Personal Finance 16-20
Which of the following would be considered the lowest risk investment? a. real estate b. an annuity c. a stock d. a corporate bond
Corporate bond
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
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
The use of long-term savings to earn a financial reward is called speculating. b. diversifying. c. gambling. d. investing.
Investing
All of the following are wise investment practices except a. keep good financial records. b. make your decisions quickly to take advantage of the market. c. define your financial goals. d. seek good investment advice.
Make your decisions quickly to take advantage of the market
This type of risk is caused by the business cycle. a. industry risk b. interest-rate risk c. political risk d. market risk
Market Risk
The price for which a stock is bought and sold in the marketplace is called the a. par value. b. dividend. c. market value. d. yield.
Market value
Maximization of return in the next five to ten years is the goal of which investment strategy? a. initial investing b. strategic investing c. systematic investing d. speculation
Strategic investing
A daily newspaper that provides detailed coverage of the business and financial world is The Wall Street Journal. b. The Economist. c. Barron's. d. Kiplinger's Personal Finance.
The Wall Street Journal
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
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
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
Farm products (such as wheat, corn, and cattle) and metals (such as gold and silver) are called a. futures. b. options. c. commodities. d. collectibles.
commodities
A Roth IRA differs from a traditional IRA in that a. earnings as well as contributions are taxed when you withdraw the money at retirement. b. contributions are taxed but earnings are not. c. there is no penalty for early withdrawal. d. contributions are not tax-deductible.
contributions are taxed but earnings are not.
Which of the following types of bonds cannot be purchased through TreasuryDirect? a. Treasury securities b. Series EE savings bonds c. Series I savings bonds d. corporate bonds
corporate bonds
A revenue bond is a type of municipal bond that a. is repaid with the government's general revenue and borrowings. b. finances public-works projects such as airports and hospitals. c. is backed by specific assets that serve as security to assure repayment of the debt. d. is backed by the power of the issuing government to levy taxes to pay back the debt.
finances public-works projects such as airports and hospitals.
Which of the following is the most risky investment? a. growth and income fund b. growth fund c. money market fund d. income fund
growth fund
A will written in a person's own handwriting is called a a. holographic will. b. simple will. c. trust will. d. codicil.
holographic will
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. 6 b. 36 c. 12 d. 72
12
Social Security replaces about ____ percent of an average wage earner's income after retiring. a. 60 b. 40 c. 80 d. 20
40
A simple will is legally binding only if it is prepared by a licensed attorney.
False
Corporations usually agree not to call bonds for the first ___ years after issuance. a. 10 b. 20 c. 30 d. 5
5
Which of the following would be considered an odd lot of stocks? a. 1,000 shares b. 100 shares c. 50 shares d. 200 shares
50 shares
Many financial advisers suggest that you will need between __________ percent of your preretirement income to live comfortably. a. 60 and 75 b. 95 and 100 c. 50 and 60 d. 75 and 85
75 and 85
A common stock a. has no voting rights. b. allows stockholders to influence corporate policy. c. pays a fixed dividend. d. is less risky than preferred stock.
Allows stockholders to influence corporate policy
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
When a bond issuer cannot meet the interest and/or principal payments, what has occurred? a. bond default b. hedging c. bond redemption d. short selling
Bond default
An increase in the value of a stock over time is called a(n) . capital gain. b. investment. c. yield. d. dividend.
Capital gain
Professional investment planners who are trained to give investment advice based on your goals, age, lifestyle, and other factors are called a. certified public accountants. b. certified financial planners. c. discount brokers. d. day traders.
Certified financial planners
The amount for which you could sell your home now is its a. true value. b. current market value. c. assessed value. d. appraised value.
Current market value
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
A building with two separate living quarters is called a a. quad. b. condo. c. triplex. d. duplex.
duplex
The amount a bondholder will be paid at maturity is called a. dividend. b. yield. c. face value. d. market value.
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
In 2014, Deborah gave Richard a gift of $12,000. What are the tax implications? a. Richard would have to pay an inheritance tax. b. Deborah would have to pay a gift tax. c. Richard would have to pay a gift tax. d. No one would have to pay tax because the amount of the gift is too small to be taxable.
No one would have to pay tax because the amount of the gift is too small to be taxable.
Which of the following is not a securities exchange? a. NASDAQ b. NYSE c. OTCBB d. all of the above are securities exchanges
OTCBB
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) a. option. b. annuity. c. discount bond. d. future.
Option
The price of a share of stock divided by the corporation's earnings over the past 12 months is the a. ROI. b. P/E ratio. c. earnings per share. d. percent yield.
P/E ratio
When bonds sell for more than their face value, they are selling at a a. discount. b. cut rate. c. capital gain. d. premium
Premium
Current Profit on Stock ÷ Purchase Price + Commission = a. Net Yield b. Interest Rate c. Return on Investment d. Earnings per Share
Return on investment
A tax-deferred retirement plan available to small businesses is a a. Keogh plan. b. money market plan. c. defined-benefit plan. d. Simplified Employee Pension (SEP) plan.
SEP
Advantages of investing in mutual funds include all of the following except a. a guaranteed rate of return. b. professional management. c. diversification. d. liquidity.
a guaranteed rate of return
Which of the following is a sales charge paid when you sell an investment? a. front-end load b. capital gain c. back-end load d. dividend
back-end load
Which of the following investment techniques would more likely be used by a day trader? a. buying and holding b. dollar-cost averaging c. reinvesting dividends d. buying on margin
buying on margin
An investment in a pool of mortgages that have been purchased by a government agency is a a. certificate of participation. b. real estate syndicate. c. real estate investment trust. d. derivative mortgage.
certificate of participation
A type of corporate bond based on the general creditworthiness of the company is called a(n) a. annuity. b. debenture. c. secured bond. d. mortgage bond.
debenture
Using dividends previously earned on a stock to buy more shares is called a. direct investment. b. preferred reinvestment. c. short selling. d. dividend reinvestment.
dividend reinvestment
Stocks in young, often small corporations that have higher overall risk than stocks of successful, long-established companies are called a. growth stocks. b. emerging stocks. c. blue chip stocks. d. defensive stocks.
emerging stocks
An investment-grade bond a. is highly speculative. b. is considered the highest-quality, lowest-risk bond. c. offers the highest possible yield. d. has no rating at all.
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 a. it provides customers with easy-to-read statements. b. it has been in business for a minimum of five years. c. it exists both in brick-and-mortar and in cyberspace. d. it is a large company that manages investments for millions of investors.
it has been in business for a minimum of five years.
A professionally managed group of investments bought using a pool of money from many investors is called a a. passbook account. b. savings bond. c. Ponzi scheme. d. mutual fund
mutual fund
Which of the following tells you the market price for a share of a mutual fund? a. net asset value b. face value c. par value d. market value
net asset value
In addition to safeguarding retirement plans from employer mismanagement, the Employee Retirement Income Security Act does all of the following except a. require employers to provide participants with information about the plan's features and funding. b. require that all participants be treated equally under the plan. c. penalize employers who do not provide retirement plans for their employees. d. guarantee payment of certain benefits if a defined-benefit plan is terminated.
penalize employers who do not provide retirement plans for their employees.
A legal document authorizing someone to act on your behalf is called a a. codicil. b. joint tenancy agreement. c. power of attorney. d. inter vivos.
power of attorney.
Which of the following is typically the first stage of investing? a. strategic investing b. systematic investing c. speculation d. a put-and-take account
put and take
Because of inflation, a. the cost of living goes down over time for seniors. b. price increases boost buying power. c. all retired individuals need to work at part-time jobs. d. retired individuals sometimes find it difficult to maintain their standard of living.
retired individuals sometimes find it difficult to maintain their standard of living.
Bond prices a. are by law always lower than stock prices. b. tend to remain steadier than stock prices. c. can never change once you've purchased a bond. d. tend to react in the same direction of stock prices.
tend to remain steadier than stock prices
What is the goal of an income fund? a. to produce current income in the form of interest or dividends b. to earn returns from capital gains alone c. to earn returns from both dividends and capital gains d. to produce current income from interest alone
to produce current income in the form of interest or dividends
One main distinction between stocks and bonds is that a. bonds are shares of ownership in a corporation, not loans. b. bonds represent equity, not debt. c. corporations are required to pay dividends on stocks but not bonds. d. unlike stock dividends, a bond's interest does not go up and down.
unlike stock dividends, a bond's interest does not go up and down.