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
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
