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.