Finance Final Ch. 8,9,10,11,12,14,15
What is the total return for a mutual fund with the following characteristics? beginning NAV = $55.82 ending NAV = $70.52 dividends distributed = $2.25 capital gains distributed = $3.50
36.64%
Your home and property have a market value of $240,000. To meet the coinsurance provision, you would need at least ________ of insurance.
$192,000
To be eligible for Social Security benefits, you receive one credit for every $1,200 in wages that you earn, up to 4 credits per year. How many total credits do you need to qualify for benefits?
40
You recently purchased a stock for $50. It is now worth $75, and it paid a $15 dividend during the two years you held it. What is your annualized rate of return on this stock?
40%
The firm will pay an annual dividend this year of $2 per share. The current market price of the stock is $40.00 per share. The book value of this stock is $24.00 per share. The earnings per share for this form is $5.75. What is the current dividend yield of this stock?
5%
Jessica is buying her first new home. The home has been appraised at $330,000. For Jessica to NOT have to pay private mortgage insurance she must come up with a downpayment of ________.
66,600
Which one of the popular common stock valuation methods focuses on supply and demand and uses a computer and charts to identify and project price trends for a stock or for the market as a whole?
Technical Analysis
Market risk is the risk of fluctuations in security prices due to changes in the market interest rate.
FALSE, its interest rate
Diversification eliminates all the risk from your portfolio.
FALSE, reduces only
An attached garage is covered under Coverage B: Other structures
False
If you're going to make informed investment decisions, you have to seek investment information, read it, and interpret it.
TRUE
Interest rates are closely tied to the rate of inflation
TRUE
Life insurance and health insurance are designed to transfer the catastrophic risk you can't afford to keep onto the insurance companies.
TRUE
Life insurance is not meant to benefit you, its purpose is to protect others in the event of your death.
TRUE
Limited liability associated with stock ownership means that shareholders can only lose the amount of money they have invested in the company.
TRUE
Long-term capital gains have favorable tax treatment over earned income.
TRUE
Movement in the stock market indexes determines whether it is a bear or bull market.
TRUE
Mutual funds give smaller investors the same ability to diversify and reduce risk as big investors with a great deal of money have.
TRUE
Mutual funds provide an inexpensive way for investors to diversify and gain access to professional management.
TRUE
One of the drawbacks to defined-benefit plans are their lack of portability, meaning that if you leave the company the value of the pension is not likely to go with you.
TRUE
One of the most important types of risk associated with real estate is the liquidity risk.
TRUE
Particularly, during election years, investors should make themselves aware of the risk resulting from unanticipated changes in the tax or legal environment. This is classified as political and regulatory risk.
TRUE
Property insurance protects you from the financial risk associated with property losses.
TRUE
Purchasing derivatives is a form of speculating.
TRUE
Smart buying means enjoying the highest standard of living that you can based on your income and budget.
TRUE
Social Security is a health care, retirement, disability income, and life insurance plan.
TRUE
Some companies distribute earnings per share in the form of dividends and some retain these earnings for future investment in the firm.
TRUE
Some firms have negative earnings per share numbers
TRUE
The P/E ratio approach is a type of fundamental analysis.
TRUE
The beneficiary is the individual designated by the owner of the life insurance policy to receive the insurance policy's proceeds upon the death of the insured.
TRUE
The earnings multiple approach is based on the notion that you want to replace a stream of annual income that's lost due to the death of a breadwinner.
TRUE
The price/earnings ratio is an indication of how much investors are willing to pay for a dollar of the company's earnings.
TRUE
The size of your Social Security benefits are determined by your number of years of earnings, your average level of earnings, and an adjustment for inflation.
TRUE
The trade-off for mutual fund diversification is lower-than-market performance.
TRUE
Under standard PAP coverage, you're not covered when you are using a vehicle without the permission of its owner.
TRUE
With the needs approach, you should take into consideration any additional insurance policies that have been taken out on your life.
TRUE
You cannot benefit from capital appreciation until you actually sell your stock.
TRUE
Your insurance's copayment and deductible are the expenses that the insured must pay before the insurance company will pay any benefits.
TRUE
Money market mutual funds invest primarily in the stocks of publicly traded companies.
TRUE?
A(n) ____ is a pension plan in which you and your employer or employer alone contribute funds directly to a retirement account set aside specifically for you.
defined-contribution plan
You are participating in a pension plan where the company's contributions vary from year to year, depending on the firm's performance. This is an example of a(n)
profit-sharing plan
Principle 8 tells us that diversification reduces
risk
A group of 100 shares of common stock is referred to as a(n)
round lot
A ______ increases the number of stock shares outstanding by replacing each existing share of stock with a stated number of new shares.
stock split
________ is insurance that provides permanent insurance coverage as whole life does; however the policyholder, not the insurance company, takes on the investment risk.
Variable life insurance
With decreasing term insurance, each time the term insurance is renewed the premium decreases.
FALSE
Deon tried to merge onto the Atlantic Expressway and caused a three-car accident. He has automobile insurance with limits of 50/100/25. What is the maximum amount that his insurance company will pay for the bodily injury liability claims?
$100,000
Hedge fund managers charge very high fees, generally taking ________ of the assets under management (even when the fund loses money) along with ________ of the profits-and some take even more.
2% ; 10%
A stock currently selling for $105 with estimated earnings per share of $5.25 would have a P/E ratio of
20
You purchased 100 shares of Quantex at $150 per share for a total investment of $15,000. After your purchase the stock had a 3 for 1 split. How many shares do you now own and how much is your original investment now worth?
300 shares and $15,000 dollars
Why does it cost so much to trade with a full service broker?
All of the above
In your many travels, you have suddenly found yourself in an auto accident - the very first one where you are at fault. Both cars are blocking a bridge with heavy traffic. What should you do?
All of the above except C
For your investment programs, you have occasionally been holding a few stocks that you purchased from various brokers. Based on this, which advantages of mutual funds would be appealing to you?
A, B, and C
Salvadore Dobraseri is a military veteran and has been told by a friend to check out a VA or FHA loan for the purchase of the home he and his wife are interested in. Why should he?
A,B, and C
Which of the following statements is true regarding Social Security retirement benefits?
A. Some people's benefits may be taxed. B. You may retire beginning at age 62 with reduced benefits. C. It attempts to replace 42% of your average earnings. D. Not all occupations are covered. E. All of the above All of the Above
Which of the following is a problem associated with many defined-benefits program?
A.) Lack of portability B.) Failure to adjust for inflation once payments begins C.) Many are unfunded D.) All of the above All of the above
What are the advantages of term life insurance?
A? and C?
Life insurance may not be necessary if
All of the above
To be properly reimbursed for the loss of personal property in your home, you should take written inventory of household contents and a video tape of these contents. You should have a written description and an oral description that includes which of the following?
All of the above
What determines the cost of your homeowner's insurance?
All of the above
Which of the following is a disadvantage to mutual fund investing?
All of the above
Which of the following statements is most correct regarding the general relationship between stocks and interest rates?
As interest rates increase, stock prices should decrease.
What is the purpose of a margin account and using margin to purchase stocks?
B & C
If you want to invest only in the telecommunications industry, which fund would be appropriate for you?
BOTH B & C B) Telecommunications sector fund C) Telecommunications ETF
With a(n) ________ mortgage, you make relatively small monthly payments for several years, after which the loan comes due and you must pay it off in one large payment.
Balloon Payment Mortgage
The disadvantage of actual cash value coverage of personal property compared to replacement cost coverage is that it
Because of depreciation and normal wear and tear, the cash value of a product will likely be less than what is costs to replace it.
When making a smart purchase you don't need to consider such charges as delivery fees, installation fees or services costs as these are already included in the purchase price.
FALSE
Which of the following benefits is not provided by Social Security?
Education
The ________ date is the date the stock begins trading without dividend, meaning that if you buy it after this date you will not get the dividend for that year.
Ex-dividend date
A buy-and-hold investment strategy means that an investor's gains will be taxed as short-term capital gains.
FALSE
A company that doesn't make dividend payment is insolvent and may be forced into bankruptcy by the stockholders
FALSE
A lower insurance credit score generally results in lower homeowner's insurance rates.
FALSE
An individual selling previously issued shares to another individual is a transaction that would be traded in the primary market.
FALSE
Common stockholders have superior claim on a company's assets over creditors and bondholders
FALSE
Common stockholders not only have the right to elect the board but also must approve day-to-day decisions of the chief executive officer.
FALSE
For most people, there is really no reason to save for retirement since Social Security will provide retirement benefits until you die.
FALSE
Group insurance premiums are generally more expensive than individual policies with the same coverage.
FALSE
Most employees in the United States today are covered by an employer funded defined-benefit plan.
FALSE
Mutual funds eliminate the systematic risk through diversification.
FALSE
Mutual funds shareholders directly own the fund's securities.
FALSE
On the TV show "The Big Bang Theory" the main characters are frequently seen purchasing comic books. Purchasing rare comic books is an example of investing.
FALSE
One disadvantage of mutual fund investments is that they are illiquid.
FALSE
Open-end lease are leases in which you return the vehicle at the end of the lease and you have no further responsibilities.
FALSE
Smart buying means buying what you want first and figuring out how you'll pay for it later.
FALSE
Stocks represent a legal obligation for the issuing company to pay dividends, whether the company has made a profit or not
FALSE
The coinsurance provisions requires that the insurance company will pay a portion of your financial losses in the event of a catastrophe.
FALSE
The dividend yield is calculated by dividing the earnings per share by the market price of the stock.
FALSE
The potential lower returns on mutual funds versus the potential returns on individual stocks is due to poor performance by the fund managers
FALSE
The real rate of return is the rate of return earned on an investment without any adjustment for inflation.
FALSE
Today, the typical American worker will receive a defined-benefit retirement plan from their employer.
FALSE
When investors talk about movements in the market, they generally refer to the Russell 1000.
FALSE
While you were walking your dog, she bit a child. Medical treatment for the child would fall under Coverage C: Personal Property.
FALSE
An employer-sponsored medical plan that allows each employee to have pretax earnings deposited into a specially designated account for the purposes of paying specific types of expenses is called
Flexible spending account
By using the risk evaluation tool called beta, you can measure the movement of your individual stock compared to the S&P 500.
TRUE
Suppose that you were thinking about leasing a new vehicle. Which of the following should not be an important consideration?
It's the only way I can afford the vehicle that I want.
Social Security is a mandatory insurance program that provides a base level of protection for all the following occurrences except one. Choose that one.
Job Loss
Which of the following purchase orders indicates that you want to buy or sell immediately?
Market order
Suppose that you wanted to purchase insurance that is sold by a private insurance company that will help bridge the gap in your Medicare coverage. You would purchase what type of insurance?
Medigap insurance
Cash-value insurance is any policy that provides both a death benefit and an opportunity to accumulate cash value.
TRUE
Churning occurs when a broker engages in excessive trading in a client's security account to generate more commissions for the broker.
TRUE
What type of auto insurance protects you in the case of accident regardless of who caused the accident?
No-fault insurance
Which of the following funds would be the most appropriate investment for the average small investor?
No-load open-end fund
When you own shares in a mutual fund you make money in which of the following ways? A. As the value of all the securities held by the mutual fund increase, the value of each mutual fund share also increases. B. If a fund receives interest or dividends from its holdings this income is passed on to share holders. C. If the fund sells a security for more than it originally paid for it, the shareholders receive this in the form of capital gains. D. You receive a portion of the commissions that the fund manager charges for trades. E. Only A, B, and C are correct.
Only A,B, & C are correct
A(n) ________ is a mutual fund company that has the ability to issue as many shares as investors are willing to purchase.
Open-end mutual fund
Petrina was told by a successful friend to invest in stocks and income-producing real estate. Both of these are examples of ________ investments.
Ownership
The ________ is the stated amount on the face of a bond, which the firm is to repay at the maturity date.
Par value
You purchased some stock last month for $50 per share. Today the stock closed at $80 per share. You would like to protect the profit that you have made on this stock but you really don't want to sell it in case it continues to rise in price. What should you do?
Place a stop-loss order on this stock.
ABC Corporation is selling additional shares of common stock. These are new shares of stock, and have never been sold or traded previously. The selling of thse shares would take place in the ____ market.
Primary
You have an option on an ARM that has a two-year adjustment interval, 4% margin, 2% periodic rate cap and a 6% lifetime cap. The current initial rate is 5.35%. You can also get a 30-year, fixed-rate mortgage for 6.65%. You plan on staying in this home for at least 10 years. What would be your best choice?
Probably the fixed-rate loan because it is easier to budget for and it is less risky for you.
As compared to growth stocks, income stocks pay _____ dividends with ______ growth in earnings
Relatively high; relatively little
Each automobile policy contains both liability and property damage coverage.
TRUE
If you are too conservative with your investment, they may not keep up with inflation
TRUE
Of the different types of mutual funds, ________ are by far the most popular, and now account for half of all mutual funds.
Stock mutual funds
The book value of a company is calculated by
Subtracting the value of all the firm's liabilities from the value of its assets
The typical down payment is 20% for traditional mortgage loans
T
A closed-end fund trades more like common stock than a mutual fund.
TRUE
A proxy is a legal agreement a stockholder signs to allow someone else to vote for him or her at the corporation's annual meeting.
TRUE
A typical young investor should have most of their retirement money allocated in common stocks.
TRUE
An HO-3 policy is a special form of homeowner's insurance policy that offers open perils protection except for those perils specifically excluded.
TRUE
An option gives you the right to buy or sell the underlying asset at a set price on or before the option's maturity date.
TRUE
Angela's home became overrun with termites. She had to stay in an apartment temporarily while her home was being fixed. The provision on her home owner's policy that covers her expenses while she is not able to live in her home is known as Coverage D: Loss of Use.
TRUE
Angela's home became overrun with termites. She had to stay in an apartment temporarily while her home was being fixed. The provision on her home owners policy that covers her expenses while she is not able to live in her home is known as: Coverage D: Loss of Use.
TRUE
Because inflation makes goods and services cost more over time, one would be wise to always plan for inflation when planning one's retirement
TRUE
In general, which of the following is true regarding the amount of liability insurance you should carry?
The greater your assets, the more coverage you should carry.
Why are so many people without disability insurance?
The price is prohibitive for most people.
Toldae and Natasha were driving their friends home when they rear-ended another car. They are worried about paying for medical bills and possibly getting sued. Who will be covered under their Part B: Medical expense coverage?
Toldae, Natasha, and their freinds
You are considering the need for insurance. You desire a policy that provides permanent protection, has a fixed premium, and provides a fixed death benefit. What type of policy would you purchase?
Whole life insurance
You have just purchased 10 shares of a stock selling $50 per share. Since that time, the company was found to be in violation of several environmental laws and has several major lawsuits outstanding. Which of the following statements is most correct?
You could lose up to your $500 investment
You know you desperately need life insurance but don't have much money available for premiums. What is the best thing you can do to find affordable insurance?
all of the above
Investors with _____ accounts pay in full for their security purchases.
cash
Your next-door neighbor, a kind, elderly lady, just discovered that her stock account had been excessively traded in an inappropriate manner, mainly to generate excess commissions. This is an example of
churning
The _______ date is the date the stock begins trading without dividend, meaning that if you buy it after this date you will not get the dividend for that year
ex-dividend date
A(n) _______ is a mutual fund company that has the ability to issue as many shares as investors are willing to purchase.
open-end mutual fund
Roberta Cartwright puts money each month into a mutual fund that has very few controls; in that, the managers can invest in whatever they want because this type of fund is not regulated by the SEC. Roberta has a(n)_____ fund
hedge
The advantage of a fixed-rate mortgage over an ARM include
in general, better. you know your payments, can plan in advance
What factors are considered when insurance companies decide what rates to charge you for homeowner's insurance?
location of your home, type of structure, level of coverage and policy type -- also depends on your insurance credit score
A unit investment trust usually invest in ______ and an REIT always invest in_____.
municipal bonds, real estate
The waiting or elimination period on one's disability insurance refers to the period after the disability during which no benefits can occur. The waiting period is equivalent to
the deductible for one's health care policy
Frank is considering a new job. However he is concerned about his pension fund. He knows that ________ which is the requirement that he must work for his firm for a specified period of time prior to gaining ownership of the retirement contributions made by his employer has to be met first.
vesting
Uninsured motorists coverage
will cover injuries caused by a hit-and-run driver