Chapter 8: Investments
Amy is just starting out investing and plans to invest $250 per month. She has no other investment money. She plans to pursue a passive investment strategy. Which of the following investment options would be best for Amy at this time? Actively managed mutual funds. Index mutual funds. Exchange-traded funds. Either index mutual funds or exchange-traded funds.
Either index mutual funds or exchange-traded funds.
The primary way stock investors make money is through: I. capital gains. II. dividends. III. interest. I only. III only. I and II only. I and III only.
I and II only.
To have equity in a company means that: I. you have lent money to the firm. II. you receive dividends when distributed by the firm to all shareholders. III. you have an ownership interest in the firm. I only. III only. I and II only. II and III only.
II and III only.
In which of the following investment should someone with a very high risk tolerance be comfortable investing? I. Stocks. II. Bonds. III. Commodities. I only. III only. I and II only. I, II, and III.
III only.
Ramos is an aggressive investor and likes to win at everything. He knows that it is nearly impossible to win or beat the average market return all of the time, but he wants to try! Given his attitude, Ramos should select what type of investment if his number one goal is to beat the market? Index mutual fund. Bond index ETF. Index-based ETF. Actively managed mutual fund.
Actively managed mutual fund.
Given a high tolerance for risk and a desire to invest internationally, investment in which type of countries could represent good investment opportunities? Countries with strong GDP growth. Countries with negative GDP growth. Countries with strong oversight and legal structure. Countries with strong GDP growth, oversight, and legal structure.
Countries with strong GDP growth, oversight, and legal structure.
Over a recent 10-year period, passively managed large company mutual funds outperformed actively managed mutual funds by: 0.94 percentage points. 6.74 percentage points. 7.68 percentage points. 0 percentage points because there was no difference in performance.
6.74 percentage points.
If you, as an investor, wanted to guarantee purchasing a stock at a specific price or better, which type of order would you use? A market order. A buy stop order. A sell limit order. A limit order.
A limit order.
All of the following firms are "do-it-yourself" online brokerage firms, except: Fidelity. TD Ameritrade. E*Trade. Edward Jones.
Edward Jones.
Which of the following mutual funds invests in both U.S. and foreign stocks? International fund. Global fund. Regional fund. Country fund.
Global fund.
Financial risk refers to: I. the possibility of financial loss. II. volatility of returns. III. the loss of purchasing power. I only. II and III. I and III. I, II, and III.
I and III.
When it comes to investing, you can be a(n): I. developer. II. owner. III. lender. IV. dealer. I, II, and IV only. II and III only. I, II, III, and IV. I and II only.
I, II, III, and IV.
Three major stock exchanges in the United States are: I. AMEX. II. NASDAQ. III. NYSE. IV. OTC. II, III, and IV. I, III, and IV. I, II, and IV. I, II, and III.
I, II, and III
What of the following statements are true? I. The U.S. economy, as measured by its GDP, is always the fastest-growing economy in the world. II. GDP grows at different rates for different countries. III. Some countries exhibit negative GDP. IV. GDP growth rates are always positive, never negative. I and IV only. II and III only. I, II, and III only.I and II only.
II and III only.
Which of the following investment has the lowest risks and lowest returns? Real estate. Exchange-traded funds. EE savings bonds. Money market savings accounts.
Money market savings accounts.
If all of the following mutual funds are designed to passively mimic the S&P 500 stock index, then which mutual fund would be the best choice? Mutual Fund A with an expense ratio of 0.28%. Mutual Fund B with an expense ratio of 0.59%. Mutual Fund C with an expense ratio of 0.07%. Mutual Fund D with an expense ratio of 0.12%.
Mutual Fund C with an expense ratio of 0.07%.
Which of the following best describes an index mutual fund? Passively managed funds designed to mimic a specific market. Mutual funds managed based on a personʼs anticipated year of retirement. Mutual funds managed based on a preset ratio of stocks and bonds. Mutual funds that attempt to earn rates of return that exceed the return of the market.
Passively managed funds designed to mimic a specific market.
Which of the following investment features is more common among mutual funds and less common among ETFs? Diversification. Low expenses. Professional active management. Wide variety of investment alternatives.
Professional active management
Which of the following statements is true? The best investment strategies and the best investments are made based on luck. The best investment strategies and the best investments are made with intuition. The only way to identify a potentially profitable stock is through basic stock analysis. Sometimes the best investment strategies and the best investments are made by combining basic analysis with intuition.
Sometimes the best investment strategies and the best investments are made by combining basic analysis with intuition.
Approximately how many individual stocks can an investor choose from within the U.S. market? Thousands. Hundreds of thousands. Millions. A few hundred.
Thousands.
The tendency for people of any particular country to invest primarily in their own stock market is referred to as: a familiarity bias. an optimism bias. overconfidence. a status quo bias.
a familiarity bias.
Holding all other factors constant, someone who is concerned about losing money should invest in assets that have a standard deviation: greater than the average return of the investment. greater than 10%. less than the average return of the investment. less than 10%.
greater than 10%.
A self-directed cash brokerage account: requires investors to have money in the account before buying investments. requires an investor to use the services of a broker. charges a higher commission in return for more services, such as banking privileges. All of these answer choices are correct.
requires investors to have money in the account before buying investments.
A market order is: the fastest way to transact a stock market trade. tells the brokerage firm to only buy or sell at a specific price. stays in effect until your specific price is available. instructs a brokerage firm to sell when a set point has been reached.
the fastest way to transact a stock market trade.
When homeowners owe more on their property than what the property will sell for, they are: in foreclosure. involved in a short sale. in default. underwater.
underwater.
What is the fair market value of a bond with the following features: (a) par value of $1,000, (b) coupon payment of $40, and (c) 10-year maturity? Assume that current interest rates are 3%. $918.89. $1,000.00. $1,085.30. $1,110.00.
$1,085.30.
Emily is working with a commissioned-based financial planner. The financial planner is recommending that Emily purchase shares in a mutual fund that charges a 5% commission. If Emily invests $10,000, how much will the advisor be paid? $50. $450. $500. $5,000.
$500.
Emily is working with a commissioned-based financial planner. The financial planner is recommending that Emily purchase shares in a mutual fund that charges a 5% commission. If Emily invests $10,000, and after Emilyʼs financial planner has been paid, how much will be invested in the mutual fund? $9,500. $9,550. $9,950. $10,000.
$9,500.
Which of the following statements is true? A sales load is a measure of the total management fees and expenses charged to a mutual fund. No-load mutual funds do not charge an upfront sales load but do charge a back-end sales load. A mutual fundʼs expense ratio is a commission paid to the mutual fund company. A sales load is a one-time commission paid to an investment salesperson when the mutual fund is bought or sold.
A sales load is a one-time commission paid to an investment salesperson when the mutual fund is bought or sold.
Which firms would be considered full-service brokers? Merrill Lynch. Morgan Stanley. UBS. All of the answer choices or correct.
All of the answer choices or correct.
Stockbrokers are often also known as: investment representatives. account managers. registered representatives. All of these answer choices are correct.
All of these answer choices are correct.
Lawrence is a retiree. In addition to Social Security benefits, he has a small pension plan from a former employer. Lawrence is looking for an investment that will generate income during his retirement. He does not need governmental insurance for his investment, but he does not want to take on too much risk. Which of the following investments will best meet his need? I savings bonds. Real estate. Stocks. Bonds.
Bonds.
How do dealers make money? Buy items at their true value and find buyers willing to pay more. Make markets for tangible goods. Buy many items hoping that some become valuable enough to sell at good prices. Consistently buy items at low prices and resell them at higher prices.
Consistently buy items at low prices and resell them at higher prices.
Which of the following is an example of commercial real estate? I. Warehouse. II. Shopping mall. III. Apartment building. III only. I and II only. II and III only. I, II, and III.
I, II, and III.
As you set out on your financial journey, it is best to choose a financial advisor that: I. works with clients who have more income and wealth than you do. II. understands your financial goals. III. discloses all conflicts of interest. III only. I and II only. II and III only. I, II, and III.
II and III only.
Lindsey works as a comprehensive financial planner. When working with clients, she looks at someoneʼs entire financial situation and makes recommendations across several financial areas. She is also a CFP®. As such, Lindsey: I. cannot charge a fee for her investment advice. II. must act as a fiduciary. III. specializes in investment management rather than general financial planning. II only. I and II only. II and III only. I, II, and III.
II only.
A market index is an unmanaged grouping of stocks that has been identified as representative of some aspect of the stock market. What is true of the Dow Jones Industrial Average? The index is market weighted based on market capitalization. It is designed to follow the broad bond market. It is an actively managed index designed to outperform the market. It consists of a small number of the most highly regarded U.S. stocks from a variety of sectors of the economy.
It consists of a small number of the most highly regarded U.S. stocks from a variety of sectors of the economy.
Alberto is just beginning his career in the financial services industry. He has been studying the markets for a number of years and has figured out a way to generate consistently high returns for his clients while taking low risk. His approach involves using money from new investors to pay interest to clients who have been invested for a longer period of time. Albertoʼs investment approach is called a: diversification tactic. hedge fund. Ponzi scheme. fiduciary allocation.
Ponzi scheme.
Which of the following assets is the largest in terms of market value? U.S. commercial real estate. U.S. residential real estate. The market value of all publicly traded U.S. stocks. The market for U.S. rental properties.
U.S. residential real estate.
Margin accounts are typically used by wealthy clients who have high risk tolerances because these accounts allow investors to: buy and sell securities faster than they can with cash accounts. pay, in advance, for all securities purchased. place buy stop orders or sell stop orders. borrow money from their brokerage firm to buy stocks, bonds, and mutual funds.
borrow money from their brokerage firm to buy stocks, bonds, and mutual funds.
Tangible investments include: collectibles and hard assets. stocks in large companies. government bonds. options on real estate.
collectibles and hard assets.
Systematic risk is best defined as: portfolio risk. the risk that always remains in a portfolio. total risk. diversifiable risk.
diversifiable risk.
If earnings growth is expected to be average or below average, then the stock will generally: have a high P/E ratio. have a lower P/E ratio. be considered a relative value in the market. be expected to grow earnings at higher rates in the future.
have a lower P/E ratio.
Auction sites like Ebay or Ubid make it easy to buy and sell tangible assets. But they also: guarantee items will be sold. help create demand for tangible assets. make it easier to make money in tangible assets. impose costs that reduce the spread that can be made buying and selling tangible assets.
impose costs that reduce the spread that can be made buying and selling tangible assets.
Shamila is interested in adding real estate to her portfolio. She has looked into many real estate alternatives and is open to any reasonable recommendation. If Shamila has a limited amount of money to invest initially and few household repair skills, what type of real estate investment should she select? Commercial real estate. Dual-purpose real estate. A multifamily apartment complex. A real estate investment trust.
A real estate investment trust.
How are most shares in stock held today? Physically, in paper form. In the "cloud." In certificate form. In street name.
In street name.v
What is the tax-equivalent interest rate needed if you can purchase a municipal bond with a face value of $10,000, a coupon rate of 3%, and a maturity date of 10 years? Assume you are in the 25% marginal federal tax bracket. 2.25%. 3.75%. 4.00%. 5.25%.
4.00%.
What helps explain the popularity of mutual funds? I. Mutual funds require a smaller initial investment than stocks or bonds. II. Mutual funds are a primary investment choice in retirement plans. III. Mutual funds frequently outperform market indices. II only. I and II only. II and III only. I, II, and III.
I, II, and III.
An advantage of investing internationally is: low correlation between U.S. stocks and international stocks, which reduces investment risk. the best investments are always overseas. low correlation reduces portfolio returns. reduced portfolio volatility and higher returns can be achieved by taking no additional risk.
low correlation between U.S. stocks and international stocks, which reduces investment risk.
Mikki is currently in a high-income tax bracket. She would prefer to own an investment that generates tax-free income. If Mikki buys a municipal bond issued by a state other than her own, the interest she earns will be: tax-free at the federal level. taxable at the federal level but tax-free at the state level. taxable at both the state and federal level. considered a dividend and taxed at a maximum rate of 10% at the federal level.
tax-free at the federal level.
All of the following are disadvantages associated with foreclosure, except: the foreclosure stays on your credit report for at least 10 years. you may still owe money to the mortgage lender. the mortgage lender allows the remaining mortgage balance to be eliminated. it may be difficult to obtain credit after the foreclosure.
the mortgage lender allows the remaining mortgage balance to be eliminated.
Imagine a period of time in the future when general prices in the economy begin to move up rapidly. The increase in prices results in inflation, which in turn causes interest rates to rise. When this happens, bond investors can expect: the value of their bonds to increase. the coupon rate of existing bonds to readjust upward. the value of their bonds to decrease. the par value of existing bonds to increase.
the value of their bonds to decrease.
Griffin recently purchased a bond for $1,100. The bond has a par value of $1,000 and a coupon rate of 5%. Based on this information, you know that Griffinʼs current effective-interest rate earned on the bond is ________; when the bond matures, he will receive ________. 4.55%; nothing 5.00%; $1,000 4.55%; $1,000 5.00%; $1,100
4.55%; $1,000
Your next-door neighbor's local restaurant is busy all day. She currently has gross sales of $13 million. Her expenses, which include ingredients, rent, and personnel, run $11.5 million. Your neighbor is considering bringing in outside investors. She would like to issue 2 million shares of stock and sell the stock for $25 each in an IPO. If she does this, how much would someone who purchases one share earn? In other words, what is the earnings per share for the company? $0.03. $0.06. $0.25. $0.75.
$0.75.
If you invest $1,000 in a new bond issue and earn a coupon rate of 7% per year, how much will you receive when the bond matures? Nothing. $70. $1,000. $1,700.
$1,000.
What is the coupon payment for a bond with a face value of $1,000 that currently sells for $1,200 if the coupon rate is 6%? $60. $66. $72. There is not enough information available to answer this question.
$60.
Over a 30-year period, the price of an average home in the United States went from approximately $90,000 to $210,000. The rate of inflation over this time period is: 2.86%. 3.52%. 4.84%. 5.31%.
2.86% Rate of inflation over this time period = (ending price/beginning price)^(1/time)) - 1
Nevada Copper Company, Inc. reported a net profit of $8.00 per share and a dividend of $3.50 per share. If you buy shares of the stock at $93.25 per share, what is your dividend yield? 43.75%. 12.33%. 8.58%. 3.75%.
3.75%.
Which of the following statements regarding a certified financial planner (CFP®) professional is false? A CFP® professional only works with accredited investors. A CFP® professional may charge a commission for services or products. A CFP® professional must put the interests of his or her clients first. A CFP® professional may charge a fee for her or his services.
A CFP® professional only works with accredited investors.
Coupon Payment
Coupon Rate x Face Value
Which of the following is not an example of a use asset? Furniture. Clothing. Mutual fund. Electronics.
Mutual fund.
Why might a business owner sell stock to outside investors? To raise money for expansion. To maximize control over the firmʼs operations. To minimize the need to generate a profit consistently. Both to raise money for expansion and to maximize control over the firmʼs operations.
To raise money for expansion.
Which of the following tangible asset markets is largest (based on annual sales)? Gold market. U.S. commercial real estate. Worldwide art sales. Worldwide stamp collection sales.
U.S. commercial real estate.
Which of the following could be a collectible and potentially worth more than its original cost? An automobile. A baseball card. Both an automobile and baseball card. Neither an automobile nor baseball card.
A baseball card.
What is the fair market value of a bond with the following features: (a) par value of $1,000, (b) coupon payment of $80, and (c) 10-year maturity? Assume that current interest rates are 8%. $990.00. $1,000.00. $1,110.00. $1,400.50.
$1,000.00.
Your next-door neighbor owns a local restaurant. She currently has gross sales of $13 million. Her expenses, which include ingredients, rent, and personnel, run $11.5 million. What is her net profit or loss? $1.5 million loss. $1.5 million profit. $11 million profit. $13 million loss.
$1.5 million profit.
Coupon Payment Broken down
(Coupon Rate/Number of Payments per Year) x Face Value = Coupon Payment
Americans can gain access to foreign investments using: exchange-traded funds. American Depositary Receipts. mutual funds. exchange-traded funds, American Depositary Receipts, and mutual funds.
exchange-traded funds, American Depositary Receipts, and mutual funds.
Stock of Terry Motors, Inc. was recently traded on a stock exchange as $108 bid. The spread price was $2. What was the ask price? $106. $108. $110. $112.
$110.
Akron, Inc. is expected to pay a dividend of $4.25 this year. If its dividend growth rate is 6%, how much will the dividend be in 2 years? (Refer to time value of money calculations in a previous chapter if needed.) $4.51. $4.25. $4.78. $4.00.
$4.78.
Which of the following are reasons why investors might choose to invest in mutual funds? Diversification. Professional management. To pool capital with other investors. Diversification, professional management, and to pool capital with other investors.
Diversification, professional management, and to pool capital with other investors.
Common stock market indices include the: Dow Jones Industrial Average. Standard & Poorʼs 500 Composite Stock Price Index. Russell 2000 Index. Dow Jones Industrial Average, Standard & Poorʼs 500 Composite Stock Price Index, and Russell 2000 Index.
Dow Jones Industrial Average, Standard & Poorʼs 500 Composite Stock Price Index, and Russell 2000 Index.
How could you go about purchasing shares in a REIT? I. Go directly to a mutual fund company that offers REITs. II. Open a brokerage account and buy shares through the account. III. Through an FDIC-regulated bank. II only. I and II only. II and III only. I and III only.
I and II only.
Which of the following pairs are examples of self-directed discount brokerage firms? I. Charles Schwab and Merrill Lynch. II. TD Ameritrade and E*Trade. III. Raymond James and Morgan Stanley. IV. Fidelity and Charles Schwab. I, II, and IV only. II and IV only. I and II only. III only.
II and IV only.
Assume that inflation averages 3.50% over the next 20 years. If Carlos invests $25,000 in an exchange-traded fund within a tax-deferred account and that investment grows to $45,000 at the end of 20 years, will he have maintained his purchasing power? Yes, because the ETF is worth more than his original investment. No, because he should have closer to $50,000 to keep pace with inflation. Yes, because he only needed about $33,000 to keep pace with inflation. There is not enough information to calculate the future value of his investment.
No, because he should have closer to $50,000 to keep pace with inflation. Infaltion Rate: 3.50% Time: 20 years FV: 25,000(1+0.035)^20 FV = 49,745
Which of the following is not a hard asset investment? Real estate. Silver. Gold. REITs.
REITs.
Which of the following is true if Nicki purchases 100 shares of an IPO for $35 per share and sells the shares for $40 each? (Refer to the capital gain discussion from a previous chapter if needed.) She will have a 5% capital gain. She will have a 14% dividend. She will have a $500 capital gain. She will have a $5 dividend per share.
She will have a $500 capital gain.
The risks inherent in international investing include: currency exchange rate risk, less regulation, and reduced marketability. currency exchange rate risk. less regulatory oversight. reduced marketability.
currency exchange rate risk, less regulation, and reduced marketability.
A tangible investment is something you can: sell. hold. buy. hold, buy, and sell.
hold, buy, and sell.
A regional fund invests: in specific markets, such as Europe, Asia, or Pacific Rim. in foreign companies, as well as U.S. firms. only in firms outside the United States. to replicate the returns of the market.
in specific markets, such as Europe, Asia, or Pacific Rim.
The largest ETFs are: index-based ETFs. actively managed ETFs. bond ETFs. international ETFs.
index-based ETFs.
Equilibrium: helps determine how much it should cost to sell a tangible asset. shows that demand for an item is more important than the supply. is where demand of an asset equals the supply for an asset. denotes excess supply in the market.
is where demand of an asset equals the supply for an asset.
By purchasing one share of a market index ETF, an investor will own the equivalent of ________ in his or her stock portfolio. one stock many stocks from the same industry many stocks from many industries None of these answer choices is correct.
many stocks from many industries
If you open a brokerage account at a "do-it-yourself" online discount brokerage firm, you can expect to ________ than you would at a full-service broker. pay lower commissions have limited access to buying and selling stocks be paired up with a stockbroker to help you make decisions receive less information about potential investments
pay lower commissions
When purchasing stocks, an investor can: place a market order. place a stop order. use the guidance and support of a registered representative. place a market order, stop order, or use the guidance of a registered representative.
place a market order, stop order, or use the guidance of a registered representative.
Jamal is thinking about buying a duplex. His monthly expenses will be $900 for the mortgage, $500 for taxes, and $300 for insurance. He also needs to pay a yearly association fee of $900. If he can rent out one-half of the unit for $1,500 per month, how much will he make or lose per month? −$200. −$275. −$1,100. +$350.
−$1,100.
A midsized firm plans to issue 10 million shares during an IPO. The investment banker (underwriter) plans to sell shares at $22.50; however, many investors believe the company should be valued at $32.00 per share. If the underwriter charges a $3 million fee to undertake the IPO, how much will the firm raise in the IPO? $320,000,000. $317,000,000. $225,000,000. $222,000,000.
$222,000,000. Firm can raise amount = (offering price * Number of shares) - Underwriting charges = (22.5 * 10 million) - 3 million = 222,000,000
XYZ Sports Apparel has a current stock price of $32.50. The company paid $1.06 in dividends this year, and dividends are expected to grow at 5% per year. If you have a required return of 9%, what is XYZ worth to you? $27.83. $36.00. $25.34. $32.50.
$27.83.
A company you are considering investing in has a dividend of $0.40 per share. If you have a required return of 12% and the dividend is expected to grow at 3% per year, the discounted dividend valuation model would value the stock at: $5.50. $4.58. $5.89. $4.98.
$4.58.
Equivalent Taxable Bond Interest Rate
(Municipal Bond Interest Rate/1 - Marginal Tax Rate) OR Equivalent Tax-Free Interest Rate = (Taxable Bond Interest Rate) x (1 - Marginal Tax Rate)
Your next-door neighbor's local restaurant currently has gross sales of $13 million. Her expenses, which include ingredients, rent, and personnel, run $11.5 million. If you purchased 100 shares of your neighborʼs company stock at the IPO price of $25 per share and the company distributed a $1 dividend per share, what would be your dividend yield? 1%. 4%. 8%. 14%.
4%.
Interest Needed
Base Rate + Inflation Premium + Rating Premium + Other Adjustments
What are the two largest economies in the world? United Kingdom and Germany. China and India. United States and China. Mexico and Ireland.
China and India.
As a novice investor, Laura is concerned about fees. She has heard stories of investors who have lost thousands of dollars in fees over time. She wants to invest in investments that generally have the lowest fees. Given her desire, Laura should focus on purchasing: actively managed mutual funds. index mutual funds. exchange-traded funds. both index mutual funds and exchange-traded funds.
both index mutual funds and exchange-traded funds.
When Mabel purchased her home for $300,000, she put down a deposit of 10%. Besides her original purchase, she has paid $25,000 in principal. Her house is currently worth $315,000. How much equity does Mabel have in her house today? $245,000. $70,000. $55,000. $65,000.
$70,000.
What is the fair market value of a bond with the following features: (a) par value of $1,000, (b) coupon payment of $70, and (c) 10-year maturity? Assume that current interest rates are 8%. $932.90. $1,000.00. $1,070.24. $1,110.00.
$932.90.
Stock Value
Dividend x (1 + Dividend Growth Rate)/ (Your required rate of return -Dividend Growth Rate)
All of the following are true of market capitalization classifications, except: I. Anything less than $2 billion is a small cap company. II. Any stock with a market cap of $8 billion and higher is a large cap company. III. Medium cap companies have market capitalizations of between $4 and $8 billion. I only. I and III only. II and III only. I, II, and III.
I only.
SIPC insurance covers: cash in customer accounts up to $250,000. securities in customer accounts up to $500,000. nothing because SIPC is not insurance. both cash in customer accounts up to $250,000 and securities in customer accounts up to $500,000.
both cash in customer accounts up to $250,000 and securities in customer accounts up to $500,000.
Lyle considers himself a gambler. He likes to do research on individual stocks, market sectors, and the stock market in general, and he likes to buy and sell based on breaking news. Lyle primarily invests in individual stocks and industry-specific mutual funds (i.e., healthcare mutual funds or manufacturing mutual funds). He rarely buys ETFs. What specific advantage of ETFs over mutual funds is Lyle missing out on? Diversified portfolio. Ability to buy and sell at any time during the trading day. Low-expense ratios. Both low-expense ratios and the ability to buy and sell at any time during the trading day.
both diversify portfolio and the ability to buy and sell at any time during the trading day
Wookjae has discovered a new mutual fund with a 3-year return and standard deviation of 9% and 14%, respectively. What is the worst possible return that Wookjae can expect 95% of the time if he invests in this mutual fund? -5%. -19%. -23%. -33%.
-5%.
Wookjae has discovered a new mutual fund with a 3-year return and standard deviation of 9% and 14%, respectively. Wookjae would like to know, with a 99% certainty, the maximum return he might see in any given year. What is that number? 14%. 23%. 37%. 51%.
51%.
Which of the following investment features is typically associated with ETFs but not mutual funds? Funds provide investors with immediate diversification. Funds can be traded throughout the day. Funds can be purchased that match a market index. Funds are often actively managed.
Funds can be traded throughout the day.
Which of the following is true if a company goes bankrupt? I. The bondholders are paid back first. II. The stockholders are paid back last. III. The stockholders must pool assets to pay back all bondholders. I only. III only. I and II only. I and III only.
I and II only.
Mutual funds can be broadly classified into two categories: I. Passive management. II. Strategic management. III. Active management. IV. Tactical management. I and IV only. II and III only. I and III only. I and II only.
I and III only.
Wookjae has discovered a new mutual fund with a 3-year return and standard deviation of 9% and 14%, respectively. Which of the following statements is true regarding the mutual fund and Wookjae? I. This mutual fund is appropriate for Wookjae assuming his risk tolerance is low. II. This mutual fund is appropriate for Wookjae assuming his risk tolerance is high. III. The standard deviation of returns associated with this mutual fund indicates an investment with low marketability. II only. III only. I and III only. II and III only.
I and III only.
Which of the following are among the five main participants within the sphere of tangible investing? I. Hobbyists. II. Creators. III. Collectors. IV. Dealers. I, II, and IV only. I, II, and III only. I, II, III, and IV. I and II only.
I, II, III, and IV.
Which of the following statements is true regarding brokerage accounts? I. Full-service brokerage firms provide guidance to investors. II. Brokerage accounts are prefunded arrangements between an investor and a broker-dealer. III. Investors who want to own stocks and bonds do so, almost exclusively, via brokerage accounts. IV. A self-directed brokerage account is appropriate for an investor who does not want or does not need investment guidance. I, II, and IV only. I, II, and III only. I, II, III, and IV. I and II only.
I, II, III, and IV.
American Depositary Receipts: I. represent one or more shares in a foreign company. II. make international investing easy and affordable. III. are a way to invest in foreign stocks directly. IV. trade on U.S. exchanges. I, II, and III. I, II, and IV. I only. IV only.
I, II, and IV.
Larry recently opened a brokerage account with a small firm located in Colorado. He opened the account with $45,000, which was held in a cash account at the firm. Earlier this year, he purchased $5,000 in stock. The price has fallen and the stock is now worth $1,000. Early today, Larry learned that the brokerage firm went out of business. Larry is panicked. Help Larry understand what will happen by choosing the correct statement from those listed. Larry need not worry because his entire $45,000 loss is covered by FICA. Larry will lose 100% of everything held in the brokerage account. Larry will get back $40,000 in cash, $1,000 in stock, and $4,000 in stock losses from SIPC. Larry will get back $40,000 in cash and $1,000 in stock from SIPC.
Larry will get back $40,000 in cash and $1,000 in stock from SIPC.
Miguel is interested in a simple and easy to understand investment. He would like to buy an index-based investment that tracks the S&P 500. Which ETF should he choose? QQQ. IVV. EFA. SPY.
SPY.
Which of the following assets has the least marketability risk? Stocks traded on the New York Stock Exchange. Rental real estate. Gold held as collectible coins. Municipal bonds.
Stocks traded on the New York Stock Exchange.
Which of the following is an indication that a financial advisor may be engaged in a financial fraud? The advisor tells you that she has earned approximately 10% per year over the last 15 years without a losing year. The advisor claims that he can use stock options to hedge potential losses in a portfolio as a way to reduce investment risk. The advisor recommends that you invest no more than 10% of your portfolio in hard assets, with the remainder allocated among stocks and bonds. Consistent earnings without losing over long time periods, using stock options to hedge risk, and recommendations to limit allocations to hard assets are all signs of financial fraud.
The advisor tells you that she has earned approximately 10% per year over the last 15 years without a losing year.
All of the following are reasons to be a landlord, except: landlords are eligible for certain tax breaks. landlords are responsible for the maintenance and upkeep of the property. landlords can build equity in property over time. landlords are responsible for the maintenance and upkeep of the property and can build equity in property over time.
landlords are responsible for the maintenance and upkeep of the property.