Exam 4

Since 1926, the average annual return for stocks has been almost

10%

A ___________ is an employer-sponsored retirement account, and participating in one is one of the easiest ways to begin an investment program.

401(k) account

You are considering an investment in a municipal bond that has a yield of 5%. Your tax rate is 25%. What is your taxable equivalent yield?

6.67%

The process of spreading your assets among several different types of investments to lessen risk is called

Asset allocation

A bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's stock in called a(n) _______ bond.

Convertible

A bond that is backed only by the reputation of the issuing corporation is called a(n)

Debenture

If overall interest rates in the economy rise, a corporate bond with a fixed interest rate will generally _______.

Decrease in value

A distribution of money, stock, or other property that is paid to the stockholders of a company is called a

Dividend

Rebecca owns stock that pays a dividend. She does not want the cash now; instead she would prefer to have more share of stock. She should use a

Dividend reinvestment plan

The calculation uses the current price per share and the annual amount of money paid to investors from the company.

Dividend yield

Pam just started working at XYZ Widget Company and finally wants to get insurance coverage through her employer. She does not want to take a medical exam to get coverage, because she has some underlying health conditions and is concerned that she might not qualify for a policy. Which of the following life insurance policies should she apply for?

Group life

What is the most important part of an insurance agent's job?

Help you select the proper kind of protection within your financial boundaries.

Which of the following annuities is purchased with a lump-sum payment and allows an individual to receive income payments beginning now?

Immediate annuity

A debt security issued by a state or local government is known as a

Municipal bond

Faye sometimes borrows money from her broker to buy her stock. She is buying

On margin

This ratio uses the market price per share of the stock and the earnings per share.

Price-earnings ratio

A legal firm that requests that stockholders transfer their voting rights to individual(s) is called a

Proxy

Ben is selling stock that he borrowed for his broker and planned to replace at a later date. Which of the following strategies is he using?

Selling short

A security issued by the U.S. government where the principal increases with inflation and decreases with deflation is called a

TIPS

Another name for temporary life insurance is

Term life insurance

Which of the following is NOT a feature of whole life insurance?

The policy will return all premiums if you survive to the end of the policy.

Why does a company split its stock?

The stock is trading at a high price, and the company wants to bring the price in line with a theoretical ideal range.

This calculation includes the yearly dividends in dollars plus the increase in the original purchase price of the investment.

Total return

When comparing the interest rates of U.S. government securities, which of the following is correct?

Treasury bills < Treasury notes < Treasury bonds

Another name for permanent life insurance is

Whole life

A prospectus that contains detailed financial data may be sent annually to stockholders of publicly owned corporations.

false

Any company's stock can be listed in the NYSE.

false

Dividends for common stock must be in cash.

false

Generally, the commission paid for a stock sale will be lower with a full-service broker than for an online brokerage firm.

false

If Judi owns 200 shares of stock, a 2-for-1 stock split will double the value of her holdings.

false

If you purchase stock from another investor, such as your cousin Sam, then you are buying stock on the primary market.

false

In the event of bankruptcy, stockholders have a claim to assets of the corporation before bondholders.

false

Municipal bonds generally are only tax-exempt at the federal level.

false

Sandy has invested in a stock. She is assured of receiving a dividend.

false

Stocks are guaranteed to have large returns.

false

The earnings from an investment in an annuity is taxed the same as earnings from an investment in a certificate of deposit.

false

The total return can be calculated on a stock only if a company pays dividends.

false

A municipal bond is a debt security issued by a state or local government.

true

A.J. wants to buy a stock at its current market price. He should use a market order.

true

Another name for permanent life insurance is whole life.

true

Another name for temporary life insurance is term life insurance.

true

Before investing in a company's stock, an investor should evaluate the industry in which the company operates.

true

Bond ratings range from AAA (the highest) to D (the lowest) for Standard & Poor's Corporation.

true

Dividend policies vary among corporations, but most firms distribute between 30 and 70 per cent of their earnings to stockholders.

true

For many people, the easiest way to begin an investment program is to participate in an employer-sponsored retirement account - often referred to as 401(k) or a 403(b).

true

If you have misplaced life insurance policy, your state's insurance commission may be able to help you locate it.

true

Market risk is associated with some investments and indicates that periods of economic expansion are followed by periods of recession.

true

Stocks are equity financing.

true

The potential return on any investment should be directly related to the risk that the investor assumes.

true

The purpose of diversification or asset allocation is to spread your assets among several different types of investments to decrease risk.

true

To help survive a financial crisis, it is important to establish a larger than usual emergency fund.

true

To investors, liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment's value.

true

When companies experience a bad year regarding earnings, they may choose to reduce or omit their dividend payments.

true

Whether you are making your own decisions or have professional help, you must consider the tax consequences of selling your investments.

true

Younger investors tend to invest in more growth-oriented investments than older investors.

true