Chapter 20 SLO 3

Corporate bonds are a form of: a. bank account. b. long-term equity financing. c. short-term debt financing. d. short-term equity financing. e. long-term debt financing.

e. long-term debt financing.

All of the following would likely be considered investments for income except: a. government bonds. b. dividend paying stocks. c. stock options. d. preferred stock. e. corporate bonds.

e. wrong corporate bonds.

Jacinda has finished her surgery residency and has joined a medical practice. She is now earning substantial income and wants to begin investing for her retirement. Which of the following investment portfolios would be most appropriate for her portfolio? a. Aggressive-growth portfolio of domestic and foreign stocks b. Money market accounts and certificates of deposit c. Investment-grade corporate bonds designed to provide income d. A conservative mix of municipal bonds and blue-chip stocks e. Income-producing investments such as bonds and dividend-yielding stocks

a. Aggressive-growth portfolio of domestic and foreign stocks

The process of spreading money across several different types of investments to reduce risk is called: a. hedging. b. asset allocation. c. putting margin on shares. d. speculation. e. high risk.

b. asset allocation.

You would like to invest some money so that you can use it as a down payment for a house. You assume that you will not be ready to purchase a house for several years, so you will not need to sell the investment or access the money quickly. In considering which type of investment to select, the factor that impacts your decision is: a. investment diversification. b. liquidity needs. c. your risk tolerance. d. asset allocation goals. e. your investment horizon.

b. liquidity needs. wrong

The type of investment that combines and invests the funds of many individual investors under the guidance of a portfolio manager who evaluates and selects securities to meet the portfolio objectives is called a(n): a. prospectus. b. mutual fund. c. money market account. d. option fund. e. exchange-traded fund (ETF

b. mutual fund.

Because Mike and Carol are nearing retirement age, they are concerned with the need for their investments to provide income. If you were a financial planner, which of the following would you recommend to Mike and Carol as an investment? a. Foreign stocks b. Government bonds c. Small cap stocks d. Large-cap stocks e. Money market account

b. Government bonds

Martie Brown is now retired and asks for your help choosing an investment that will provide a steady source of income. In this situation, you recommend: a. growth stocks. b. high-risk corporate bonds. c. a money market account. d. commodities. e. investment-grade corporate bonds.

e. investment-grade corporate bonds.

High-risk investment techniques include all of the following except: a. trading in stock options. b. trading in commodities. c. buying common stock for cash. d. selling short. e. buying stock on margin

c. buying common stock for cash.

Many investors like mutual funds because they provide instant: a. fee reductions. b. profitability. c. diversification. d. access. e. financial returns

c. diversification

Interest payments on corporate bonds are usually paid: a. when the bond matures. b. every month. c. every year. d. every quarter. e. every six months.

c. every year. wrong

Your grandmother left you $10,000 in her will with the specific request that you use this money for the down payment on a house. Since you're still in college, you know that buying a house is a long way off. When considering where to invest this money, the factor that is most impacting your investment decision is: a. your liquidity needs. b. asset allocation goals. c. your investment horizon. d. investment diversification. e. your risk tolerance.

c. your investment horizon.

To calculate the rate of return on an investment, a. divide the original investment by the amount of the gain. b. divide the amount of the gain by the original amount invested. c. subtract the amount of the original investment from the gain. d. multiply the amount of the gain by the number of months the investment was held. e. divide the sale price of the investment by its original purchase price.

c. subtract the amount of the original investment from the gain. wrong

If Richard wants to invest in large-cap stocks, he should seek companies that have an overall market capitalization of: a. more than $100 billion. b. less than $10 billion. c. more than $10 billion. d. under $1 billion. e. $300 million to $1 billion.

c. more than $10 billion.

Which of the following would most likely be considered the safest investment? a. Cumulative preferred stock b. Common stock c. Preferred stock d. Certificate of deposit e. Corporate bond

d. Certificate of deposit

All of the following would be considered relatively low-risk investments, except: a. blue-chip stocks. b. money market accounts. c. highly rated municipal bonds. d. foreign stocks. e. a certificate of deposit.

d. foreign stocks.

Suppose your parents invested $1,500 into a savings account on the day you were born and never invested any other money in the account. Today that account is worth $4,300. What is the rate of return on the savings account? a. 186% b. 286% c. 51.7% d. 34.8% e. 81.5%

d. 34.8% wrong

Why would an investor consider risk to be a good thing? a. The higher the risk, the lower the possible investment. b. The higher the risk, the higher the rate of investment. c. The lower the risk, the lower the rate of investment. d. The higher the risk, the larger the possible return. e. The lower the risk, the larger the possible return.

d. The higher the risk, the larger the possible return

Rather than invest in the stock of just one or two companies, you purchase a variety of different types of investments in order to minimize risk. This is known as: a. investment apportionment. b. insider trading. c. dollar-cost averaging. d. asset turnover. e. asset allocation

e. asset allocation.

The ease with which an investment can be converted into cash is called: a. exchangeability. b. convertibility. c. profitability. d. redemption value. e. liquidity.

e. liquidity.