S-12 Securities Products and Markets 1 — Questions and Answers
Question 1: Which type of security represents ownership in a corporation and entitles the holder to a share of profits through dividends?
- Corporate bond
- Common stock (Correct answer)
- Treasury bill
- Commercial paper
Correct answer: Common stock
Common stock represents equity ownership in a corporation and may pay dividends declared by the board of directors.
Question 2: A municipal bond issued to finance a specific revenue-generating project and repaid solely from that project's revenues is called a:
- General obligation bond
- Revenue bond (Correct answer)
- Treasury note
- Agency bond
Correct answer: Revenue bond
Revenue bonds are backed only by income generated from the specific project they finance, such as a toll road or utility, not by the issuer's taxing power.
Question 3: Which market is characterized by investors trading securities among themselves rather than with the issuing company?
- Primary market
- Secondary market (Correct answer)
- Over-the-counter market
- Fourth market
Correct answer: Secondary market
The secondary market is where previously issued securities are bought and sold between investors, with no proceeds going to the issuing company.
Question 4: A bond that can be redeemed by the issuer before its stated maturity date is known as a:
- Convertible bond
- Callable bond (Correct answer)
- Zero-coupon bond
- Puttable bond
Correct answer: Callable bond
A callable bond gives the issuer the right to redeem the bond prior to maturity, typically when interest rates decline.
Question 5: What does the term 'market capitalization' of a publicly traded company represent?
- Total annual revenue of the company
- Total value of all outstanding shares (Correct answer)
- Book value of company assets
- Amount of debt issued by the company
Correct answer: Total value of all outstanding shares
Market capitalization equals the current share price multiplied by the total number of outstanding shares, representing the market's total valuation of the company.
Question 6: Which of the following is a money market instrument with a typical maturity of less than one year?
- Treasury bond
- Corporate debenture
- Treasury bill (Correct answer)
- Common stock
Correct answer: Treasury bill
Treasury bills are short-term U.S. government debt securities issued with maturities of 4, 8, 13, 26, or 52 weeks, making them classic money market instruments.
Question 7: An American Depositary Receipt (ADR) allows U.S. investors to purchase shares of:
- U.S. municipal bonds in foreign currencies
- Foreign company stocks traded on U.S. exchanges (Correct answer)
- U.S. Treasury securities held abroad
- Exchange-traded funds listed overseas
Correct answer: Foreign company stocks traded on U.S. exchanges
ADRs are certificates issued by U.S. banks representing shares of foreign companies, allowing U.S. investors to buy foreign equities on domestic exchanges in U.S. dollars.
S-12 Securities Products and Markets 1
Which type of security represents ownership in a corporation and entitles the holder to a share of profits through dividends?