BUS 1210 (Personal Finance) Ch 11
If your primary investment objective is to receive investment income, which of the following would NOT be appropriate for your portfolio?
"Growth" common stock
If a bond is quoted in the newspaper at 105, what is its price?
$1,050
What is the approximate market value of a bond that pays $60 interest each year if comparable interest rates have dropped to 5%?
$1,200
Assume that you purchase a $1,000 bond issued by Harley-Davidson that pays 6% interest each year, paid semiannually. What is the amount of each interest payment?
$30.00
Assume that you purchase a $1,000 bond issued by Kohls that pays 8% interest each year, paid semiannually. What is the amount of each interest payment?
$40.00
Assume that you purchase a $1,000 bond issued by GE that pays 5% interest each year. What is the annual interest amount?
$50.00
If your monthly expenses total $2,000, you should save at least __ in an emergency fund before focusing on your investment portfolio
$6,000
If your monthly expenses total $2,500, you should save at least __ in an emergency fund before focusing on your investment portfolio
$7,500
If a bond is quoted in the newspaper at 90, what is its price?
$900
Some financial experts, such as Suze Orman, suggest that investors include a percentage of growth investments as part of their portfolio. This can be calculated by subtracting your age from
110
A good rule of thumb is to limit installment payments to __ of your net (after-tax) income
20%
According to some financial experts like Suze Orman, how much of an investment portfolio should a 30-year-old have in safe (nongrowth) investments?
20%
According to some financial experts like Suze Orman, how much of an investment portfolio should a 50-year-old invest in safe (nongrowth) investments?
40%
A __ is an employer-sponsored retirement account.
401(k) account
A __is an employer-sponsored retirement account.
401(k) account
You are considering an investment in a municipal bond that has a yield of 4%. Your tax rate is 25%. What is your taxable equivalent yield?
5.33%
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%
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%
According to some financial experts like Suze Orman, how much of an investment portfolio should a 50-year-old have in growth investments?
60%
Gwendolyn Francis is interested in buying a bond that pays $70 annually. The current price of the bond is $800. What is her current yield?
8.75%
According to some financial experts like Suze Orman, how much of an investment portfolio should a 30-year-old have in growth investments?
80%
Which of the following investors would mostly prefer speculative investments over conservative investments?
A dual-career couple in their 30s whose combined income is $95,000
If you invest $4,000 per year over the next 40 years for retirement, which of the following is correct?
A high rate of return will give you the highest total dollar return
A valid short-term investment goal is
Accumulating $3,000 in a savings account over the next 12 months.
Corporations use bonds
All of these
A call feature
Allows the corporation to buy outstanding bonds from current bondholders before the maturity date.
Which of the following investors would mostly prefer conservative investments to speculative investments?
An unemployed single parent who just received a $300,000 divorce settlement
The process of spreading your assets among several different types of investments to lessen risk is called
Asset allocation.
The potential return on any investment should
Be directly related to the risk the investor assumes.
Which of the following is not a rating agency for bonds?
Bond Rating Corporation
Which of the following statements is correct?
Bonds are a form of debt financing
Which of the following risks deals with the possibility that bad management, unsuccessful products, or other factors will cause the firm to be less profitable than originally anticipated?
Business failure
Safe investments include all of the following except
Commodities
Which of the following would be considered speculative investments?
Commodities
Timothy Calibe owns common stock in XYZWidgets.com. To reduce his business failure risk, he should
Continue to evaluate his investment in XYZWidgets.com after the purchase.
Which of the following securities are rated at various agencies?
Corporate bonds
If overall interest rates in the economy rise, a corporate bond with a fixed interest rate will generally
Decrease in value.
When monitoring the value of your stock investments, it is important to
Determine their values using the internet or newspapers
Market risk is associated with fluctuations in the market due to
Economic conditions.
A 25-year-old single investor with a secure, full-time job that pays $60,000 would likely prefer conservative investments over speculative investments.
False
A bankruptcy can stay on your credit report for up to 12 years
False
An easy way to determine what percentage of your assets should be invested in growth investment is to take your age and subtract it from 80
False
An example of an investment with high risk is a government bond
False
Fluctuations in market prices of stocks or bonds relate only to fundamental changes in the financial health of corporations.
False
In the event of bankruptcy, stockholders have a claim to assets of the corporation before bondholders
False
Investors choose safe investments because they know there is a moderate chance that these investments will become worthless.
False
Long-term goals should be completed in one to five years.
False
Municipal bonds generally are only tax-exempt at the state level.
False
Short-term goals should be completed in 30 or fewer days.
False
The potential return on any investment should be indirectly related to the risk the investor assumes.
False
The taxable equivalent yield for a municipal bond will be lower than the tax-exempt yield for that bond.
False
The usual face value of a corporate bond is $100.
False
The value of a bond is not tied to the corporation's ability to repay its bond.
False
To investors, liquidity means their investments will increase in value
False
Younger investors tend to invest in more growth-oriented investments because they are more concerned about safety than older investors.
False
Which of the following statements is false?
Individual investors who purchase U.S. government securities must hold the investments until maturity.
When choosing an investment, you should consider risk. The four primary risk components are
Inflation, interest rate, business failure, market.
Which of the following features is a benefit for investors of municipal bonds?
Interest may be tax-exempt at the federal level
Which of the following risks associated with preferred stocks or government or corporate bonds is a result of changes in rates in the economy?
Interest rate
Which of the following investments is the most liquid?
Interest-bearing checking account
When investing, an investor should not
Let the investments manage themselves.
If your main focus is to be able to buy or sell an investment quickly without substantially affecting the investment's value, you are most concerned with
Liquidity
Which of the following risks deals with fluctuations due to economic conditions?
Market
A debt security issued by a state or local government is known as a
Municipal bond
The type of bond that is tracked electronically by the issuing company is a
Registered bond.
Why do investors purchase corporate bonds?
Repayment at maturity and a possible increase in value
A bond that is repaid from the income generated by the project it is designed to finance is called a(n)
Revenue bond
A valid long-term investment goal is
Saving $4,000 per year for 40 years for retirement.
Which of the following would be considered a safe investment?
Savings accounts
Speculative investments include all of the following except
Savings accounts.
Generally, interest on corporate bonds is normally paid every
Six months.
Which of the following is not one of the four components of risk to be considered when evaluating investments?
Stock
Which of the following investments typically has the largest potential investment return?
Stocks
Which of the following investments typically has the most risk?
Stocks
Which of the following would you expect to earn near 10% per year over the long term?
Stocks
If you can leave your funds alone for 5-10 years or more, which of the following investments would be most appropriate?
Stocks and mutual funds
If you need access to your funds in two years or less, which of the following investments would be least appropriate?
Stocks and mutual funds
A security issued by the U.S. government that protects the investor from inflation is called a
TIPS
Interest paid to corporate bondholders is
Tax-deductible for the corporation
The taxable equivalent yield for a municipal bond is calculated using the
Tax-exempt yield and the investor's tax rate.
Which of the following does not describe a growth company?
The company pays a large dividend.
Which of the following is not correct?
The tax-exempt yield is associated primarily with federal government securities.
Gwendolyn and Jack Francis are typical investors. As they approach retirement, which approach will they likely take?
They will choose more conservative investments.
A U.S. government security issued in minimum units of $100 with 4, 13, 26, or 52-week maturities is called a
Treasury bill
When comparing the interest rates for U.S. government securities, which of the following is correct?
Treasury bills < Treasury notes < Treasury bonds
A U.S. government security issued in minimum units of $100 with a 30-year maturity is called a
Treasury bond.
A U.S. government security issued in $100 units with maturities of more than 1 year but not more than 10 years is called a
Treasury note
A U.S. government security issued in $100 units with maturities of more than 1 year but not more than 10 years is called a
Treasury note.
Which of the following is not a U.S. Treasury security?
Treasury stock
An unemployed single parent who just received a $300,000 divorce settlement would likely prefer conservative investments over speculative investments.
True
For many people, the easiest way to begin an investment program is to participate in an employer-sponsored 401(k) or 403(b) retirement account
True
For many people, the easiest way to begin an investment program is to participate in an employer-sponsored 401(k) or 403(b) retirement account.
True
In general, bond rating categories are similar to school grading scales with A being better than C
True
Intermediate goals should be accomplished in two to five years.
True
Patrick Guitman wants to protect himself against losses in his investments. To do this, he should evaluate the companies whose stock or bonds he wants to purchase and continue to evaluate his investments after his purchase.
True
Since 1926, stocks have earned an average annual return of near 10%.
True
The purpose of diversification is to spread your assets among several different types of investments to decrease risk.
True
To investors, liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment's value
True
Younger investors tend to invest in more aggressive portfolios than older investors
True
The financially independent firm or individual that acts as the bondholders' representative is the
Trustee
If you invest $4,000 per year over the next 40 years for retirement, which of the following is correct?
Your investment will be worth $160,000 at retirement.
As investors approach retirement age, they are often more interested in __ portfolios.
conservative
A bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's stock is called a(n) __ bond
convertible
A bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's stock is called a(n) __ bond.
convertible
A bond that is backed only by the reputation of the issuing corporation is called a(n) __ bond
debenture
A bond backed by the full faith, credit, and unlimited taxing power of the government that issued it is called a __ bond
general obligation
Young investors are often more interested in ______ portfolios than older investors.
growth-oriented
A corporate bond that is secured by various assets of the issuing firm is called a(n) __ bond
mortgage
A corporate bond that is secured by various assets of the issuing firm is called a(n) __ bond.
mortgage
Bonds of a single issue that mature on different dates are called __ bonds
serial
A fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue is called a(n) __ fund
sinking
A fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue is called a(n) __ fund.
sinking
