Chapter 11

which of the following risks reduces your buying power?

A period of inflation

A good rule of thumb is to limit installment payments to__________ percent of your net income

A. 20

inflation risk deals with

A. A reduction in buying power

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

A. Asset allocation

which of the following features is a benefit for investors of municipal bonds?

A. Interest maybe tax exempt at the federal level

which of the following does not describe a growth company?

A. The company pays a large dividend

investors are often more interested in _________ portfolios than older investors

A. aggressive

The potential return on any investment should

A. be directly related to the risk the investor assumes

A bond that is backed only by the reputation of the issuing corporation is called a __________ bond

A. debenture

A valid long-term investment goal is:

A. saving $4000 per year for 40 years for retirement

if you invest $4000 per year over the next 40 years for retirement, which of the following is correct?

B. A high rate of return will give you the highest total dollar return

which of the following investors would mostly prefer income investments over growth investments?

B. And unemployed, single parent who just received a $300,000 divorce settlement

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

B. Decrease in value

which of the following describes a growth company?

B. Earnings are reinvested in the company for future growth

The IRS requires that an investor in a zero coupon bond report interest

B. Every year as it is earned

If your main focus is to have your investments increase in value, you are most concerned with

B. Growth

which of the following risks associated with preferred stocks or government or corporate bonds is a result of changes in rates in the economy?

B. Interest rate

A discounted security means that the current price is trading at

B. Less than the face value

When investing an investor should not

B. Let the investments manage themselves

after you purchase an investment, you should

B. Monitor its value

A corporate bond that is secured by various assets of issuing firm is called a ___________ bond

B. Mortgage

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

B. Municipal bond

The type of bond that is tracked electronically by the issuing company is a

B. Registered bond

A fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue is called a___________fund

B. Sinking

hey security issued by the US treasury that protects the investor from inflation is called a

B. TIPS

interest paid to corporate bond holders is

B. Tax-deductible for the corporation

when comparing the interest rates for government securities, which of the following is correct?

B. Treasury bills < treasury notes < treasury bonds

which of the following is not a rating agency for bonds?

B. bond rating corporation

all of the following statements are considered to be good advice for the potential investor before starting his or her personal investment program except:

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

A government security issued in minimum units of $100 with four, 13, 26, or 52-week maturities is called a

B. treasury bill

which of the following steps should be completed before starting an investment program?

B. work to balance your budget

A call feature

C. Allows the corporation to buy outstanding balance from current bondholders before the maturity date

Business failure risk can be due to:

C. Bad management and/or unsuccessful products

which of the following statements is correct?

C. Bonds are a form of debt financing

which of the following risks deal with the possibility that bad management, unsuccessful products, or other factors will cost the firm to be less profitable than originally anticipated?

C. Business failure

which of the following securities are rated at various agencies?

C. Corporate bonds

when choosing an investment, one should consider risk. The four primary risk components are:

C. Inflation, interest-rate, business failure, market

The following investments is the most liquid?

C. Interest-bearing checking account

if your main focus is to be able to buy or sell an investment quickly without substantially affecting the investments value, you are most concerned with

C. Liquidity

A bond that is repaid from the income generated by the project it is designed to finance is called a

C. Revenue bond

generally, interest on corporate bonds is paid

C. Six months

The taxable equivalent yelled for a municipal bond is calculated using

C. Tax exempt yield and the investors tax rate

as people approach retirement, which of the following holds true for most?

C. They choose more conservative investments

Gwendolyn and Jack Francis are typical investors. As they approach retirement, which approach will they likely take?

C. They will choose more conservative investments

I government security issued and $100 units with maturities of more than one year but not more than 10 years is called a

C. Treasury note

invalid short-term investment goal is:

C. accumulating $3000 in a savings account over the next 18 months

how long will a bankruptcy stay on your credit report?

D. 10 years

National 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:

D. 110

A _____________ is an employer-sponsored retirement account

D. 401(k) account

Which of the following investors would mostly prefer growth investments over income investments?

D. A dual career couple in their 30s whose combined income is $95,000

corporations use bonds for

D. All of the above are correct

all of the following can be factors that influence business failure risk except:

D. All of the above can affect business failure risk

when should you consider the tax consequences of selling your investments?

D. Both and B are correct

I portfolio that has 15-20 percent invested in stock would be indicative of a ________ portfolio.

D. Conservative

as investors approach retirement age, they are often more interested in _________ portfolios

D. Conservative

A bond that can be exchanged at the owners option for a specified number of shares of the corporation stock is called a

D. Convertible

When considering the value of your stock investments, it is important to

D. Determine their values using the Internet or newspapers

A bond backed by the full faith, credit, and unlimited texting power of the government the issued it is called a ______ bond

D. General obligation

Timothy Calibe owns common stock in XYZWidgets.com. to reduce his business failure risk, he should

D. I shares in a mutual fund that does not have stock in XYZWidgets.com

which of the following statements is true?

D. In reality, there's no guarantee that bondholders will convert to common stock even if the market value of the common stock does increase in value

which of the following statements is false?

D. Individual investors who purchased treasury bills, notes, and bonds must hold the investment until maturity

of the following risks deal with fluctuations due to political or social conditions?

D. Market

market risk is associated with fluctuations in the market due to

D. Political or social conditions

which of the following steps is not a factor to be considered before making your first investment?

D. Save at least $10,000 to invest

speculative investments include all except:

D. Savings accounts

which of the following would be considered a safe investment?

D. Savings accounts

A government security issued in minimum units of $100 with a 30 year maturity is called a

D. Treasury bond

which of the following is not a US treasury security?

D. Treasury stock

which of the following is not a true statement?

D. because investment objective deals with the future, it is useless to make long-term goals

Why do investors purchase corporate bonds?

E. B and C are correct

safe investments include all except:

E. Commodities

which of the following would be considered speculative investments?

E. Commodities

A proverb that we can associate with diversifying our investments is:

E. Don't put all of your eggs in one basket

your primary investment objective is to receive income, which of the following would not be appropriate for your portfolio?

E. Growth common stock

to maximize profit or reduce dollar losses when you sell your investments, it is important to do all of the following except:

E. Identify original cost after you sell the investment

Business failure risk:

E. Leads to lower profitability than anticipated

which of the following is not one of the four components of risk to be considered when evaluating investments?

E. Stock

Which of the following would you expect to earn just over 10 percent per year over the long term?

E. Stocks

which of the following investments typically has the largest potential investment return?

E. Stocks

which of the following investments typically has the most risk?

E. Stocks

If you need access to your funds in less than one year, which of the following investments would be least appropriate?

E. Stocks and mutual funds

if you can leave your funds alone for 5-10 years or more, which of the following investments would be most appropriate?

E. Stocks and mutual funds

which of the following is not correct?

E. The tax exempt yield is primarily associated with federal government securities

The financially independent firm or individual that acts as the bondholders representative is the

E. Trustee

John Peterson purchased a bond at a price far below its face value, which makes no interest payments, and will be redeemed at its face value at maturity. In all likelihood, he purchased a _________ bond

E. Zero coupon

Bonds of a single issue that mature on different dates are called __________ bonds

E. serial

I portfolio that is 100% invested in stock would be indicated of a ________ portfoli

E. very aggressive

bond funds

P. are an indirect way of owning bonds issued by the government some corporations