BUS201 Ch. 10

The average investor cannot afford to purchase much of the investment information available from the government. True False

False

The nationwide average increase is just over 7 percent for real estate investments. True False

False

When investing in global investments, changes in the currency exchange rate may affect the return on your investment. True False

True

When starting an investment program, you should participate in an elective savings program. True False

True

If interest rates in the overall economy decrease, what will happen to the market value of a corporate bond with a fixed interest rate? A. The value of the bond will increase. B. The bond is worthless. C. The value of the bond will decrease. D. The value of the bond will not change. E. It is impossible to determine if the bond's value will increase or decrease.

A. The value of the bond will increase.

Which of the following is not a true statement? A. When choosing an investment, it is not necessary to consider the risk factor. B. During inflationary times, there is a risk that the financial return on an investment will not keep pace with the rate of inflation. C. The interest rate risk associated with investments in bonds is the result of changes in the interest rates in the economy. D. The risk of business failure is associated with investments in common stock, preferred stock, and corporate bonds. E. The price of stocks, bonds, and other investments may fluctuate because of the behavior of investors in the marketplace.

A. When choosing an investment, it is not necessary to consider the risk factor.

Investments in commodities and options are all of the following except A. are more speculative investments B. usually stress immediate returns C. usually stress longterm growth D. are higher risk than GICs E. are higher risk than common stocks

A. are more speculative investments

Capital gains and capital losses A. are not fully taxed. B. are subject to higher taxes than is income. C. are assets held for longer than two years. D. are assets held for longer than five years. E. are assets held for longer than ten years.

A. are not fully taxed.

Bad products or poor financial management may result in investors experiencing ____________ risk. A. business failure B. interest rate C. inflation. D. market E. income

A. business failure

Investing in global may result in investors experiencing ____________ risk. A. currency exchange rate B. interest rate C. inflation. D. market E. income

A. currency exchange rate

Which of the following was not found to be a critical factor in investing psychology? A. greed B. stubbornness C. loss aversion D. endowment effect E. cognitive bias

A. greed

When a bondholder loses money because interest rates in the economy increase, it is an example of ____________ risk. A. market B. interest rate C. inflation D. business failure E. current

B. interest rate

Matt Jacobs is single and 24. He has just graduated from college and obtained a job making $26,400 a year. He would like to establish a longterm investment program. Which of the following investments would you recommend for his investment program? A. growth stocks B. government bonds C. corporate bonds D. commodities E. a moneymarket fund

A. growth stocks

The money obtained from selling corporate bonds A. is obtained from lenders. B. is obtained from the owners of the business. C. is obtained from employee stock option programs. D. does not have to be repaid. E. has been allocated to retirement programs.

A. is obtained from lenders.

One dollar placed in a safety deposit box in 1980 is worth A. less than 50 cents. B. about 10 cents. C. zero. D. between 50 cents and one dollar. E. more than one dollar.

A. less than 50 cents.

A decrease in the value of stocks, bonds, or other investments may cause investors to experience ____________ risk. A. market B. interest rate C. business failure D. inflation E. income

A. market

Equity capital is money A. obtained from the owners of the business. B. borrowed through banks. C. obtained by employee benefit programs. D. that has to be repaid. E. that has been allocated to a retirement program.

A. obtained from the owners of the business.

Earnings that are reinvested in a corporation are called A. retained earnings. B. surplus earnings. C. retention capital. D. additional capital. E. collected capital.

A. retained earnings.

An emergency fund should be deposited in a A. savings account at the highest available interest rate. B. sixmonth certificate of deposit. C. checking account. D. safe place at home. E. safe deposit box in a bank vault.

A. savings account at the highest available interest rate.

An investment alternative in the form of an annuity that is similar to a mutual fund but that is less risky as it provides a certain degree of insurance to the investor is a (an) __________ A. segregated fund. B. government bond. C. guaranteed investment certificate. D. government stock. E. option fund.

A. segregated fund.

Which of the following is the most readily available source of information for an investor? A. the daily newspaper B. government publications C. corporate reports D. investor newsletters E. business periodicals

A. the daily newspaper

Nationwide real estate values increase by ____________ percent a year. A. 1 B. 3 C. 7 D. 10 E. 15

B. 3

Which of the following statements does not accurately describe a line of credit? A. A line of credit is already approved before the money is actually needed. B. A line of credit is a longterm loan. C. A line of credit can be obtained at a credit union, trust company, or bank. D. A line of credit provides an alternative source of funds if an emergency does develop. E. A line of credit is available immediately when needed.

B. A line of credit is a longterm loan.

Your investment suddenly goes down 15 percent one month after you invest. Its fundamentals still look good. What would you do if you were a very risk tolerant investor? A. Hold on and wait for it to come back. B. Buy more. If it looked good at the original price, it looks even better now C. Sell it to avoid losing even more D. Sell and then buy if it goes down again E. sell and buy GICs

B. Buy more. If it looked good at the original price, it looks even better now

All of the following statements are considered to be good advice for the potential investor before starting his or her personal investment program except: A. Learn to live within your means. B. Increase credit purchases and make installment payments in order to increase cash available for investing. C. Provide adequate insurance protection. D. Start an emergency fund. E. Establish a line of credit.

B. Increase credit purchases and make installment payments in order to increase cash available for investing.

Which of the following is not a true statement? A. It is estimated that there are over 100 million Internet users worldwide. B. There is a wealth of investment information available, but most small investors cannot afford to use it. C. You can obtain current price information for stocks, bonds, and mutual funds by using the Internet. D. A search engine is a research tool that helps you move through a menu system until you find the information you want. E. Both government and businesses provide individuals with investment information.

B. There is a wealth of investment information available, but most small investors cannot afford to use it.

Which of the following investments offers the greatest growth potential? A. bank accounts B. common stock C. corporate bonds D. government bonds E. option bonds

B. common stock

For an investor who wants to speculate, which of the following investments would be appropriate? A. redchip stocks B. derivatives C. utility stocks D. corporate bonds E. preferred stock issues

B. derivatives

Which of the following is not a determinant of investor risk tolerance? A. goals and time frames B. economy C. income and asset base D. personality E. income

B. economy

The written pledge of a government or a municipality to repay a specified sum of money along with interest is called a _________ A. mutual fund. B. government bond. C. guaranteed investment certificate. D. government stock. E. option fund.

B. government bond.

The ease with which an investment can be converted to cash without a substantial loss in dollar value is called the A. asset value. B. liquidity factor. C. immediate quotient. D. fixed cost factor. E. variable cost factor.

B. liquidity factor.

For an investor who wants to speculate, which of the following investments would be appropriate? A. redchip stocks B. options C. utility stocks D. corporate bonds E. preferred stock issues

B. options

After the death of her husband, Gina Balmer, 35, received a check for $350,000 from a life insurance company. Ms. Balmer has two small children and wants to make sure that both she and the children are taken care of in the future. Based on this information, which of the investment factors listed below would be the most important to Ms. Balmer in her investment program? A. beta B. safety C. business failure D. market risk E. liquidity

B. safety

Under current tax laws, capital losses can be A. simply lost. B. used to offset capital gains. C. used to reduce your last year's tax amount. D. used to offset dividend income. E. used to offset interest and rental income.

B. used to offset capital gains.

An investor can make money on a common stock investment by A. waiting for the corporation to repurchase the stock. B. waiting for the stock's value to increase and then selling it. C. waiting for the stock's value to decrease and then selling it. D. waiting for the stock to reach the maturity date. E. converting the common stock to preferred stock.

B. waiting for the stock's value to increase and then selling it.

The fees for investor services and newsletters generally range from ____________ a year. A. $10 to $20, or free B. $20 to $30, or free C. $30 to $750, or free D. $300 to $1,000, or free E. over $1,,000, or free

C. $30 to $750, or free

Jamie Lynn earns $40,000 a year. Her monthly expenses total $1,700. What is the minimum amount of money that Ms. Lynn should set aside in an emergency fund? A. $1,700 B. $3,400 C. $5,100 D. $8,400 E. $10,000

C. $5,100

Which of the following is not a true statement? A. Dividends are a distribution of money, stock, or other property to stockholders. B. Dividend income must be reported to the CCRA. C. Dividends are taxed as capital gains. D. Dividends are not taxed as ordinary income. E. Generally, the payer will send you or your broker a form that states how much dividend income you have received.

C. Dividends are taxed as capital gains.

Which of the following is not a business periodical? A. Report on Business B. Business Week C. The Economist D. Canadian Banker E. Canadian Business

C. The Economist

If interest rates in the overall economy increase, what will happen to the market value of a corporate bond with a fixed interest rate? A. The value of the bond will increase. B. The bond is worthless. C. The value of the bond will decrease. D. The value of the bond will not change. E. It is impossible to determine if the bond's value will increase or decrease.

C. The value of the bond will decrease.

Which of the following is not a true statement? A. A corporation generally obtains equity capital from stockholders. B. A corporation can issue both preferred stock and common stock. C. When a corporation is experiencing financial problems, an investor should purchase common rather than preferred stock. D. Most corporations sell common stock to satisfy a large part of their financing needs. E. The most important priority a preferred stockholder enjoys is receiving cash dividends before common stockholders receive cash dividends.

C. When a corporation is experiencing financial problems, an investor should purchase common rather than preferred stock.

Normally, corporate bondholders receive interest A. monthly. B. every three months. C. every six months. D. yearly. E. when the bond matures.

C. every six months.

An investor concerned with a predictable source of income provided by an investment would choose A. options. B. commodities. C. government bonds. D. common stocks. E. speculative investments.

C. government bonds.

Chi MinHo is 24 and has saved enough money to fund an adequate emergency fund. In addition, he has saved $5,600 that can be used to fund an investment program. He is single, has no dependents, and would like to retire when he is 60. Which of the investment factors listed below would be most important for an investor like Mr. MinHo? A. beta B. income C. growth D. risk E. liquidity

C. growth

An example of ____________ risk occurs when an investment does not keep up with prices that are increasing in the overall economy. A. market B. interest C. inflation D. business failure E. current

C. inflation

Which of the following investments offers the least liquidity? A. bank accounts B. government bonds C. real estate D. common stock E. preferred stock

C. real estate

Anne Marie earns $25,000 a year. Her monthly expenses total $1,200. What is the minimum amount of money that Ms. Lynn should set aside in an emergency fund? A. $1,200 B. $1,800 C. $2,400 D. $3,600 E. $12,500

D. $3,600

The maturity dates for most bonds range between ____________ years. A. 0 to 5 B. 5 to 15 C. 10 to 15 D. 1 to 30 E. 1 to 40

D. 1 to 30

A good rule of thumb is to limit installment payments to ____________ percent of your net monthly income. A. 8 B. 20 C. 25 D. 10 E. 30

D. 10

Which of the following statements is not true? A. An investor seeking global diversification with less than $200,000 to invest should invest in global mutual funds. B. Changes in currency exchange rate may affect the return on your investment. C. Today, more and more investors are investing in stocks and bonds issued by foreign firms and global mutual funds. D. An investor in Canada cannot purchase shares in a foreign company. E. Because of international accounting rules, evaluating foreign investments is more difficult than evaluating investments in Canada.

D. An investor in Canada cannot purchase shares in a foreign company.

Which of the following is not a true statement? A. No one is going to make you save the money you need to start an investment program. B. To be useful, investment objectives must be specific and measurable. C. Investment goals must be tailored to the particular financial needs of the individual. D. Because investment objectives deal with the future, it is useless to plan more than five years in the future. E. A longterm investment objective involves a time period of five years or more.

D. Because investment objectives deal with the future, it is useless to plan more than five years in the future.

All except which one of the following are good ways to acquire money for starting an investment program? A. Pay bills first, and then save a reasonable amount of money for investment. B. Participate in an elective savings program offered by your employer. C. Make a special savings effort one month per year. D. Borrow money specifically for investment purposes. E. Take advantage of gifts, inheritances, and windfalls.

D. Borrow money specifically for investment purposes.

Which of the following statements is not true? A. When establishing an investment program, you should begin by establishing your investment goals. B. When you are choosing an investment, you should examine the risk factor associated with each investment. C. When establishing an investment program, you should examine the potential return offered by different investment alternatives. D. Find a professional financial planner and leave the planning to the professional. E. Continue to evaluate the investments contained in your investment plan.

D. Find a professional financial planner and leave the planning to the professional.

Which of the following investments would rank the highest with regard to safety? A. real estate B. common stock C. preferred stock D. GICs E. antiques and collectables

D. GICs

Which of the following is not a true statement? A. Professional management is an especially important factor for investors purchasing a mutual fund. B. One of the many reasons why investors purchase mutual funds is diversification. C. With mutual funds, an occasional loss in one security is often offset by gains in other securities. D. Mutual funds are designed to appeal to conservative investors with longterm investment goals. E. The individual investor is responsible for choosing the right mutual fund.

D. Mutual funds are designed to appeal to conservative investors with longterm investment goals.

Which one of the following is not a true statement? A. Most mutual funds invest in stocks, bonds, and other securities. B. Diversification provided by a mutual fund reduces risk. C. The goals of one mutual fund investor may differ from those of another. D. Since mutual fund managers are professionals, there is no need to evaluate a mutual fund. E. Mutual fund investments range from very conservative to very speculative investments.

D. Since mutual fund managers are professionals, there is no need to evaluate a mutual fund.

Which of the following is not a true statement? A. Real estate ownership represents one of the best hedges against inflation. B. Poor location can cause a piece of real estate property to go down in value. C. There are many factors to consider before investing in real estate. D. There is no reason to evaluate a real estate investment because real estate always increases in value sooner or later. E. Finding a buyer for a piece of real estate can be difficult if loan money is scarce.

D. There is no reason to evaluate a real estate investment because real estate always increases in value sooner or later.

An emergency fund should A. be able to cover 1 month of living expense. B. begin after you invest in the stock market. C. consist of mutual funds primarily D. be able to cover a minimum of 3 months of living expense E. not be required if you have unused credit card debt.

D. be able to cover a minimum of 3 months of living expense

Which of the following investments has the best rate of return when adjusted for inflation? A. savings accounts B. corporate bonds C. Canadian treasury bills D. common stocks E. preferred stocks

D. common stocks

Which of the following would not be considered a safe investment for a conservative investor? A. corporate bonds B. guaranteed investment certificates C. government bonds D. gemstones E. preferred stock

D. gemstones

A type of investment that combines and invests the funds of many investors and manages it with a professional manager is called a(n) A. chequing account. B. securities exchange. C. guaranteed investment certificate. D. mutual fund. E. option fund.

D. mutual fund.

Which of the following investments has the highest risk? A. preferred stock B. common stock C. corporate bonds D. options E. real estate

D. options

A corporation selling stock is obligated to A. guarantee your investment. B. repay money obtained from the sale of stock. C. repurchase shares of stock at a later date. D. pay dividends to preferred stockholders before dividends are paid to common stockholders. E. pay dividends.

D. pay dividends to preferred stockholders before dividends are paid to common stockholders.

Which of the following is/are a desktop information service? A. Bloomberg Professional B. 3000 Xtra C. Reuters D. Canadian MoneySaver E. A, B, C

E. A, B, C

You're down $500 in a poker game. How much more would a conservative investor be willing to put up to win the $500 back? A. More than $500. B. $500. C. $250. D. $100. E. Nothing cut your losses now

E. Nothing cut your losses now

Which of the following investments offers the greatest liquidity? A. collectibles B. common stock C. corporate bonds D. real estate E. bank accounts

E. bank accounts

Which of the following investments would rank the highest with regard to safety? A. real estate B. common stock C. preferred stock D. corporate bonds E. bank accounts

E. bank accounts

The risk factors associated with a specific investment A. can change over time B. can include interest rate rick C. can include inflation risk. D. can include market risk. E. can include all of the choices.

E. can include all of the choices.

Which of the following would not be considered a safe investment for a conservative investor? A. corporate bonds B. guaranteed investment certificates C. passbook savings accounts D. bluechip stocks E. collectibles

E. collectibles

Which of the following investments would provide the largest amount of income and most predictable source of income? A. commodities B. savings accounts C. derivatives D. common stock E. guaranteed investment certificates

E. guaranteed investment certificates

Which of the following investments would rank the highest with regard to being speculative? A. savings bonds B. GICs C. preferred stock D. corporate bonds E. options

E. options

A designated financial planner has had at least two years of training in securities, insurance, taxes, real estate, and estate planning and has passed a rigorous examination. True False

False

A longterm objective may take up to three years to accomplish. True False

False

A speculative investment is an investment that is made in the hope of earning a relatively large profit over a long period of time. True False

False

Although useful for many things, the Internet cannot be used to monitor the value of stock, bond, and mutual fund investments. True False

False

An elective savings program is when an individual cuts back on spending for one to two months to obtain additional money for investment purposes. True False

False

An intermediateterm objective is defined as one that will be accomplished within eighteen months. True False

False

Bondholders generally receive interest payments every five months. True False

False

Diversification of assets among several types of investments can increase risk. True False

False

Dividends and interest income are taxed as longterm capital gains under the current tax laws. True False

False

Once you have painstakingly developed a financial plan, it is not wise to change it. True False

False

Preferred stock represents the most basic form of corporate ownership. True False

False

The amount put aside as an emergency fund should be equal to 1 to 3 months of living expenses. True False

False

A line of credit is a short term loan that is approved before the money is actually needed. True False

True

A longterm objective may take more than five years to accomplish. True False

True

A short term investment objective is defined as one that will be accomplished within a period of less than two years. True False

True

An emergency fund is a certain amount of money that can be obtained quickly in case of immediate need. True False

True

An intermediateterm objective is defined as one that will be accomplished within two to five years. True False

True

Common stock represents the most basic form of corporate ownership. True False

True

Derivatives are securities such as options, and forward and futures contracts, whose value depends on the performance of an underlying security. True False

True

Desktop information services provide instantaneous access to realtime historical financial data, news and many other services. True False

True

Diversification of assets among several types of investments can decrease risk. True False

True

During inflationary times, there is a risk that the financial return on an investment will not keep pace with the rate of inflation. True False

True

Generally, options are not longterm investment techniques. True False

True

Leveraged investing in common shares is expected to increase your net worth. True False

True

Liquidity is the ease with which an asset can be converted to cash without a substantial loss in dollar value. True False

True

Mutual funds range from very conservative to extremely speculative investments. True False

True

Potential investors should wait until they put their financial affairs in order before starting to invest. True False

True

Statistical averages show trends and direction, but they do not pinpoint the actual value of a specific investment. True False

True

Studies show that investors are willing to run a greater risk to avoid a loss than to make a gain. In behavioural finance this is called loss aversion. True False

True

The amount put aside as an emergency fund should be equal to 3 to 9 months of living expenses. True False

True

The basic idea behind a hedge fund is to take two simultaneous positions in two different investments in order to reduce risk. True False

True

The belief that something must be of superior value because we own it, is known as the endowment effect. True False

True

The decision to establish an investment plan is an important first step to accomplishing your financial goals. True False

True

The dollar value of a fixedreturn investment decreases when overall interest rates in the economy decreases. True False

True

The fees for investor services and newsletters may range between $30 and $750 a year. True False

True

The most important priority an investor in preferred stock enjoys is receiving cash dividends before common stockholders are paid any cash dividends. True False

True

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

True

Today, federal, provincial, and local governments and most corporations have a home page where you can obtain valuable information. True False

True