Personal Finance Exam 4

Which of the following risks associated with preferred stocks or government or corporate bonds is a result of changes in rates in the economy?a)Inflation riskb)Interest rate riskc)Business failure riskd)Market riske)Stock risk b)Interest rate risk
Safe investments include all of the following excepta)Government bonds.b)Savings accounts.c)Certificates of deposit.d)Certain corporate bonds.e)Commodities. e)Commodities.
Which of the following risks deals with the possibility that bad management, unsuccessful products, or other factors will cause the business to be less profitable than originally anticipated?a)Inflation riskb)Interest rate riskc)Business failure riskd)Market riske)Stock risk c)Business failure risk
Market risk is associated with fluctuations in the market due toa)A reduction in purchasing power.b)Changes in interest rates.c)Bad management and/or unsuccessful products.d)Economic conditions such as rapid expansion and recession.e)Predictable sources of income. d)Economic conditions such as rapid expansion and recession.
Which of the following describes a growth company?a.The company pays a large dividend.b.Profits are reinvested in the company for future growth.c.Sales revenues are not increasing.d.The company has managers who cannot solve the problems associated with rapid expansion.e.The company is considered a conservative company for investors. b.Profits are reinvested in the company for future growth.
Which of the following investments typically has the largest potential growth?a.Government bondsb.Cashc.Cash equivalentsd.Certificates of deposite.Stocks e.Stocks
Which of the following investments typically has the most risk?a.Government bondsb.Cashc.Cash equivalentsd.Certificates of deposite.Stocks e.Stocks
If you need access to your funds in two years or less, which of the following investments would be least appropriate?a.Cashb.Certificates of depositc.Short-term government bondsd.Highly rated corporate bondse.Stocks and mutual funds e.Stocks and mutual funds
Older investors are often more interested in ______ investments.a.aggressiveb.internationalc.Speculativeb.conservativee.growth-oriented b.conservative
When investing, in your role as an investor you should nota.Evaluate potential investments.b.Let the investments manage themselves.c.Monitor the value of investments.d.Keep accurate records.e.Consider tax consequences of selling investments. b.Let the investments manage themselves.
A discounted security means that the actual purchase price isa.The face value.b.Less than the maturity value.c.Greater than the face value.d.The value at maturity.e.The expected interest rate. b.Less than the maturity value.
A U.S. government security issued in minimum units of $100 with a 30-year maturity is called aa.Subordinated bond.b.Treasury bill.c.Treasury note.d.Treasury bond.e.Savings bond. d.Treasury bond.
The taxable equivalent yield for a municipal bond is calculated using thea.Investor’s tax rate and Treasury bill yield.b.Tax-exempt yield and current inflation rate.c.Tax-exempt yield and the investor’s tax rate.d.Current inflation rate and number of years until maturity.e.Tax-exempt yield and number of years until maturity. c.Tax-exempt yield and the investor’s tax rate.
Which of the following statements is correct?a.For the corporation, interest paid on corporate bonds is not tax-deductible.b.Bond financing is seldom used to pay for a corporation’s ongoing business activities.c.Bonds are a form of debt financing.d.Bonds do not have to be repaid at maturity.e.Interest payments to bond owners are at the discretion of the corporation. c.Bonds are a form of debt financing.
A call featurea.Allows bondholders to convert their bonds to a specified number of shares of common stock.b.Is not available for corporate bonds.c.Allows the corporation to buy outstanding bonds from current bondholders before the maturity date.d.Is sold by companies with a poor earnings history.e.Is used in connection with leveraged buyouts. c.Allows the corporation to buy outstanding bonds from current bondholders before the maturity date.
A fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue is called a(n) ____________ fund.a.serialb.sinkingc.debentured.indenturee.money b.sinking
Which of the following is not a rating agency for bonds?a.Moody’s Investors Serviceb.Bond Rating Corporationc.Standard & Poor’s Corporationd.Fitch Ratingse.Mergent b.Bond Rating Corporation
If overall interest rates in the economy rise, a corporate bond with a fixed interest rate will generallya.Increase in value.b.Decrease in value.c.Remain unchanged.d.Become worthless.e.Be returned to the corporation. b.Decrease in value.
According to some financial experts like Suze Orman, how much of an investment program should a 50-year-old invest in safe (nongrowth) investments?a.30%b.40%c.50%d.60%e.70% b.40%
You are considering an investment in a municipal bond that has a yield of 4%. Your tax rate is 25%. What is your taxable equivalent yield?a.0.75%b.3.75%c.4%d.4.25%e.5.33% e.5.33%
A legal form that requests that stockholders transfer their voting rights to individual(s) is called aa.Bond.b.Common stock.c.Dividend.d.Savings account.e.Proxy. e.Proxy.
All of the following statements are correct excepta.Dividends are paid out of profits.b.Dividend payments must be approved by the stockholders.c.A dividend can be a distribution of money, stock, or other property.d.Dividends are not mandatory.e.Utility companies typically distribute a higher percentage of earnings than rapidly growing firms. b.Dividend payments must be approved by the stockholders.
If you buy common stock, you may receive income froma.Dividends.b.Dollar appreciation of stock value.c.Possible increases in value from stock splits.d.Two of these are correct.e.All of these are correct. e.All of these are correct.
MNOP Inc. declared a $1.00 dividend with a record date of Thursday, September 15, and a payment date of Thursday, October 20. Cheri wants to purchase this stock and receive the dividend. What is the latest date that she needs to have purchased the stock in order to receive the dividend?a.September 12b.September 13c.September 15d.September 19e.October 18 a.September 12
Which of the following statements about stock splits is correct?a.If a company has a 2-for-1 split, the price will be doubled.b.If a company has a 3-for-1 split, the price will increase by a factor of 3.c.If a company has a 4-for-1 split, the new number of shares will be four times as many as before the split.d.If a company has a 5-for-1 split, the new number of shares will be equal to the old number of shares divided by 5.e.None of these is correct. c.If a company has a 4-for-1 split, the new number of shares will be four times as many as before the split.
A stock that typically sells for less than $5 per share (or in some cases, less than $1 per share) is called a(n) _______ stock.a.blue chipb.incomec.micro capd.midcape.penny e.penny
Which of the following is some of the information found on a financial website such as Yahoo! Finance?a.Company name, last price (prev close), target price, price change (day’s range).b.52-week price range, number of shares traded (volume).c.Market capitalization (Market Cap).d.Dividend paid and yield.e.All of this information is included. e.All of this information is included.
If you want to compare two companies, you should usea.Book value per share.b.Dividend yield.c.Price per share.d.Net income.e.Price-earnings ratio. e.Price-earnings ratio.
Which of the following is a profitability ratio that uses the number of outstanding shares in the calculation?a.Capital gainb.Earnings per sharec.Price per shared.Net incomee.Dividend yield b.Earnings per share
This calculation includes the yearly dividends in dollars plus the increase in the original purchase price of the investment.a.Book valueb.Capital gainc.Market valued.Price-earnings ratioe.Total return e.Total return
When XYZ wanted to sell new security issues to the general public for the first time, it sought the assistance of a (n).a.initial public offeringb.investment bankc.primary marketd.secondary markete.securities exchange b.investment bank
Stephen wanted to become one of the owners of GHI Corp. when it initially became available to the general public. He participated in thea.Initial public offering.b.Investment bank.c.Primary market.d.Secondary market.e.Securities exchange. a.Initial public offering.
Patrick sold his GE shares using his online broker. One can say that he sold thema.At an Initial public offering.b.Through an Investment bank.c.In the Primary market.d.In the Secondary market.e.At a Securities exchange. d.In the Secondary market.
Faye sometimes borrows money from her broker to buy her stock. She is buyinga.A call option.b.A direct investment.c.On margin.d.A put option.e.A short sale. c.On margin.
If you buy or sell with this technique, you may be required to pledge additional collateral or cash for a loan.a.A call optionb.Direct investingc.Buying on margind.A put optione.Selling short c.Buying on margin
The opportunity, but not the obligation, to sell a security within a specified period of time at a guaranteed price isa.A call option.b.Direct investing.c.Buying on margin.d.A put option.e.A short sale. d.A put option.
On July 3, 2009, Devin purchased 100 shares of CDEF stock at a cost of $30 per share. His commission was $29. He sold his shares on July 6, 2011, at a price of $45 per share less another $29 commission. During the time he held the stock, he earned dividends of $2.50 per share. What was his total return on his investment?a.$250b.$1,492c.$1,692d.$1,721e.$1,750 c.$1,692
Using the information given here, what are the earnings per share for DEF Company?• Earnings = $180,000• Number of shares outstanding = 60,000• Price per share = $30• Book value per share = $10a.$1.00b.$2.00c.$3.00d.$5.00e.$6.00 c.$3.00
Using the information given here, what is the price-earnings ratio for DEF Company? (Hint: This is a two-step calculation.)• Earnings = $180,000• Number of shares outstanding = 60,000• Price per share = $30• Book value per share = $10a.$3.00b.$4.00c.$7.50d.$10.00e.$20.00 d.$10.00
If you bought stock using dollar cost averaging as listed here, what was your average cost?• June 15 – $50 – 1.75 shares• July 15 – $50 – 1.65 shares• August 15 – $50 – 2.00 sharesa.$27.50b.$27.78c.$27.96d.$28.57e.$30.00 b.$27.78
Which of the following are major reasons that investors purchase mutual fundsA. Diversification.B. Professional management.C. Loads of up to 8.5%.D. A and B only.E. All of the above. D. A and B only. = Diversification. & Professional management.
How is an ETF similar to a closed-end fund?a.Shares can be traded on a securities exchange.b.An investor can purchase as little as one share of a fund.c.Prices for shares are determined by supply and demand, the value of stocks and other investments contained in the fund’s portfolio, and by investor expectations.d.Shares can be traded in the over-the-counter market.e.All of these are correct. e.All of these are correct.
Which of the following is correct for a closed-end fund?a.It is not traded on a securities exchange.b.The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations.c.It is not actively managed by professional fund managers.d.Investors are free to buy and sell shares at the net asset value.e.Its load cannot exceed 2%. b.The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations.
The net asset value is calculated asa.(Liabilities – Value of portfolio) + Number of shares outstanding.b.Number of shares outstanding/(Liabilities – Value of portfolio).c.(Liabilities – Value of portfolio)/Number of shares outstanding.d.(Current market value of portfolio – Liabilities)/Number of shares outstanding.e.Number of shares outstanding/(Value of portfolio – Liabilities). d.(Current market value of portfolio – Liabilities)/Number of shares outstanding.
Which of the following types of stock funds invests in the same companies included in the Standard & Poor’s 500 stock index?a.Equity income fundsb.Growth fundsc.Index fundsd.International fundse.Regional funds c.Index funds
Which of the following types of stock funds invests in stock issued by companies throughout the world outside the United States?a.Equity income fundsb.Growth fundsc.Index fundsd.International fundse.Regional funds d.International funds
Which of the following types of stock funds invest in stock traded within one specific region of the world?a.Equity income fundsb.Growth fundsc.Index fundsd.International fundse.Regional funds e.Regional funds
Sally wants to invest in a fund that invests only in stock. Which of the following will meet her needs?a.Asset allocation fundsb.Balance fundsc.Junk bond fundsd.Midcap fundse.Short-term corporate bond funds d.Midcap funds
Thomas wants to invest in a fund that invests in stock, bonds, and money market instruments. Which of the following will meet his needs?a.Asset allocation fundsb.Aggressive growth fundsc.Junk bond fundsd.Midcap fundse.Short-term corporate bond funds a.Asset allocation funds
Val wants to invest in a fund whose primary objective is to conserve principal, provide income, and provide long-term growth. Which of the following will best meet her needs?a.Cyclical fundsb.Balanced fundsc.Junk bond fundsd.Midcap fundse.Short-term corporate bond funds b.Balanced funds
Time is an important factor when evaluating a managed mutual fund for which of the following?a.The existence of the underlying index.b.The life of the companies in the fund.c.The length of time that the present fund manager has been managing the fund.d.The status of the economy.e.None of these. c.The length of time that the present fund manager has been managing the fund.
Which of the following is not a way one can access reliable information about mutual funds on the internet?a.Find statistical information from the web page of the investment companies that sponsor mutual funds.b.Obtain current market values for mutual funds by using a search engine such as http://finance.yahoo.com.c.Review blogs from amateur investors about their favorite mutual funds.d.Research reports for mutual funds using professional advisory services.e.All of these are reliable sources of information about mutual funds. c.Review blogs from amateur investors about their favorite mutual funds.
Earnings paid to shareholders that are not related to the sale of securities in the fund’s portfolio are calleda.Capital gain distributions.b.Income dividends.e.Capital gains.d.Mutual fund money.e.Fund taxes. b.Income dividends.
Payments to a fund’s shareholders that result from the sale of securities in the fund’s portfolio area.Capital gain distributions.b.Income dividends.c.Capital gains.d.Mutual fund money.e.Fund taxes. a.Capital gain distributions.
A problem with taxation of mutual funds isa.Professional management.b.The possibility to eliminate taxes if held in a Roth individual retirement account.c.Being required to report reinvested income dividends and capital gain distributions on your federal tax return as current income.d.Tax deferral if the fund is held in a retirement account like a 401(k) account.e.The diversification offered to investors. c.Being required to report reinvested income dividends and capital gain distributions on your federal tax return as current income.
All of the following are valid ways to purchase open-end mutual funds excepta.A regular account transaction.b.A voluntary savings plan.c.A contractual savings plan.d.A reinvestment plan.e.All of the ways listed are valid purchase options. e.All of the ways listed are valid purchase options.
The investments in the Alamo Basics Contingency Fund have a current market value of $800 million. The fund also has liabilities that total $60 million. If this mutual fund has 20 million shares, what is the net asset value per share?a.$3.00b.$37.00c.$40.00d.$43.00e.$60.00 b.$37.00
The Anderson Balanced mutual fund charges a sales load of 4.85%. If you invest $15,000, how much of your investment will actually be used to purchase shares in the fund?a.$14,250.00b.$14,272.50c.$14,400.00d.$14,485.00e.$15,000.00 b.$14,272.50
Nicholas purchased 150 shares of ABC Mutual Fund at $10.50 and sold them one year later at a price of $14.50. His total capital gain wasa.$400b.$600c.$2,025d.$2,625e.$4,650 b.$600
Shelby purchased 100 shares of ABCD Growth fund for $10.00 per share. She had income dividends of $15, capital gain distributions of $35, and a capital gain of $120 in the year she sold her shares. What was her percentage of total return on this investment?a.10%b.15%c.17%d.35%e.120% c.17%
When thinking about retirement, which of the following is correct?a.You’ll spend less money when you retire.b.Saving just a little bit won’t help.c.You can depend on Social Security and a company pension plan to pay your basic living expenses.d.The sooner you start saving, the better.e.Your pension benefits will increase to keep pace with inflation. d.The sooner you start saving, the better.
When conducting a financial analysis for retirement planning, you should reviewa.Housing.b.Life insurance.c.Other Investments.d.Assets.e.All of these. e.All of these.
According to the text, which of the following will probably be your most valuable asset at retirement?a.Automobile.b.House.c.Investments.d.Life insurance.e.All of these. b.House.
When you retire, you will probably spend more money ona.Clothing.d.Transportation.c.Taxes.d.Health insurance.e.All of these. d.Health insurance.
Which of the following is not a major source of retirement income?a.Annuity.b.Employer pension plan.c.Personal retirement plan.d.Public pension plan.e.All of these are major sources of retirement income. e.All of these are major sources of retirement income.
Employees who were born in 1960 or later can receive full Social Security benefits beginning at agea.59½.b.62.c.65.d.67.e.70. d.67.
Jill is 45 years old and thinks that her future tax rate will be lower than what she currently pays, so she wants to defer her taxes on her contributions of up to $5,500 in 2014. Which plan would allow her to meet her goals?a.401(k) planb.Regular IRAc.Roth IRAd.SEP plane.Spousal IRA b.Regular IRA
Robert’s wife Fiona does not work, and they file a joint tax return. Robert can contribute on behalf of Fiona into aa.401(k) plan.b.Regular IRA.c.Roth IRA.d.SEP plan.e.Spousal IRA. e.Spousal IRA.
Another name for a Coverdell account is a(n)a.Education IRA.b.Regular IRA.c.Roth IRA.d.SEP plan.e.Spousal IRA. a.Education IRA.
When estimating your budget or spending plan at retirement, you should consider all of the following excepta.Checking that you are receiving all income to which you are entitled.b.Evaluating all assets or valuables that you might be able to convert to cash or sources of income.c.Receiving special discounts because of your retiree status or age.d.Taking advantage of free and low-cost recreation opportunities.e.Withdrawing all retirement savings within five years of retirement. e.Withdrawing all retirement savings within five years of retirement.
Estate planning is an essential part ofa.Preretirement planning.b.Budgeting basic living expenses.c.Vacation planning.d.Both retirement planning and financial planning.e.Both financial and vacation planning. d.Both retirement planning and financial planning.
An estate consists ofa.Home, vehicle, and retirement accounts only.b.Furniture, home, and collections only.c.Everything you own.d.Everything you own except your home if you hold a mortgage on it.e.None of these. c.Everything you own.
Sean’s estate planning shoulda.Be built by acquiring assets using debt.b.Be distributed first to his cousin, then whatever is left should go to his wife.c.Ignore his beneficiaries.d.Consist primarily of a will.e.Take the needs of his wife and children into account. e.Take the needs of his wife and children into account.
A will that is usually prepared with the help of an attorney is known as a(n)a.Formal will.b.”I love you” will.c.Holographic will.d.Ordinary will.e.Statutory will. a.Formal will.
A codicil isa.A document that explains, adds, or deletes provisions in an existing will.b.A handwritten will.c.Another name for the first will an individual writes.d.A will written in legal code.e.None of these. a.A document that explains, adds, or deletes provisions in an existing will.
A(n) ______ administers a trust.a.beneficiaryb.executorc.grantord.guardiane.trustee e.trustee
A(n) ______ is the creator of a trust.a.beneficiaryb.executorc.grantord.guardiane.trustee c.grantor
A(n) ____ allows you to end the trust or change its terms during your lifetime.a.irrevocable trustb.living willc.power of attorneyd.revocable truste.will d.revocable trust
This is also known as an inter vivos trust.a.Credit-shelter trustb.Disclaimer trustc.Irrevocable trustd.Living truste.Testamentary trust d.Living trust
This trust is established by your will and becomes effective upon your death.a.Credit-shelter trustb.Disclaimer trustc.Irrevocable trustd.Living truste.Testamentary trust e.Testamentary trust

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