414 Ch 1

D

10) Debt represents funds loaned in exchange for A) dividend income and the repayment of the loan principal. B) dividend income and an ownership interest in the firm. C) interest income and a partial ownership interest in the firm. D) interest income and the repayment of the loan principal.

D

5) The government is generally A) not involved in the financial markets. B) the owner of the financial market. C) a supplier of funds to the financial market. D) a demander of funds in the financial market.

A

7) Stocks are a(n) ________ investment representing ________ of a business. A) direct; ownership B) direct; debt C) indirect; ownership D) indirect; debt

B

8) An exchange traded fund that invests in the stocks of large corporations is an example of A) direct investment. B) indirect investment. C) derivative investment. D) tangible investment.

A

9) Which of the following has declined in recent years? A) direct ownership of stock by individual investors B) the percentage of foreign stocks held in typical portfolios C) institutional ownership of common stocks D) the timeliness of information available to investors

D

A forum in which suppliers and demanders of funds make financial transactions is called a financial A) institution. B) bank. C) instrument. D) market.

C

A major function of investment banking firms is A) providing loans to investors. B) providing financial planning services to wealthy individuals. C) assisting businesses when they issue stocks and bonds. D) developing investment strategies to neutralize risk.

D

A well-conceived investment policy statement will specify A) the investor's current age and economic situation. B) the investor's preference for frequent or infrequent trading. C) the types of investments the investor is willing to consider. D) all of the above.

A

Andrew and Jennifer are in the 25% marginal tax bracket. Three years ago they purchased 100 shares of stock at $20 a share. In 2015, they sold the 100 shares for $29 a share. What is the amount of federal income tax they owe as a result of this sale? A) $135 B) $165 C) $225 D) $435

C

Beginning in 2010, the amount protected by the Federal Deposit Insurance Corporation in non-interest bearing checking accounts is A) zero. B) $100,000. C) unlimited. D) $250,000.

C

Beginning investors with small amounts to invest should A) avoid stock investments completely. B) invest all of their money in one high quality stock. C) buy mutual funds or exchange traded funds (ETFs). D) buy a portfolio of very low priced stocks (penny stocks).

A

Both the holding period to qualify and the tax rate on long-term capital gains A) are subject to political pressure and occasionally change. B) are very stable and have not changed since the 1960s. C) are phased out on incomes over $388,351. D) are adjusted for inflation every year.

C

Federal insurance protects passbook savings accounts and money market deposit accounts (MMDAs) up to A) $100,000. B) $150,000. C) $250,000. D) $1,000,000.

C

For a taxpayer in the 25% marginal tax bracket, a long-term capital gain realized in 2015 will be taxed at A) 5%. B) 10%. C) 15%. D) 25%.

D

In selecting investments consistent with your goals, you should consider A) rates of return and taxes only. B) the pre-tax rate of return only. C) annual dividends and taxes only. D) risks, returns, and taxes.

A

In the U.S., the most prestigious designation for financial planners is A) CFP. B) CPA. C) ING. D) SIPC.

D

Investors seeking a diversified, professionally managed portfolio of securities can purchase shares of A) preferred stock. B) convertible securities. C) insurance policies. D) mutual funds.

C

Investors seeking to increase their wealth as quickly as possible would invest in A) corporate bonds and preferred stock. B) large company stocks with high dividends. C) smaller companies pursuing rapid growth. D) government bonds and low-risk income stocks.

D

Jobs in which of the following fields require an understanding of the investment environment? I. commercial banking II. corporate finance III. financial planning IV. insurance A) I and IV only B) I, II and IV only C) II, III and IV only D) I, II, III and IV

B

Josh earned $82,500 in taxable income, all from wages and interest, and files an individual tax return. What is the amount of Josh's taxes for the year 2015? Round to the nearest dollar. A) $13,750 B) $16,481 C) $18,425 D) $12,285

B

Michelle and Patrick are in the 28% marginal tax bracket. They bought 100 shares of DJN stock at $45 per share and sold them 4 years later in 2015 at $22 per share? By how much did their loss reduce their taxes in the year when they sold the stock? A) $0 B) $644 C) $345 D) $1,260

A

On a net basis, funds in the financial markets are generally supplied by A) individuals. B) both individuals and business firms. C) business firms.

C

One feature that mutual funds and exchange traded funds have in common is A) they trade continuously throughout the trading day. B) their portfolios are always based on one of the major market indexes. C) they invest in broadly diversified portfolios of securities. D) investors purchase share from the funds managers rather than from other investors.

B

Research indicates that investors who closely monitor their portfolios and trade quickly in response to minor fluctuations in price A) outperform those who hold investments for the long-term and trade infrequently. B) underperform those who hold investments for the long-term and trade infrequently. C) earn rates of return similar to those who hold investments for the long-term and trade infrequently. D) be more highly educated and in higher income brackets than those who hold investments for the long term and trade infrequently.

B

Sarah purchased a stock one year ago at a price of $32 a share. In the past year, she has received four quarterly dividends of $0.75 each. Today she sold the stock for $38 a share. Her capital gain per share is A) $3.00. B) $6.00. C) $(6.00). D) $9.00.

C

Short-term investments I. provide liquidity. II. fill an important part of most investment programs. III. provide a high rate of return with low risk. IV. provide resources for emergencies. A) I and IV only B) II and IV only C) I, II and IV only D) I, II, III and IV

A

Since 2010, the interest rate on passbook accounts and certificates of deposit has A) been less than the rate of inflation. B) has closely tracked the rate of inflation. C) exceeded the rate of inflation by 1.5% on average. D) fluctuated widely.

C

Speculative and growth oriented investments are least appropriate for A) young investors. B) middle-aged investors. C) retired investors. D) high income investors.

A

Tax planning A) guides investment activities to maximize after-tax returns over the long term for an acceptable level of risk. B) ignores the source of income and concentrates solely on the amount of income. C) is primarily done by individuals with incomes below $200,000. D) is limited to reviewing income for the current year and determining how to minimize current taxes.

A

The primary risk associated with a short-term investment is A) purchasing power risk. B) default risk. C) interest rate risk. D) economic risk.

B

Typical responsibilities of financial professionals in a corporate setting include I. managing cash and short-term investments. II. evaluating investment opportunities. III. working one on one with individuals to formulate plans for reaching their financial goals. IV. interacting with financial markets to find sources of external financing such as debt and equity. A) I and IV only B) I, II and IV only C) II, III and IV only D) I, II, III and IV

C

Under current tax law, dividend income is taxed at the same rate as A) ordinary income. B) short-term capital gains. C) long-term capital gains. D) interest income.

b

Which of the following are true concerning institutional investors? I. Institutional investors are professionals who manage money for other people. II. Banks, insurance companies and mutual funds are all institutional investors. III. Institutional investors are individuals who invest indirectly through financial institutions. IV. Institutional investors invest large sums of money. A) I and II only B) I, II and IV only C) II, III and IV only D) I, II, III and IV

D

Which of the following has set an outstanding example of ethical behavior in the financial professions? A) Bernard Madoff of Madoff Securities B) Hank Greenberg of AIG C) Ramalinga Raju of Satyam Computers D) none of the above

D

Which of the following investments represents partial ownership of a corporation? A) bonds B) mutual funds C) commercial paper D) common stock

B

Which of the following is NOT an investment as defined in the text? A) a certificate of deposit issued by a bank B) a new automobile C) a United States Saving Bond D) a mutual fund held in a retirement account

D

Which of the following is NOT traded in the securities markets? A) stocks B) bonds C) derivatives D) real estate

C

Which of the following is an example of a tangible asset? A) bonds B) mutual funds C) real estate D) stocks

D

Which of the following represent investment goals? I. saving for major expenditures such as a house or education II. sheltering income from taxes III. increasing current income IV. saving funds for retirement A) I and IV only B) III and IV only C) I, III and IV only D) I,,II, III and IV

D

Which one of the following has the lowest level of risk? A) commercial paper B) money market mutual fund account C) banker's acceptance D) U.S. Treasury bill

C

Which one of the following would be the most liquid investment? A) stock B) Series EE bond C) money market mutual fund D) real estate