PF 14 hw
The Dollar Amount of Return is equal to:
. Dollar Amount of Dividends + Dollar Amount from Selling the stock- Dollar Amount Paid for the Stock.
____________ is not a common investment mistake made by individuals. (Select the best answer below.)
All of the above are common investment mistakes made by individuals.
Why would investors prefer one type over the other?
An investor's need for current income and/or desire to defer taxes will determine which category of stocks they hold in their portfolio.
Review #20 (static): Investment Mistakes Investment Mistakes. Describe common investment mistakes made by individuals. Which of the following is not a common investment mistake made by individuals?
Filing for bankruptcy in order to salvage certain investments.
Review #18 (static): Risk among Investme Risk among Investments. Describe the return-risk trade-offs among bonds, mutual funds, and real estate investments. Which one of the following is an example of a high-risk return scenario for bonds in the event that the economy deteriorates?
Firms may be unable to pay its coupon payment.
The types of stock investments are particularly tempting for stock investors are:
IPOs
Which of the following is not true with respect to IPOs?
Individual investors normally have the first shot at purchasing shares of an IPO.
What are the risks associated with buying IPOs?
Most IPOs are offered to large institutional investors or investors with high net worth. Therefore most individual investors rarely get to buy an IPO but instead must purchase it in the secondary market when it begins trading on an organized stock exchange. Research has shown that this strategy generates poor returns compared with other investing strategies.
Review #10 (static): Mutual Funds Mutual Funds. How do mutual funds operate? Who manages mutual funds? How are coupon or dividend payments handled by the mutual fund? Can investors incur capital losses with mutual funds? Mutual funds _________ and invest the proceeds in a portfolio of investments such as bonds or stocks
Sell Shares to individuals
Which one of the following is an example of a risk for real estate investments?
Tenants may miss several monthly payments.
How does it differ from a mutual fund? (Select the best answer below.)
The ETF shares are traded like stocks and can be bought and sold throughout the time the market is open. In contrast a mutual funds pools investors' funds and then buys stocks or bonds with those funds.
Review #3 (static): Secondary Markets Secondary Markets. Distinguish between the primary and secondary stock markets. Why does the price of stock change each day in the secondary market? The primary and secondary stock markets differ in which of the following aspects?
The primary stock market offers newly issued securities and the secondary stock market offers existing securities.
b. What basic investing principle did Carlo forget in his desire to fund his daughter's college education?
The relationship between risk and reward.
If you want to achieve a fixed return over a short-term period without any risk, you should consider investing in: (Select the best answer below.)
a certificate of deposit.
Review #17 (static): Return-Risk Trade-O Return-Risk Trade-Off. What is rhe return-risk trade-off? What types of stock investments are particularly tempting for stock investors? What other factors must indivdiual investors consider before making this type of investment? The return-risk trade-off is:
a higher return equates to a higher degree of uncertainty.
The disadvantage of investments that satisfy that priority is:
a relatively low return.
Review #26 (static): Investing and Perso Investing and Personal Financial Goals. How is investing related to your personal financial goals? Your personal financial goals will all have:
a time horizon attached to them and some amount of money needed to achieve the goal. These two factors will determine where you need to invest in order to generate sufficient return to achieve your goals.
Day traders are investors who:
buy and sell stock the same day.
You may calculate the future value of a single sum investment:
by multiplying the investment amount by the FVIF for the correct interest rate and number or periods.
If a mutual fund's shares decline over time, individual investors would have a:
capital loss.
Review #27 (static): Personal Risk Toler Personal Risk Tolerance. How does your personal tolerance for risk impact your investment decisions? You should always place your money in investments ▼ consistent with different from your individual tolerance for risk. For example, if you have a ▼ high low risk tolerance your portfolio should not contain a large fraction of ▼ high low risk stocks. You might instead construct a portfolio of blue chip stocks and/or bonds issued by ▼ foreign strong weak firms.
consistent with low high strong
Review #2 (static): Stocks Stocks. What are stocks? How are stocks beneficial to corporations? Why do investors invest in stocks? Stocks are financial instruments representing partial ownership in a:
corporation
Bonds can offer a return to investors in the form of:
coupon payments and bond price appreciation.
Review #16 (static): Measuring Risk Measuring Risk. Why do investors measure risk? Describe the two common measures of risk. Investors want to measure risk to understand the:
degree of uncertainty surrounding their future returns.
Review #5 (static): Return on Stocks Return on Stocks. How do shareholders earn returns from investing in stocks? How is the market value of a firm determined? What determines the market price of a stock?
dividends selling their stock at a price higher than the price they paid
Review #1 (static): Investing Priorities Investing Priorities. What should your first priority of investing be? What is the disadvantage of investments that satisfy that priority? Your first investing priority should be to:
ensure adequate liquidity.
Stocks with potential for substantial growth are:
growth stocks.
Stocks are a common investment for those who believe that they will get a:
higher return from stocks than from other investments.
Some firms do not pay dividends but instead reinvest all the earnings:
in the firm's operations.
Stocks that deliver large dividends are:
income stocks.
Review #25 (static): IPOs IPOs. What is an IPO? What are the risks associated with buying IPOs? IPO stands for:
initial public offerings, which occur when a firm sells equity for the first time in the primary market.
Review #4 (static): Types of Investors Types of Investors. Classify and describe the two types of investors. What are day traders? Two types of investors are:
institutional investors and individual investors.
Review #21 (static): Economic Conditions Economic Conditions and Investments. Describe how economic conditions might affect certain investments. Economic conditions affect: (
investor cash flows and, in the case of a recession, may result in lower demand for assets and push prices lower.
Dividends. What type of firm typically pays dividends? What are growth stocks? What are income stocks? Dividends are usually paid by older, more established firms that have:
less potential for substantial growth.
Preferred Stock. Discuss the differences between common stock and preferred stock. Common stock is_______ and _______ than preferred stock.
more volatile more risky
To calculate the future value of a number of payments of a specific amount,:
multiply the periodic investment amount by the FVIFA for the correct interest rate and number or periods.
The market value of a stock is determined by:
multiplying the number of shares outstanding by the market price of the stock.
Review #19 (static): Diversification Diversification. How can you limit your risk through diversification? The most effective way to diversify your investments is to diversify among various types of investments that are:
not equally sensitive to economic conditions.
Coupon or dividend payments generated by a mutual fund's portfolio are:
passed on to the individual investor.
Mutual funds are managed by______ for the individual investor
portfolio managers
Review #23 (static): ETFs Exchange-Traded Funds. What is an exchange-traded fund? How does it differ from a mutual fund? Exchange-traded funds, or ETFs:
put a pool of securities into a trust account designed to mimic a specific stock index and then sell shares of that trust.
Dividends are normally ______ distributions of the firm's earnings to the stockholders.
quarterly
Review #12 (static): Dividend-Paying Sto Dividend-Paying Stocks. What is the formula for estimating returns on dividend-paying stocks? Describe each element of the formula. How do you calculate the dollar amount of your returns? The formula for estimating returns on dividend-paying stocks is:
r= (Pt-Pt-1)+D / Pt-1
Corporations sell stock in order to:
raise funds for expansion of their business operations.
Two terms that measure risk are:
range of return and standard deviation of the returns.
Real estate that can be rented generates income in the form of:
rent payments
In the formula for estimating returns on a dividend-paying stock, Upper P t is the ________ of the stock Pt is the _________ at purchase, and D is the ___________ over the investment horizon.
sale price stock price dividends earned
The types of firms that are particularly risky are:
smaller firms.
Income stocks are:
stocks of firms that are more mature. These firms will elect to pay much higher dividends and therefore generate more current income for their shareholders.
Review #24 (static): Growth ad Income Growth Stocks and Income Stocks. What is a growth stock? What is an income stock? Why would investors prefer one type over the other? Growth stocks are:
stocks of firms with substantial growth opportunities. Growth firms tend to reinvest profits back into the firm and pay low or no dividends.
The price of a stock changes each day in response to changes in the:
supply and demand for the stock in the secondary market.
Review #11 (static): Real Estate Investm Real Estate Investment. In what geographic areas is the price of land relatively high? What components make up the return from investing in real estate? The price of land is based on:
supply and demand in the land market.
Review #15 (static): Risk of Investments Risk of Investments. Define the risk of an investment. What types of firms are particularly risky? The two main aspects that define risk concerning investments are uncertainty:
surrounding both the coupon payment and how the price of the investment will change.
Review #13 (static): Capital Gains Taxes Capital Gains Taxes. What is the difference in tax rates on long-term versus short-term capital gains? Income from interest payments, coupon payments, and capital gains on assets held for less than a year are:
taxed as ordinary income. These are short-term capital gains.
Before making an IPO type of investment, individual investors must consider:
that the long-term return on IPOs is weak compared to aggregate stock indexes.
Review #22 (static): Investing and Liqui Investing and Liquidity. How is investing related to liquidity? Give some examples of liquid investments. Prior to investing for the long term you need to ensure that you have adequate liquidity. Most experts recommend that you have 3- to 6-months living expenses invested in liquid assets such as money market accounts , certificates of deposit , or savings accounts .
the long term 3 - to - 6 months money market accounts certificates of deposit savings accounts
The market price of the stock depends on:
the number of investors willing to buy a stock versus the number of investors willing to sell.
Planning #14 (static): Ethical Dilemma Ethical Dilemma. Carlo and Rita's daughter just celebrated her 16th birthday, and Carlo and Rita realize they have accumulated only half the money they will need for their daughter's college education. With college just two years away, they are concerned about how they will save the remaining amount in such a short time. Carlo regularly has lunch with Sam, a coworker. While discussing his dilemma of financing his daughter's education, Sam tells Carlo about an investment that he made based on a tip from his cousin Leo that doubled his money in just over one year. Sam tells Carlo that Leo assured him there was very little risk involved. Carlo asks Sam if he will contact Leo to see if he has any additional hot tips that could double his daughter's college savings in two years with virtually no risk. The next day at lunch Sam gives Carlo the name of a stock that Leo recommended. It is a small start-up company that Leo believes will double within the next 24 months with virtually no risk. Carlo immediately invests his daughter's college fund in the stock of the company. Six months later, Carlo receives a letter from the company announcing they are out of business and closing their doors. Upon calling his broker, Carlo finds the stock is now worthless. a. Comment on Leo's ethics when assuring his friends and relatives that the investments he recommends can produce major rewards with virtually no risk. b. What basic investing principle did Carlo forget in his desire to fund his daughter's college education? a. Leo's assurance to his friends and relatives that the investments he recommends can produce major rewards with virtually no risk is: (Select the best answer below.)
unrealistic and unfair to his friends and relatives who rely on his expertise.
Review #28 (static): ral Estate Investin Real Estate Investing Risks. What are some of the risks associated with investing in real estate? Some risks associated with investing in real estate are: (
you might incur high maintenance costs for rental property. you may find it difficult to sell your property quickly during some markets. real estate does not always increase in value so the value of your holdings might decline.
Review #14 (static): Investments in Stoc Investments in Stocks. How can investments in stock increase your wealth? How would you calculate the value of a stock investment of a single sum over time? How would you calculate the value of a stock investment of a specific amount over several periods? Your wealth will increase when your investment increases if:
your liabilities do not increase.
Capital gains resulting from the sale of investments held more than one year are:
long-term capital gains and are taxed at a lower rate than ordinary income for most investors.
Review #9 (static): Bonds Bonds. What are bonds? How do bonds provide a return to investors? Bonds are:
long-term debt securities issued by government agencies or corporations.
