Personal Finance Chapter 11

Some financial experts, such as Suze Orman, suggest that investors include a percentage of growth investments as part of their investment plan. This percentage 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%

A _____________ is an employer-sponsored retirement account, and participating in one is one of the easiest ways to begin an investment program.

401(k) account

Which of the following investors would mostly prefer speculative investments with higher risks over conservative investments with less risk?

A dual-career couple (with no children) 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.

Inflation risk deals with

A reduction in purchasing power

valid short-term investment goal is

Accumulating $3,000 in a savings account over the next 12 months.

If your primary investment objective is to receive investment income, which of the following would NOT be an appropriate investment for you?

Agressive "Growth" funds

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

All of the above can affect business failure risk

Why do investors purchase corporate bonds?

All of the above, interest income, repayment at maturity and possible increase in value.

Corporations use bonds

All of these are correct, for financing ongoing business actives, when it is difficult to sell stock, to improve financial leverage

A call feauture

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

Which of the following investors would mostly prefer conservative investments with less risk to speculative investments with higher risks?

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

Business failure can be due to

Bad management and/or unsuccessful products

Which of the following is not a true statement?

Because investment goals deal with the future, it is useless to make long-term goals

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

Bond Rating Corproration

Which of the following risks deals with the possibility that bad management, unsuccessful products, or other factors will cause the business to be less profitable than originally anticipated?

Business failure risk

Safe investments include all of the following except

Commodities

Older investors are often more interested in ______ investments.

Conservative

After you purchase an investment, you should

Continually evaluate your investment.

Timothy Calibe purchased common stock in XYZWidgets.com. To be a successful investor, he should

Continue to evaluate his investment in XYZWidgets.com after the purchase.

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

Which of the following securities are rated by 4 companies?

Corporate bonds

A bond that is backed only by the reputation of the issuing corporation is called a(n) ____________ bond.

Debenture

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 price quotations reported on the Internet and in newspapers.

A fancy way of saying you need to diversify your investments is

Don't put all of your eggs in one basket

Market risk is associated with fluctuations in the market due to

Economic conditions such as rapid expansion and recession

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

Growth

Young investors are often more interested in ______ investments than are older investors.

Growth-oriented

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

Identify the actual dollar cost of the investments after you sell them.

All of the following statements are considered to be good advice for a potential investor in performing a financial checkup except

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

Which of the following statements is false?

Individual investors who purchase U.S. government securities must hold the investments until maturity.

Which of the following risks reduces your purchasing power?

Inflation risk

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 risk

Which of the following investments is the most liquid?

Interest-bearing checking account

A discounted security means that the actual purchase price is

Less than the maturity value

When investing, in your role as an investor you 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 in the economy from a period of rapid expansion followed by a period of recession?

Market risk

A corporate bond that is secured by various assets of the issuing firm is called a(n) ____________ bond.

Mortgage

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

Municipal bond

Which of the following would be considered speculative investments?

Precious metals

Which of the following describes a growth company?

Profits are reinvested in the company for future growth.

The type of bond that is tracked electronically, using computers to record the owners' information, by the issuing company is a

Registered bond

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

Revenue bond

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

Save at least $10,000 to invest

Speculative investments include all of the following except

Savings accounts

Which of the following would be considered a safe investment?

Savings accounts

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

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

Stock risk

Which of the following has returned an average of almost 10% per year since 1926?

Stocks

Which of the following investments typically has the largest potential growth?

Stocks

Which of the following investments typically has the most risk?

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 where the principal increases with inflation and decreases with deflation is called a

TIPS

Interest paid to corporate bond owners 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.

Regarding older investors, which of the following holds true for most?

They choose investments with less risk

Which of the following is not a U.S. Treasury security?

Treasure stock

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

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

Trustee

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

When you make your own decisions or when you have professional help

Which of the following steps should be completed before making your first investment?

Work to balance your budget

The potential return on any investment should

be directly related to the risk the investor assumes

business failure risk

causes the business to be less profitable than originally anticipated

To survive a crisis, you can take the following steps:

establish a larger than usual emergency fund, know what you owe and reduce your spending, notify your lenders if you are unable to make payments , monitor the value of your investment and retirement accounts

A bond backed by the full faith, credit, and unlimited taxing power of the government that issued it is called a ____________ bond.

general obligation

Generally, interest on corporate bonds is normally paid every

six months

Gwendolyn and Jack Francis are investors with no financial training or investment background. Which approach will they likely take?

they will choose investments with less risk