finance chpa 17,18,19

30. In compiling a portfolio, which of the following should you not consider? A) Investments that exhibit a high positive correlation B) Investments whose values are not influenced by similar conditions C) Negatively correlated investments D) Investments whose reaction to economic conditions will not be similar

A) Investments that exhibit a high positive correlation

15. Which of the following expenses is usually the highest for a mutual fund? A) Management fees B) Administrative fees C) 12b-1 fees D) Referral fees

A) Management fees

22. Which of the following would not be a good method of asset allocation? A) Restrict your portfolio to stocks B) Include bonds C) Include real estate D) Include mutual funds

A) Restrict your portfolio to stocks

38. In retirement planning, which of the following is false? A) Social Security benefits are enough for retirement for most people. B) IRAs can be a good way to provide for retirement. C) You can continue to work and receive Social Security benefits at the same time. D) There is some concern about whether full Social Security benefits will be available in the future.

A) Social Security benefits are enough for retirement for most people.

12. Which of the following characteristics is not true of closed-end funds? A) They can be load or no-load funds. B) They do not repurchase shares from investors. C) They are bought and sold on stock exchanges. D) They may sell above or below NAV.

A) They can be load or no-load funds

41. Assuming Social Security income is not absolutely necessary at age 62, the decision whether to begin receiving reduced payments at age 62 versus waiting for full retirement age is A) a financial analysis decision based on present value and life expectancy. B) a moot point since the government tells you when you are eligible. C) a decision based on expected inflation rates. D) a moot point since you should take the money as soon as possible.

A) a financial analysis decision based on present value and life expectancy.

46. You get a job with the Allred Corporation. Its retirement plan will pay you $250 a month for each year you work for the company; payments begin on your 65th birthday. You must work for the company for 10 years in order to qualify for the pension. This plan is a A) defined-benefit plan. B) defined-contribution plan. C) traditional IRA. D) Keogh plan.

A) defined-benefit plan.

48. If your retirement plan has no vesting requirement then it is not a A) defined-benefit plan. B) Roth IRA. C) traditional IRA. D) Keogh plan.

A) defined-benefit plan.

24. Proper asset allocation can A) increase your wealth. B) decrease your assets. C) increase your dividend income and decrease your interest income. D) increase your expenses.

A) increase your wealth.

23. A portfolio can reduce risk when its A) investments do not move in tandem. B) investments move in tandem. C) returns of individual investments are similar. D) investments are from similar industries.

A) investments do not move in tandem.

31. Diversifying among stocks based in countries outside the United States A) makes your portfolio less vulnerable to conditions in the United States. B) is too expensive to use as a means of diversification. C) makes your portfolio's returns less volatile because foreign stocks are less volatile than U.S. stocks. D) is too risky for individual investors to consider.

A) makes your portfolio less vulnerable to conditions in the United States.

27. A portfolio's risk is measured by its degree of volatility because the ________ volatile the returns, the ________ uncertain the future return on the portfolio. A) more; more B) more; less C) less; more D) None of the above.

A) more; more

28. The more ________ the returns of individual investments in a portfolio, the more ________ the portfolio's returns are over time. A) similar; volatile B) different; volatile C) steady; unsteady D) aggressive; predictable

A) similar; volatile

39. Social Security replaces approximately ________% of a worker's average annual income from his or her working years. A) 100 B) 40 C) 75 D) 85

B) 40

6. Which of the following is not a true statement about mutual funds? A) All require a minimum investment. B) All have the same investment goals. C) The calculation of net asset value is the same. D) All have a management expense ratio.

B) All have the same investment goals.

25. When you compile a portfolio of stocks, you should avoid including stocks that exhibit A) a high negative correlation. B) a high positive correlation. C) no correlation. D) an inverse correlation.

B) a high positive correlation.

10. A family of mutual funds is A) a group of funds all of which have the same objective. B) a number of funds with different objectives operated by one investment company. C) an arrangement whereby a number of competing investment companies pool their resources. D) quite rare in the mutual fund industry.

B) a number of funds with different objectives operated by one investment company.

19. You can reduce investment risk by investing in A) a corporate bond. B) a portfolio of investments. C) corporate stocks. D) real estate.

B) a portfolio of investments.

37. You can elect to receive Social Security retirement benefits A) at the full retirement age, which is being raised from 65 to 69. B) at age 62 and take a reduced amount. C) and limit your ability to keep on working and earning income. D) and not be taxed on them, no matter how much other income you have.

B) at age 62 and take a reduced amount.

43. Social Security benefits are ________, as are Social Security ________ on your income. A) uncapped; withholding taxes B) capped; withholding taxes C) unlimited; fees D) capped; fees

B) capped; withholding taxes

47. In the last 20 years, many employers have shifted from A) defined-contribution to defined-benefit plans. B) defined-benefit to defined-contribution plans. C) 401(k) plans to 403(b) plans. D) SEP plans to SIMPLE plans.

B) defined-benefit to defined-contribution plans.

26. To reduce your risk, you should select stocks whose returns exhibit a ________ positive correlation rather than a ________ positive correlation. A) high; high B) low; high C) high; low D) low; low

B) low; high

3. The ________ is the market value of the securities that a mutual fund has purchased minus any liabilities. A) book value B) net asset value C) gross asset value D) net worth value

B) net asset value

14. Regarding load and no-load mutual funds, A) load funds usually outperform no-load funds. B) no-load funds perform at least as well as load funds even when the fees are ignored. C) the two types of funds perform about the same considering the fees. D) load funds may be bought directly, whereas no-load funds must be purchased through a broker.

B) no-load funds perform at least as well as load funds even when the fees are ignored.

4. The net asset value (NAV) is reported in financial newspapers and on financial Web sites A) for the total fund family. B) on a per-share basis. C) as a percentage of the fund's price. D) on a weekly basis due to the complexity of computation.

B) on a per-share basis.

8. Mutual funds that sell shares directly to investors and repurchase shares investors want to sell are called ________ funds. A) open-market B) open-end C) closed-end D) fair value

B) open-end

44. When you contribute to an employer sponsored retirement account, it is usually with ________ dollars. A) after-tax B) pre-tax C) optional D) discretionary

B) pre-tax

16. The amount by which a closed-end fund's share price in the secondary market is above the fund's NAV is called the A) market value. B) premium. C) discount. D) par value.

B) premium.

7. To calculate the NAV, the market value of the portfolio less liabilities is divided by the ________ to arrive at a per-share basis. A) original number of shares B) shares currently issued by the fund C) maximum shares to be issued D) average number of shares in comparable funds

B) shares currently issued by the fund

32. Proper risk-return management for a firm means that A) the firm should take as few risks as possible. B) the firm must determine an appropriate trade-off between risk and return. C) the firm should earn the highest return possible. D) the firm should value future profits more highly than current profits.

B) the firm must determine an appropriate trade-off between risk and return.

36. To qualify for Social Security benefits, your income has to be at least ________ per quarter (in 2015) for the equivalent of 10 years. A) $730 B) $874 C) $1,220 D) $1,123

C) $1,220

5. In calculating the net asset value (NAV), which of the following is true? A) Dividends are subtracted and expenses added B) Interest is subtracted and expenses are added C) Dividends are added and expenses are subtracted D) Interest and other expenses are not included

C) Dividends are added and expenses are subtracted

29. During the financial crisis in 2008-2009, investors who were diversified across industries A) experienced no losses. B) experienced large gains. C) experienced significant losses because most industries were suffering from weak economic conditions. D) experienced losses in financial services companies but not in other industries.

C) experienced significant losses because most industries were suffering from weak economic conditions.

11. Existing shares of closed-end mutual fund companies are purchased A) from the investment company directly. B) from the investment company through a broker. C) from other investors in the stock market. D) from a bank.

C) from other investors in the stock market.

13. Stock brokers typically do not recommend no-load funds because A) the return is lower than on load funds and brokers want to sell only the best funds to their clients. B) federal law prohibits brokers from selling no-load funds. C) no-load funds do not pay a fee to the broker for selling them. D) there is no secondary market for them.

C) no-load funds do not pay a fee to the broker for selling them.

45. Retirement fund withdrawals are usually taxed as ________ income. A) short-term capital gains B) long-term capital gains C) ordinary D) tax-free

C) ordinary

20. The primary benefit of diversification is that it A) is convenient. B) is cheap. C) reduces the exposure of your investments to adverse effects of any individual investment. D) increases stock volatility.

C) reduces the exposure of your investments to adverse effects of any individual investment.

33. Your Social Security retirement benefits are determined primarily by the amount A) of current contributions by other employees. B) of savings you have. C) you contributed to Social Security over the years. D) of the prime interest rate.

C) you contributed to Social Security over the years.

50. Which of the following is not a characteristic of employer-sponsored retirement plans? A) Help you save B) Generally of two types C) Part of a good benefits package D) A good place from which to borrow

D) A good place from which to borrow

42. As you plan for retirement, you should consider Social Security benefits as a supplement to A) your 401(k) savings. B) your company pension if one exists. C) your investment portfolio. D) All of the above are correct.

D) All of the above are correct.

17. Asset allocation is the process of dividing money across financial assets that include all of the following except A) stocks. B) bonds. C) mutual funds. D) All of the above can be used for asset allocation.

D) All of the above can be used for asset allocation.

34. If a person who qualified for Social Security dies, which of the following are provided to the survivors? A) A one time payment to the spouse. B) Monthly income payments if the spouse is over age 60. C) Monthly income payments to children under age 18. D) All of the above.

D) All of the above.

49. With which of the following plans will you be able to most accurately predict your retirement income? A) 401(k) B) 403(b) C) Traditional IRA D) Defined-benefit plan

D) Defined-benefit plan

21. Which of the following is a true statement about diversification? A) It will increase your overall risk. B) It will increase your volatility. C) It will decrease the number of investments in your portfolio. D) It will increase your chances of obtaining your financial goals.

D) It will increase your chances of obtaining your financial goals.

1. Which of the following is not a reason for investing in mutual funds? A) Small amount of funds needed B) Portfolio manager expertise C) Specific investment goals D) Overly diversified

D) Overly diversified

35. Social Security is all of the following except A) a good starting point when planning for your retirement funding. B) financed through working individuals and employers. C) a government program that provides benefits to the elderly and the disabled. D) a program that provides benefits that replace about 60% of a worker's annual income.

D) a program that provides benefits that replace about 60% of a worker's annual income.

18. The objective of asset allocation is to A) make investment decisions easier. B) ensure the returns of the individual investments within a portfolio. C) achieve a desired return on investment and eliminate the adverse risk of investing. D) achieve a desired return on investment and maintain a tolerable risk level.

D) achieve a desired return on investment and maintain a tolerable risk level.

9. An open-end mutual fund may do all of the following except A) sell shares directly to investors. B) charge a fee to buy but not sell shares. C) repurchase shares from investors who want to sell their shares. D) have its shares traded on the New York Stock Exchange.

D) have its shares traded on the New York Stock Exchange.

2. Advantages of investing in mutual funds include all of the following except A) diversification of your investment. B) professional management. C) meeting specific investment goals. D) there is virtually no risk of loss.

D) there is virtually no risk of loss.

40. If a person who qualified for Social Security benefits dies, all of the following are benefits provided to the survivors except A) a one-time payment to the spouse. B) monthly income payments to the spouse with eligible children or if the spouse is at least age 60. C) monthly income payments to children. D) tuition reimbursement for a child attending college.

D) tuition reimbursement for a child attending college.