at once?
Answers:
• Because he has too much time to manage them
• Because they have completely different investment perspectives
• Because taxes would be excessive if he does not do it
• Because it is too difficult to earn a high return on any one portfolio
79. What does the saying "buy low sell high" mean?
Answers:
• Buy a stock when employee morale is low, sell it when it is high
• Invest in bonds when stock prices are high
• Purchase a stock when interest rates are low, sell when they are high
• Purchase a stock when it is at a discounted price, sell it once it has gained value in the market
80. Which of the following would be an indication of market decline?
Answers:
• Increase in crime
• Increase in jobs available
• Decrease in crime
• Increase in auto sales
81. Which of the following is a way for a trader to track their progress towards their goals?
Answers:
• Just keeping it in the back of their minds
• Changing their goals to what they have already achieved
• Creating reports and charts which map their progress alongside with the goal
• Not bothering about setting goals
82. What is meant by a "day order"?
Answers:
• Buying and selling stock on the same day
• Contract for the stock symbol "DAY"
• An order which is only good for the current day, and expires if not executed at the end of the day
• An order that is open indefinitely
83. Why is it important for an investor to know their risk tolerance level before trading stocks and investing in general?
Answers:
• Because it is required by law
• Because it helps in tax planning
• Because it helps them decide which industry to invest in
• Because they can then match their risk tolerance level to the types of stocks they are purchasing
84. What is meant by "diversification"?
Answers:
• Buying as much of one stock as possible
• Buying only speculative stocks
• Purchasing stocks from varying industries to reduce overall risk
• Purchasing options contracts
85. Which of the following is an assumption made by a technical analyst?
Answers:
• The stock price does not reflect market information currently.
• No one else has recognized the stock as a good investment.
• All stocks will increase in the long run.
• The stock price already reflects all news and news events and they do not impact a stock's price.
86. What is the purpose of setting trading goals?
Answers:
• To meet the requirements set by the SEC
• To minimize taxes
• To have a measurable and achievable target
• To guarantee success
87. What is the term used for selling a stock without owning the stock?
Answers:
• Short Selling
• Margin Selling
• Fundamental Selling
• Technical Selling
88. Why do goals have to be specific?
Answers:
• In order to tell others
• In order to be achievable and measurable
• In order to get something done
• In order to be able to change them
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