Chapter 11 Finance

Mr. Jones wants to establish an emergency fund. His living expenses for his family are $2,000 per month. The minimum Mr. Jones should have in his emergency fund is $________

Blank 1: 6,000 or 6000

Lines of credit and credit cards have a ceiling that limits the amount of_____credit

Blank 1: available, possible, usable, or accessible

Along with the actual credit card, what other features of the card would provide funds in the case of an emergency?

Cash advances

Which of the following statements is not a factor to consider in choosing different investments?

If you invest in high quality stocks, there is no need to monitor your investments.

Market risk is the fluctuation of stock and bond prices due to the behaviors of investors in the marketplace.

True

True or false: Liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment's value.

True

One type of risk that investors in stock take is a decrease in:

value

When looking at investment you should first ask yourself:

what is important to you and what do you value?

If you are a young married couple with no children, you will most likely choose investments:

with higher risks

If a business fails (business failure risk), your stock investment is typically worth:

$0

Mr. Smith wants to establish an emergency fund. His living expenses for his family are $1,800 per month. What is the minimum Mr. Smith should have in his emergency fund?

$5,400 $1,800×3 = $5,400.

A good rule of thumb is to limit consumer credit payments to:

20 percent of after-tax income.

Tom has invested in TIPS. In the past year, the inflation rate was 4 percent. Tom earns

4 percent on his investment.

Which of the following statements regarding asset allocation is not true?

Age and the time factor have little to do with asset allocation

Which of the following would not be a good choice when investing for a predictable source of income?

Any common stock

Which of the following is true?

As interest rates rise, bond prices generally decline

Treasury ____have a maturity of 4 to 52 weeks.

Blank 1: bills

If interest rates increase, the value of a bond will

Blank 1: decrease, fall, decline, or drop

Which of the following is NOT true about bonds?

Bonds are often recommended over bond funds for small investors

Which of the following are advantages of purchasing securities issued by the U.S. Treasury?

Decreased risk of default Safe investment Backed by the government

True or false: Interest paid on U.S. government securities is exempt from federal income tax.

False

Which of the following is not a recommended step for surviving a financial crisis?

Increase spending

Match interest rates and the value of bonds.

Interest rate decreases bond prices increase Interest rate increases bond prices decrease

What type of risk associated with preferred stocks or government or corporate bonds is the result of changes in the interest rates of the economy?

Interest rate risk

Which of the following is not true about the time value of money affecting investments?

Many investors today seek higher returns by investing in certificates of deposit

Which of the following is NOT true?

Many people in today's economy choose CD's because of their high rates of return

With the primary objective of investment income, which of the following are good choices?

Municipal bonds Certificates of deposit Corporate bonds

Which of the following is a more liquid investment?

Savings account

What types of investments have a small chance of providing a predictable income?

Speculative investments

Which of the following has the shortest maturity?

T-bills

Which of the following is not true regarding personal finance in an economic crisis?

You should cut back on your emergency fund

A typical emergency fund is:

at least 3 months of living expenses

The amount that should be in an emergency fund is ______ months of living expenses.

at least three

The risk that the company you are investing in might go under is called

business failure risk

The potential return on an investment should be:

directly related to the risk assumed

An amount of money that you obtain quickly in case of an immediate need is a(n):

emergency fund

Match these companies types with potential dividends.

growth company typically no dividend non-growth company better chance of receiving a dividend

Match these companies types with potential dividends.

growth company typically no dividend non-growth company better chance of receiving a dividend

A rise in the general level of prices is called:

inflation

A short-term loan that is approved before the money is actually needed is a(n):

line of credit

Savings and interest-bearing checking accounts are considered more__________ because the money can be converted into cash quickly.

liquid

"I want to make $300 quarterly for the next three years". This goal is not only specific but because it mentions a number, it is also:

measurable

For Treasury securities, most investors are willing to accept the interest rate determined at auction so they are using: Multiple choice question.

noncompetitive bids.

A growth company generally:

pays little or no dividend

The buying power of a consumer will be reduced if

rate of return is less than inflation

Government and corporate bonds are often seen as_____(riskier/safer) investments than stocks.

safer

Tom wants an investment with a minimal chance of loss. He is mainly concerned about the investment's:

safety

"Safe" investments include:

selected mutual funds. government bonds. certificates of deposit.

The goal of saving money in a savings account over the next 12 months to purchase stocks is considered a(n):

short-term goal

A high-risk investment made in the hope of earning a relatively large profit in a short time is called a:

speculative investment

Mutual funds are not included in the list of typical investments because:

they invest in the assets on the list

For Treasury securities, if investors bid______(competitively/noncompetitively), they must specify the rate of interest yield they are willing to accept.

Blank 1: competitively

Line of_______is a short-term loan that is approved before money is actually needed.

Blank 1: credit

Line of______is a short-term loan that is approved before money is actually needed.

Blank 1: credit

A good rule of thumb is to limit consumer ________payments to 20 percent of ________-tax income.

Blank 1: credit Blank 2: after, net, or post

A(n) ______fund is an amount of money you can obtain quickly in case of an immediate need.

Blank 1: emergency

Cash advances from credit cards can be used in the case of a(n)

Blank 1: emergency

Cash advances from credit cards can be used in the case of a(n)________

Blank 1: emergency

Interest paid on U.S. government securities is taxable for_____income tax purposes, but is exempt from_____and local taxation

Blank 1: federal Blank 2: state

Treasury bonds have a slightly______interest rate than T-notes or T-bills.

Blank 1: higher, bigger, greater, larger, or high

Interest for Treasury notes is slightly_____than T-Bills since investors must wait longer to get their money back.

Blank 1: higher, bigger, larger, greater, or more

A growth company is expected to have revenue that can be high or low, but that is_______

Blank 1: increasing, rising, growing, or reinvested

U.S. Treasury securities are a very low-risk investment that many investors use to allocate their investments and bring their overall risk down. Because of this low risk, they also offer a low ________rate

Blank 1: interest, return, or growth

The stock market does not always allow you to regain the value invested; even though you may sell your investment, it is not considered

Blank 1: liquid

The stock market does not always allow you to regain the value invested; even though you may sell your investment, it is not considered _________

Blank 1: liquid

Inflation is the rise in the general level of________

Blank 1: prices

Cash, CDs, government bonds, and money market mutual funds are all considered very_______(risky/safe) investments and are on level one of the investment pyramid.

Blank 1: safe, conservative, or secure

A speculative investment is a high-risk investment made in the hope of earning a relatively large profit in a____(long/short) time

Blank 1: short

Useful investment goals are_______and_______

Blank 1: specific or specified Blank 2: measurable, quantifiable, calculable, computable, or assessable

Among other factors, a person's priorities, age, and personal_______affect his or her investment goals.

Blank 1: values, goals, or income

Which of the following investments are included in a diversified portfolio?

Bonds Cash Large company stocks Small company stocks

Which of the following are generally the most predictable sources of income?

Certificates of deposit Passbook savings accounts U.S. government securities

What type of risk associated with preferred stocks or government or corporate bonds is the result of changes in the interest rates of the economy?

Interest rate

If you earn 1 percent on an investment over the course of one year, but the inflation rate for the year is 3 percent, then which of the following reflects your end of the year purchasing power?

It has decreased by 2 percent.

Which of the following is NOT a factor to consider when choosing different investments?

Tax consequence of selling investments

Which of the following is NOT a factor in determining the percentage of your investments that should be invested in each asset class?

Your income

Certificates of deposit, mutual funds, and real estate:

are generally not considered liquid

Ben is a father of three children who is concerned about his future career with his company. His investment choices will most likely be:

conservative, less risky

Credit lines and credit cards:

have a maximum dollar limit

The ability to buy or sell an investment quickly without substantially affecting the investments value is called:

liquidity

Saving money for retirement would be considered a(n):

long-term goal

Match the potential return on an investment to the risk.

low risk low return medium risk medium potential return high risk high potential return

Fluctuation of prices of securities due to the behaviors of investors in the marketplace is known as:

market risk

A growth company generally:

pays little or no dividend.