Unit 4 Unit Test

In 2014, Deborah gave Richard a gift of $12,000. What are the tax implications?

No one would have to pay tax because the amount of the gift is too small to be taxable.

A common stock

allows stockholders to influence corporate policy.

Farm products (such as wheat, corn, and cattle) and metals (such as gold and silver) are called

commodities

A Roth IRA differs from a traditional IRA in that

contributions are taxed but earnings are not.

Which of the following types of bonds cannot be purchased through TreasuryDirect?

corporate bonds

The amount for which you could sell your home now is its

current market value

A revenue bond is a type of municipal bond that

finances public-works projects such as airports and hospitals.

A will written in a person's own handwriting is called a

holographic will

In addition to safeguarding retirement plans from employer mismanagement, the Employee Retirement Income Security Act does all of the following except

penalize employers who do not provide retirement plans for their employees.

A 403(b) plan is a defined-contribution plan for employees of schools, nonprofit organizations, and governmental units.

true

A capital gain becomes profit only when you sell the stock.

true

A common mistake is keeping temporary investments too long and not reevaluating them regularly to determine how well they are performing.

true

A company must meet a minimum number of public shares and dollar market-value requirements to be listed on the New York Stock Exchange.

true

A discount broker usually provides little or no investment advice to a client.

true

A gift tax is paid by the giver, not the recipient, of the gift.

true

A growth and income fund invests only in stocks.

true

A stock split lowers the selling price of a stock, making the shares more affordable and encouraging investors to buy more.

true

Although simplified employee pension plans were not exclusively designed for self-employed individuals, they often use them because they are easier to set up than Keogh plans.

true

Because the property is not owner-occupied, an investor may find banks reluctant to grant a mortgage to buy a house as rental property.

true

Bond maturities typically range from 1 to 30 years.

true

Bonds often appreciate in value, especially when interest rates are dropping.

true

By using direct investment, you may be able to buy shares at prices lower than on open exchanges.

true

Common stock can be issued without a par value.

true

Frequently, employers match employee contributions to a 401(k) plan by some percentage.

true

Investments usually allow your net worth to grow at a faster rate than general price levels.

true

Investors in growth funds earn their return through capital gains rather than through dividends.

true

Junk bonds have higher yields than investment-grade bonds.

true

Most corporate, municipal, and agency bonds are purchased on the primary market, also known as the new issue market.

true

Municipal bonds generally pay a lower interest rate than corporate bonds.

true

Mutual fund investors share in any profits made by the mutual fund.

true

Mutual funds are the fastest-growing segment of the American financial services industry.

true

Mutual funds make money by charging fees to their customers for the professional services provided.

true

Ownership interest in a piece of property is called equity.

true

To have a comfortable retirement, most people need to limit current spending and start saving at the beginning of their work life.

true

Today, most bonds are registered.

true

Typically, heirs are spouses and children.

true

Unlike stocks, mutual fund prices are not determined by what people are willing to pay for them.

true

Vacant land is usually considered a speculative investment.

true

When you invest in stocks and bonds, you are helping businesses make and sell new products and services.

true

With inflation, it takes more money to buy the same goods and services.

true

With most types of brokerage accounts, you can manage your account online.

true

Your initial investing should be conservative with low risk.

true

One main distinction between stocks and bonds is that

unlike stock dividends, a bond's interest does not go up and down.

Corporate bonds are usually sold in units of $100, making them very attractive for individual investors.

false

Dividends on preferred stock may be higher than dividends earned on common stock if the company thrives over time.

false

Growth stocks typically pay the most certain and predictable dividends.

false

Interest received on a corporate bond is not taxable.

false

It is illegal to use information in a company's annual report for investment purposes.

false

Most financial advisers recommend that you keep three to six weeks' net pay in your put-and-take account.

false

Nonmarket risk is entirely predictable and controllable.

false

One major goal of estate planning is to maximize taxes on the estate.

false

People who own corporate bonds receive interest payments every month.

false

Precious metals, gems, and collectibles are considered low-risk investments that can offset the risk of owning stocks and bonds.

false

Real estate is one of most liquid investments you can make.

false

Retired people typically have a much greater need for life insurance than young people with families.

false

Social Security was designed to fully support people in retirement.

false

The maturity date of a bond is the date on which the investor must pay the purchase price of the bond.

false

The net change column of a stock listing shows the cash dividend per share for the year, listed in dollars and cents.

false

The primary advantage of investing in mutual funds is the ability to sell your shares without risk of loss.

false

Typically, a bond fund contains only investment-grade bonds.

false

Typically, odds are good that you will make a profit in speculative investment.

false

When interest rates are low, people tend to buy fewer stocks.

false

With a margin purchase, you are betting a stock will decrease in value.

false

You can buy up to $100,000 worth of U.S. savings bonds each year.

false

A building with two separate living quarters is called a

duplex

According to the Rule of 72, if an investment of $5,000 is yielding an average of 6 percent, it will take ___ years for that investment to be worth $10,000.

12

Social Security replaces about ____ percent of an average wage earner's income after retiring.

40

Corporations usually agree not to call bonds for the first ___ years after issuance.

5

Which of the following would be considered an odd lot of stocks?

50 shares

Many financial advisers suggest that you will need between __________ percent of your preretirement income to live comfortably.

75 and 85

Which of the following is not a securities exchange?

OTCBB

A tax-deferred retirement plan available to small businesses is a

Simplified Employee Pension (SEP) plan.

The price of a share of stock divided by the corporation's earnings over the past 12 months is the

a P/E ratio

Which of the following would be considered the lowest risk investment?

a corporate bond

Which of the following is the most risky investment?

a growth fund

Advantages of investing in mutual funds include all of the following except

a guaranteed rate of return

Which of the following is typically the first stage of investing?

a put- and- take account

Which of the following is a sales charge paid when you sell an investment?

back- end loan

When a bond issuer cannot meet the interest and/or principal payments, what has occurred?

bond default

Which of the following investment techniques would more likely be used by a day trader?

buying on margin

An increase in the value of a stock over time is called a(n)

capital gain

An investment in a pool of mortgages that have been purchased by a government agency is a

certificate of participation

Professional investment planners who are trained to give investment advice based on your goals, age, lifestyle, and other factors are called

certified financial planners

A type of corporate bond based on the general creditworthiness of the company is called a(n)

debenture

Using dividends previously earned on a stock to buy more shares is called

dividend reinvestment

Stocks in young, often small corporations that have higher overall risk than stocks of successful, long-established companies are called

emerging stocks

The amount a bondholder will be paid at maturity is called

face value

A bond's current yield is computed by dividing the bond's interest rate by its closing value.

false

A global fund is a mutual fund that invests in safe, liquid securities such as Treasury bills and bonds that mature in less than one year.

false

A property manager lives at the rental site, takes care of all repairs and maintenance, and collects the rent for the owner.

false

A simple will is legally binding only if it is prepared by a licensed attorney.

false

All mutual funds specialize in rather conservative investments such as bonds or money market securities.

false

All of your retirement savings should be in tax-deferred plans.

false

Another name for a secured bond is a convertible bond.

false

As you make mortgage payments over the years, the equity in your home decreases.

false

Bob and Carol own property as joint tenants without right of survivorship. When Bob dies, his interest in the property passes directly to Carol, who then holds ownership singly.

false

Both the interest rate and the market price of a bond are fixed.

false

Bull markets are usually short and savage, and stock prices may fall as much as 20 percent.

false

Collectibles are considered one of the safest and most liquid investments available.

false

The use of long-term savings to earn a financial reward is called

investing

An investment-grade bond

is considered the highest-quality, lowest-risk bond.

To reduce risk, you should choose a mutual fund company with all of the following characteristics except

it has been in business for a minimum of five years.

All of the following are wise investment practices except

make your decisions quickly to take advantage of the market.

This type of risk is caused by the business cycle.

market risk

The price for which a stock is bought and sold in the marketplace is called the

market value

A professionally managed group of investments bought using a pool of money from many investors is called a

mutual fund

Which of the following tells you the market price for a share of a mutual fund?

net asset value

The right, but not the obligation, to buy or sell a commodity or stock for a specified price within a specified time period is called a(n)

option

A legal document authorizing someone to act on your behalf is called a

power of attorney

When bonds sell for more than their face value, they are selling at a

premium

Because of inflation,

retired individuals sometimes find it difficult to maintain their standard of living.

Current Profit on Stock ÷ Purchase Price + Commission=

return on investment

Maximization of return in the next five to ten years is the goal of which investment strategy?

strategic investing

Bond prices

tend to remain steadier than stock prices.

A daily newspaper that provides detailed coverage of the business and financial world is

the wall street journal

What is the goal of an income fund?

to produce current income in the form of interest or dividends

Someone who buys and sells stock within a short period of time is called a speculator.

true

Stockholders can lose all of their investment if the company fails or goes out of business.

true

Tax-sheltered annuities have become popular among young people as a way to save money toward retirement.

true

The Dow Jones Industrial Average is an average of the price movements of 30 major stocks listed on the New York Stock Exchange.

true

The Veterans Administration provides regular pensions for survivors of men and women who died while in the armed forces.

true

The buyer of a futures contract is obligated to purchase stock or a commodity for a specified price on a specified future date.

true

The greater risk you are willing to take, the greater the potential return.

true

The interest rate is the main factor that affects bond prices.

true

The percentage of the current stock price the dividends represent is called percent yield.

true