FIN 2860 exam 4

T/F: A bond's coupon interest rate is a factor if its market price.

False

T/F: According to the Morgan Stanley REIT Index, REITs fell by about 15 percent between March 2007 and March 2009.

False

T/F: An equity REIT investment is limited to mortgages on income producing properties.

False

T/F: Because mutual funds trade in such large quantities, they pay far more in terms of commissions.

False

T/F: Because the Dow Jones Index Average is based on the movement of 500 large, well-established stocks, many investors believe it reflects price movements for large firms rather than for the general market.

False

T/F: Bonds are always a safe investment if held to maturity.

False

T/F: By law, all mutual funds must be broadly diversified.

False

T/F: In the over-the-counter market, the individual investor must be physically present to purchase the security over-the-counter.

False

T/F: Investment advice is very difficult to find and expensive to purchase.

False

T/F: Mutual funds charge high sales loads because their potential returns are much higher than the returns for individual stocks.

False

T/F: Mutual funds eliminate the systematic risk through diversification.

False

T/F: To obtain information about mutual funds you must always pay a fee.

False

T/F: When selecting a mutual fund, since past performance doesn't necessarily predict future results, you don't need to look at the fund's past performance.

False

T/F: When you own shares in a mutual fund, you directly own shares of the companies that make up the fund.

False

T/F: A mutual fund's expense ratio compares the fund's expenses to its total assets.

True

T/F: According to your text, there is very little validation in using technical analysis as an investing tool.

True

T/F: Bonds which are very low rated, yet high yielding bonds are known as junk bonds.

True

T/F: If an asset doesn't earn a return, its value is determined by supply and demand.

True

T/F: If the nominal rate is 10% and inflation is 3%, the real rate of return is 7%.

True

T/F: Net asset value is determined by taking the total market value of all the securities held by the mutual fund, subtracting out any liabilities, and dividing the result by the number of shares outstanding.

True

T/F: Tax-exempt money market mutual funds invest in only very short-term municipal debt.

True

T/F: The No. 1 predictor of mutual fund performance is "looking at the mutual fund's costs"; the lower they are, the better the predicted performance.

True

T/F: The trade-off for mutual fund diversification is lower-than-market performance.

True

T/F: With target retirement funds the only decision you have to make is when you plan to retire.

True

The phrase ________ is sadly appropriate for the actions of some people, as they perceive that investment success rests in making frequent transactions. a. "playing the market" b. "timing the market" c. "go big or lose your home" d. "buy low, sell high"

a. "playing the market"

When there are changes in the consumer price index, there is a corresponding change in the par value of a. TIPS. b. Series EE bonds. c. I Bonds. d. Munis.

a. TIPS.

Patti DeVry has been trading stocks in the over-the-counter market. When she wants to sell her stocks she will specify the ________ price and when she wants to purchase stocks she will specify the ________ price. a. ask on offer; bid b. bid; ask on offer c. starting; minimum d. ask; minimum e. bid; minimum

a. ask on offer; bid

A mutual fund ________ provides a description of the mutual fund including the fund's objectives and risk, its historical performance, its expenses, manager's history and other information. a. prospectus b. prospector c. debenture d. indenture

a. prospectus

Using a financial calculator calculate the value of a bond that matures in 20 years with a coupon interest rate of 10%, which is the required rate of return, and a par value of $1,000. a. $100 b. $1,000 c. $1,100 d. $10,000

b. $1,000

You recently purchased a stock for $50. It is now worth $75, and it paid a $15 dividend during the two years you held it. What is your annualized rate of return on this stock? a. 80% b. 40% c. 27% d. 25%

b. 40%

You and a group of your friends have been discussing your portfolios at the company water cooler. Your discussion has centered on how your stocks are moving up or down in price relative to the market as a whole. Each stock's ________ is likely the best measure of the relationship. a. relative index b. beta c. alpha d. delta

b. beta

Brokerage firm reports a. are provided by all discount brokers. b. provide access to research reports prepared by the firm's securities analysts. c. analyze individual companies but not the direction of the economy as a whole. d. are only valuable if you buy the recommended stocks. e. All of these

b. provide access to research reports prepared by the firm's securities analysts.

A ________ increases the number of stock shares outstanding by replacing each existing share of stock with a stated number of new shares. a. dividend reinvestment b. stock split c. stock repurchase d. stock reissue

b. stock split

Suppose that you just purchased a $1,000 Treasury Inflation-Indexed Bond which carried an original interest rate of 3.375%. The consumer price index just increased by 5% increasing the par value of the bond to $1,050. What is your interest payment considering this change? a. $31.75 b. $33.75 c. $35.44 d. $50.00 e. $52.50

c. $35.44

What are proxy fights? a. Proxy fights are when two rival companies want the same voters. b. Proxy fights are battles for proxy votes between rival groups of share holders in separate companies. c. Proxy fights are battles for proxy votes between rival groups of share holders in the same company. d. Proxy fights are when shareholders fight over who will cast their votes.

c. Proxy fights are battles for proxy votes between rival groups of share holders in the same company.

The city of Houston passed a bond issue to build a bridge over the bay. The bond was to have the interest paid by the income generated by charging drivers a toll to cross the bridge. This is an example of a ________ bond. a. collateralized b. cash c. revenue d. general obligation

c. revenue

A(n) ________ is a fixed pool of securities, generally municipal bonds, with each unit representing a proportionate ownership in that pool. a. open-end investment company b. closed-end mutual fund c. unit investment trust d. real estate investment trust

c. unit investment trust

Cretia Robritti discovered that the purpose of asset allocation is to ensure that the investor is ________, generally with holdings in several different ________ of investments. a. protected; denominations b. well diversified; amounts c. well diversified; classes d. evenly distributed; classes e. evenly distributed; amounts

c. well diversified; classes

When comparing which mutual fund to invest in, which of the following would be important to consider? a. Load b. Net asset value c. Expense ratio d. All of these are correct.

d. All of these are correct.

Randall has $25,000 and is considering investing in bonds. With this amount of start up money he should look into which of the following bonds? a. Agency bonds b. Corporate bonds c. Pass-through certificates d. All of these would be good choices.

d. All of these would be good choices.

A balanced mutual fund is aimed at investors who want a. steady income to live on. b. moderate growth in capital. c. moderate stability in their investments. d. All of these.

d. All of these.

When you got home after work, you saw on the news that the S&P was down by 20 points. Which of the following is true? a. All of your stocks' market prices must have declined by 20 points. b. Some of your stocks' market prices may have increased. c. Some of your stocks' market prices may have decreased. d. Both Some of your stocks' market prices may have increased and Some of your stocks' market prices may have decreased are correct.

d. Both Some of your stocks' market prices may have increased and Some of your stocks' market prices may have decreased are correct.

One of the advantages of municipal bond funds is that a. they may be exempt from state taxes. b. the interest is generally exempt from federal taxes. c. they are all no-load funds. d. both they may be exempt from state taxes and the interest is generally exempt from federal taxes are correct.

d. both they may be exempt from state taxes and the interest is generally exempt from federal taxes are correct.

Your father-in-law's stockbroker examines future earnings and dividends, the expected level of interest rates, and the firm's risk to provide a basis for buy-sell recommendations. This stockbroker uses the ________ approach to stock valuation. a. financial statement analysis b. earnings analysis c. expectations method d. fundamental analysis

d. fundamental analysis

A unit investment trust usually invests in ________ and an REIT always invests in ________. a. real estate; agency bonds b. real estate; municipal bonds c. real estate; load mutual funds d. municipal bonds; real estate e. municipal bonds; real estate bonds

d. municipal bonds; real estate

Lawrence Wright is slow in math. He has before him the equation of (ending value minus beginning value) and income return totalled, then divided by beginning value. This is used to find the a. rate of inflation. b. capital gain. c. capital loss d. rate of return. e. serialized rate of return.

d. rate of return.

Anthony Hopkins wants to start investing and desires to consistently beat the market. What will you tell him? a. It can be done regularly by a skilled investor. b. It is very tough to do so. c. Half the time you should outperform the market. d. Half the time you should underperform the market. e. All of these except It can be done regularly by a skilled investor

e. All of these except It can be done regularly by a skilled investor

A buy-and-hold investment strategy a. avoids timing the market. b. minimizes transaction costs. c. postpones capital gains taxes. d. means your gains will be taxed as long-term capital gains. e. All of these.

e. All of these.

The experts say that a person under the age of 40 should have a majority of their retirement money invested in the stock markets. What is the reason for this? a. On average, common stocks provide a higher return on investment than other investment options. b. Younger people have enough time ahead of them to ride out any dramatic market movements. c. Younger people generally don't have enough money to invest in other options. d. All of these are correct. e. Only On average, common stocks provide a higher return on investment than other investment options and Younger people have enough time ahead of them to ride out any dramatic market movements are correct.

e. Only On average, common stocks provide a higher return on investment than other investment options and Younger people have enough time ahead of them to ride out any dramatic market movements are correct.

Which of the following determines what the annual interest payment on a bond will be? a. The par value of the bond b. The maturity date of the bond c. The coupon rate of the bond d. All of these are correct. e. Only The par value of the bond and The coupon rate of the bond are correct.

e. Only The par value of the bond and The coupon rate of the bond are correct.