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Finance Flashcards

chapter 7 finance

which one of the following types of securities has the lowest priority in a bankruptcy proceeding? common stock
Lamey Gardens has a dividend growth rate of 5.6 percent, a market price of $13.16 a share, and a required return of 14 percent. What is the amount of the last dividend this company paid? R = D/P + g 14 = x/13.16 + 0.056D = 1.05
Breakfast Hut pays a constant annual dividend of $1.39 per share. How much are you willing to pay for one share if you require a rate of return of 14.6 percent? P = D/R. 1.39/0.146
Healthy Foods just paid its annual dividend of $1.62 a share. The firm recently announced that all future dividends will be increased by 2.1 percent annually. What is one share of this stock worth to you if you require a rate of return of 15.7 percent? P = D1/R – g1.62 / 0.157-0.021 = 12.16
An agent who buys and sells securities from inventory is called a: dealer
NASDAQ is best described as: an electronic network of securities dealers.
dividend yield D1/P0
For the past six years, the price of Slippery Rock stock has been increasing at a rate of 8.21 percent a year. Currently, the stock is priced at $43.40 a share and has a required return of 11.65 percent. What is the dividend yield? R = Dividend yield * capital gains 0.1165 = x. + 0.0821 X = 3.44
sully corp. has currently has an EPS of 2.35 and the benchmark PE ratio for the company is 21. Earnings are expected to grow at 7% per year. What is the target stock price in one year. 2.35(1.07) *21 52.80
the dividend yield on a stock will increase if the stock price decreases.
When valuing a stock using the constant-growth model, D1 represents the: When valuing a stock using the constant-growth model, D1 represents the:
The capital gains yield equals which one of the following? Dividend growth rate
There are two open seats on the board of directors. If two separate votes occur to elect the new directors, the firm is using a type of voting that is best described as _____ voting. straight
Kate could not attend the last shareholders’ meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which term applies to this granting of authority? proxy
Newly issued securities are sold to investors in which one of the following markets? primary
A person who executes customer orders to buy and sell securities on the floor of the NYSE is called a: floor broker
Which one of the following will increase the current value of a stock? Increase in the capital gains yield
The required return on a stock is equal to which one of the following if the dividend on the stock decreases by a constant percent per year? dividend yield + capitals gains yield
Which one of the following must equal zero if a firm pays a constant annual dividend? capital gains yield
If shareholders are granted a preemptive right they will: have priority in the purchase of any newly issued shares.
On which one of the following dates do dividends become a liability of the issuer for accounting purposes? On the date the board declares the dividend
Dividends are: Paid out of aftertax profits
Opulance Corp. common stock is selling for $44.25 a share and has a dividend yield of 1.9 percent. What is the dividend amount? 0.019*44.25
The Glass Ceiling paid an annual dividend of $1.64 per share last year and just announced that future dividends will increase by 1.3 percent annually. What is the amount of the expected dividend in Year 6? 1.64 *(1.013)^6
Gator Tires pays a constant annual dividend of $1.21 per share. How much are you willing to pay for one share if you require a rate of return of 9.3 percent? 1.21/0.093
Sweet Treats pays a constant annual dividend of $2.38 a share and currently sells for $52.60 a share. What is the rate of return? 2.38/52.60
Dry Dock Marina is expected to pay an annual dividend of $1.58 next year. The stock is selling for $18.53 a share and has a total return of 9.48 percent. What is the dividend growth rate? g = .0948 − ($1.58/$18.53) = .0095, or .95 percent
River City Recycling just paid its annual dividend of $1.15 per share. The required return is 12.3 percent and the dividend growth rate is 0.75 percent. What is the expected value of this stock five years from now? P5 = [$1.15 × (1 + .0075)6] / (.123 − .0075) = $10.41
This morning, you purchased a stock that will pay an annual dividend of $1.90 per share next year. You require a 12 percent rate of return and the dividend increases at 3.5 percent annually. What will your capital gain be in dollars on this stock if you sell it three years from now? P0 = $1.90 / (.12 − .035) = $22.35P3 = [$1.90 × (1.035)3] / (.12 − .035) = $24.78Capital gain = $24.78 − 22.35 = $2.43
River Rock, Inc., just paid an annual dividend of $2.80. The company has increased its dividend by 2.5 percent a year for the past 10 years and expects to continue doing so. What will a share of this stock be worth 6 years from now if the required return is 16 percent? P6 = ($2.80 × 1.0257) / (.16 − .025) = $24.65
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Finance Flashcards

Personal Finance

Explain the difference between the two major kinds of checking accounts Regular has a low starting rate and low interest rate, Interest has a high starting rate and hight interest rate.
If you wish to transfer ownership of a check from yourself to another person, would you use a blank, a special or a restrictive endorsement? Explain Special- On the back of the check you would write: Pay to the order of…. and sign under it.
Which endorsement would you use to limit the use of your payroll check to being deposited in your bank account? Restrictive.
What is the purpose of check stubs or a check register? To keep track of what you have vs. what the bank has. You could have transactions that haven’t gone through yet.
A form that accompanies a deposit and lists the items deposited-Currency, coins, or checks. Deposit slips
Written evidence that you received payment or that you transferred your right of receiving payment to someone else. Endorsement
A separate form on which the depositor keeps a record of deposits and checks. Check Register
A card, kept by a bank, that shows the signatures of all individuals authorized to draw checks against the account. Signature Card
A bank account that is used by two or more people. Joint account
An endorsement that limits the use of a check to the purpose given in the endorsement Restrictive endorsement
A fee a bank charges for handling a checking account Service charge
An endorsement including the name of the person to whom the check has been transferred. Special Endorsement
An endorsement consisting of only the endorser’s name Blank endorsement
What are the three parties involved with a check? Drawer, Payee, drawee
Under what conditions might you stop payment on a check? If you addressed it to the wrong person, or if you don’t have enough money in the account.
What is the difference between a certified check and a cashier’s check? A certified check is the bank verifying that someone is good for their check. A cashier’s check is the bank paying the amount out of their own account/
Give an example of an electronic funds transfer. paying bills, paying someone back, any online purchases, debit cards.
The owner of the account and the person who signs the check. Drawer/payor
A form designed for the traveler to use in making payments. Traveler’s checks
A check dated later than the date on which it is written. postdate
The person to whom the check is written. Payee
The bank or other financial institution in which the account is held. drawee
The form instructing a bank not to pay a certain check. Stop payment order
A check that a bank draws on its own in-house funds. Cashier check.
Writing a check for more money than is in one’s account. Overdraw
A personal check for which a bank has guaranteed payment. Certified check.
A form of payment that orders the issuing agency to pay the amount printed on the form to another party. Money Order
Checks that have not been deducted from the bank-statement balance. Outstanding checks
A statement showing how the checkbook balance and the bank statement were brought into agreement. Bank reconciliation
A report sent by the bank to a depositor showing the status of his or her account. Bank statement
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Finance Flashcards

National Finance

An agreement to waive prior rights in favor of another is called: Subordination.
A mortgage or deed of trust: May be recorded.
Which is true about a promissory note? It is the primary evidence of a loan.
Which clause protects a lender if he does not want the loan to be assumed by another party? Due on sale (alienation).
A mortgage clause used in refinancing the first mortgage which allows the second mortgage to take the first place is called: Subordination.
When a lender requires tax and/or insurance amounts to be deposited with the lender by placing the monies in an escrow account, a “Budget Mortgage or Deed of Trust” occurs. These escrow accounts may also be referred to as: Impound or Reserve Accounts.
Foreclosure would terminate which of the following? Equitable redemption rights.
In a Deed of Trust, the party who holds, “Naked Legal Title” (one without possessory rights), and can claim the property without going through the courts is the: Trustee.
Which of the following would be first in priority? *Special Assessments*First mortgage of $20,000Judgment LiensYou cannot tell unless you know the order of recording.
The loan amount is $80,000 and the monthly principal and interest payments will be $499.00 a month for 30 years. How much interest will be paid over the term of the loan? $99,640.00
The buyer was required to pay $4000 in discount points. The loan balance was $80,000. How many points did the lender require? 5.
Based on the theory, (a rule of thumb) how many discount points are required to increase the percentage yield on a mortgage from 11% to 12%? 8 points.
The loan amount is $70,000, and the monthly principal and interest payment will be $479.00 a month for 30 years. How much interest will be paid over the term of the loan? $102,440.00
Determine the monthly interest on a loan with a balance of $168,300, a monthly payment of $1356.80, and in interest rate of 7.75%. $1086.94
In step 3, what do you subtract from the monthly payment amount to solve for the monthly principal? Current monthly interest.
A homeowner has a mortgage balance of $149,570.75. If the interest rate on the loan is 9.5% and the monthly payment is $1303.55, what will be the mortgage balance after the next two payments? $149,330.91.
A type of loan where interest and principal are paid on an equal basis until the final payment, which is larger, is called a Balloon Loan or: Partially amortized loan.
What kind of loan would be fully paid out over the life of the loan? Fully amortized loan.
A mortgage given as part of the buyer’s consideration for the purchase of real property, and delivered at the same time that the real property is transferred as a simultaneous part of the transaction is a(n): Purchase Money Mortgage (PMM).
A type of payment plan where a buyer pays interest only and the final payment is principal at the end of the loan period: Straight.
A real estate loan where a homeowner receives monthly payments based on accumulated equity rather than a lump sum and is repaid upon the death of the owner or sale of the property is a(n): Reverse Annuity Mortgage.
An Adjustable Rate Mortgage (ARM) contains an escalator clause that allows the interest to adjust over the loan term. How often the loan rate may change is determined by the: Adjustment period.
What is the purpose of FHA? To act as an insurance company of first mortgages.
In 1975 a veteran paid off his VA loan and sold his house. Would he be entitled to another VA loan? Yes, because he paid off the first loan and sold the mortgaged property.
Rural Economic and Community Development (RECD) loans are either made: Directly by RECD or made by a private lender with RECD guaranteeing a certain percentage.
Conventional mortgages usually require: A larger down payment.
An FHA mortgage loan is obtained through which of the following? Qualified Lending Institutions.
Conventional mortgage loans are: not guaranteed or insured by any government agency.
The legal doctrine by which a person is prevented from asserting rights or facts that are inconsistent with a previous position or representation made by act, conduct, or silence is known as: Estoppel.
Many states charge what is called a transfer tax when the property is conveyed by one of the following means: Deed.
A lender will look at which items when deciding to qualify a property: All of these items:Location, Condition (repairs and predictions), Type of property (residential, commercial, agricultural).
When underwriting a mortgage loan a lender considers all of the following except: Credit worthiness of the seller.A lender considers these: Quality of the property that is being financed, Credit worthiness of the buyer, and Quality of the title to the property being financed.
Protection to an owner of property against losses sustained as a result of a defective title to real estate can be accomplished by: Title insurance.
Transfer taxes are generally paid by the: Seller.
The Federal Reserve controls lenders by: Telling lenders what percentage of their assets they can loan.
The primary distinction/s between the primary and secondary mortgage market is? The secondary mortgage market is fundamentally a holding or warehouse process.
The Federal National Mortgage Association (FNMA) sells seasoned mortgages and deeds of trust to individual investors and financial institutions. A seasoned mortgage is one that has been: In existence for some time and has a good record of repayment by the mortgagor.
The Federal Reserve controls the money supply by: Requiring how much of a banks assets have to be on reserve.
Which is not an agency that deals (buys loans) in the secondary market? Federal Housing Administration.
All of the following are sources for obtaining a residential mortgage for the purchase of a single-family residence, except: FNMA.*These are sources for obtaining a residential mortgage for the purchase of a single-family residence: Savings and loans, Commercial banks, and Mortgage brokers.
RESPA requires lenders to provide a HUD “Guide to Settlement” booklet and a Good Faith Estimate (GFE) of all costs related to settlement to borrowers within: 3 days of loan application.
Unsophisticated investors should seek: Legal and tax counsel before making any real estate investments.
Which agency administers RESPA? Consumer Financial Protection Bureau (CFPB).
An advantage of real estate investment is tax savings, the capital gain exclusion on a principal residence excludes the gain up to: $250,000 per individual (up to $500,000 for a couple).
Truth in Lending applies to all of the following, except: Commercial property.*Truth in Lending applies to: Residential loans, Federally related 1-4 family properties, and Family farms.
Which of the following mortgage closing transactions require compliance under TRID rules? Unimproved property.
The Truth in Lending laws apply to the financing of: Single family residences.
The Equal Credit Opportunity Act prohibits lenders from discriminating against consumers in the granting of credit based on the following protected classes: Race, color, religion, national origin, sex, marital status, age, or dependency on public assistance.
What is the latest date that a settlement agent is allowed to provide the seller with the Closing Disclosure? At consummation of the mortgage.
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Finance Flashcards

Finance 325 Chs. 1-3, 5-6

Which one business types is best suited to raising large amounts of capital? Corporations
Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?A. Decrease in the per unit production costs.B. Increase in the number of shares outstanding.C. Decrease in the net working capital.D. Increase in the market value per share.E. Increase in the amount of the quarterly dividend. D.
Why should financial managers strive to maximize the current value per share of the existing stock?Doing so guarantees the company will grow in size at the maximum possible rate.A. Doing so increases employee salaries.B. Because they have been hired to represent the interests of the current shareholders.C. Because this will increase the current dividends per share.D. Because managers often receive shares of stock as part of their compensation.E. Doing so guarantees the company will grow in size at the maximum possible rate. B.
The Sarbanes-Oxley Act of 2002 is a governmental response to:A. Decreasing corporate profits.B. The terrorists attacks on 9/11/2001.C. A weakening economy.D. Deregulation of the stock exchanges.E. Management greed and abuses. E.
Which one of the following is an unintended result of the Sarbanes-Oxley Act?A. More detailed and accurate financial reporting.B. Increased management awareness of internal controls.C. Corporations delisting from major exchanges.D. Increased responsibility for corporate officers.E. Identification of internal control weaknesses. C.
Which one of the following is an agency cost?Accepting an investment opportunity that will add value to the firm.A. Accepting an investment opportunity that will add value to the firm.B. Increasing the quarterly dividend.C. Investing in a new project that creates firm value.D. Hiring outside accountants to audit the company’s financial statements.E. Closing a division of the firm that is operating at a loss. D.
Financial managers should primarily focus on the interests of:A. Stakeholders.B. The vice president of finance.C. Their immediate supervisor.D. Shareholders.E. The board of directors. D.
Which term is defined as the management of a firm’s long-term investments? Capital Budgeting
which term is defined as the mixture of a firm’s debt and equity financing? Capital Structure
A business created as a distinct legal entity and treated as a legal “person” is called a:Corporation.Sole proprietorship.General partnership.Limited partnership.Unlimited liability company. Corporation
What is an agency relationship? The relationship between the stockholders and management
What are agency problems and how do they come about? What are agency costs? Agency Problems are those between the stockholders (principal) and management (agent). They come about when management doesn’t have the stockholder’s interest as their own. An agency cost is the cost of the conflict of interest between the two parties (lost opportunities or corporate expenditure benefitting management but costing the stockholders)
What are corporate finance’s three main areas of concern? Capital budgeting: What long-term investments should the firm take?Capital structure: Where will the firm get the long-term financing to pay for its investments? In other words, what mixture of debt and equity should the firm use to fund operations?Working capital management: How should the firm manage its everyday financial activities?
The balance sheet is a: snapshot of the firm
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Finance Flashcards

Personal Finance; Banking

Term The length of time you are required to keep your money in the account is known as the
Certificate of Deposit (CD) A savings account which requires you to keep your money in the account for a specific period of time is known as a(n)
Debit Card What type of card allows you to purchase something and have the money taken directly from your checking account?
Demand Deposit A checking account is an example of a
Balanca The total amount of money in your bank account is called
Direct Deposit An electronic banking service which enables you to have your paycheck funds automatically sent to your bank account is known as
Time Deposits Savings accounts and certificates of deposit are examples of
Automated Payment An electronic banking service which enables you to pay a monthly or other recurring bill automatically is known as
2 If you report a debit card stolen or lost within ____ days of discovery, you are not liable for unauthorized use.
Daily All other things being equal, would you prefer a bank to compound your interest daily, monthly, quarterly, or annually?
Point of Sale (POS) If you use a debit card to purchase an item or service, that is known as a(n) ______________ transaction
Type of account,Balance in the account, or Interest rate The amount of money your bank account earns depends on __(name one factor)___.
Stored value card A prepaid card that you can spend for college books, bus/subway fares, school lunches, long distance telephone calls or similar services is known as a(n) _________________ card.
Sixty (60) If you don’t report a debit card as stolen or lost within ____ days, you are liable for ALL unauthorized uses.
$250,000 The Federal Deposit Insurance Corp (FDIC) insure bank deposits for up to $______ per account.
Commercial Bank The type of financial institution that offers the broadest range of services to businesses and individuals is known as a
Savings and loan associations, and Mutual savings banks Name the two types of financial institutions that offers a broad range of banking services, but tends to specialize in savings accounts and mortgage loans.
Credit Union This type of financial institution is a not-for-profit organization that is owned by and serves only its members such as a labor union.
Check register This booklet where you write all your checking account entries is known as a(n)
Finance Company This type of financial institution specializes in loans to consumers and small businesses that are higher risk or have low income/few assets.
Mortgage Company This type of financial institution specializes in loans to purchase homes, and does not usually offer deposit services.
Favorable interest ratesFree or low cost checkingWill it loan me moneyIs it FDIC or SAIF insuredConvenient locationsOther services Name three things you should consider when comparing financial institutions.
Regular savings account The type of savings account that allows to make deposits or withdrawals whenever you want and pays a fixed rate of interest is known as a(n)
You forgot to enter a transactionYou made a calculation errorYour bank made a calculation errorYour bank (over)charged for some service Name two types of errors that you can discover when you do a monthly reconciliation of your checking account.
Money Market account The type of savings account in which the interest rate varies from month to month is known as a(n)
Rate of return The percent of increase in the value of your savings from earned interest is known as the
Compounding The process of earning interest on both the principal and also on any prior interest earned is known as
Annual Percentage Yield (APY) The term for the amount of interest that a $100 deposit would earn after compounding for one year is known as
Restrictions such as a minimum balancesFees and chargesFavorable interest rates Special services Name two things you should consider when opening a checking account.
Overdraft protection A service in which your bank either loans you money or automatically transfers money to your checking account if you do not have sufficient funds to cover your check is known as
Stop payment order If you want your bank to not pay a particular check you wrote, you would issue a(n)
Restrictive endorsement The type of endorsement where you can only deposit the money in your account since you wrote “For Deposit Only” above your signature is known as a(n)
Payee The person or company to whom you make your check out to is known as the
Savings accountsCDsChecking accountsLoans (mortgages, car loans, personal loans)Credit cardsInsuranceInvestmentsTax assistanceFinancial planning Name as many examples of services offered by a bank as you can.
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Finance Flashcards

Finance Exam 3 Review

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:a. zero partnerb. corporate shareholderc. limited partnerd. generally partnere. sole proprietor c. limited partner
Which one of the following is defined as a firm’s short-term assets and its short-term liabilities?a. debtb. capital structurec. investment capitald. net capitale. working capital e. working capital
A general partner:a. has no say over a firm’s daily operationsb. faces double taxation whereas a limited partner does notc. is personally responsible for all the partnerships debtsd. has a max loss equal to his or her equity investmente. receives a salary in lieu of a portion of the profits c. is personally responsible for all the partnerships debts
A stakeholder is:a. a person who initially founded a firm and currently has management control over that firmb. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firmc. a creditor to whom a firm currently owes moneyd. a person who owns shares of stocke. any person who has voting rights based on stock ownership of a corporation b. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm
Which one of the following statements concerning a sole proprietorship is correct?a. the owner of a sole proprietorship is personally responsible for all of the company’s debtsb. the profits of a sole proprietorship are subject to double taxationc. A sole proprietorship is structured the same as a limited liability companyd. there are very few sole proprietorships remaining in the U.S. todaye. A sole proprietorship is designed to protect the personal assets of the owner a. the owner of a sole proprietorship is personally responsible for all of the company’s debts
Which one of the following terms is defined as the management of a firm’s long-term investments?a. agency cost analysisb. capital structurec. working capital managementd. capital budgetinge. financial allocation d. capital budgeting
Which one of the following functions should be the responsibility of the controller rather than the treasurer?a. equipment purchase analysisb. payment to a vendorc. income tax returns d. daily cash deposit c. income tax returns
Which one of the following best describes the primary advantage of being a limited partner instead of a general partner?a. no potential financial lossb. greater control over the business affairs of the partnershipc. active participation in the firm’s activitiesd. maximum loss limited to the capital investede. tax-free income d. maximum loss limited to the capital invested
Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?a. increase in the number of share outstandingb. decrease in the net working capitalc. decrease in the per unit production costsd. increase in the amount of the quarterly dividende. increase in the market value per share e. increase in the market value per share
Which one of the following is a capital structure decision?a. determining which one of two projects to acceptb. determining the amount of funds needed to finance customer purchases of a new productc. determining how much debt should be assumed to fund a projectd. determining how much inventory will be needed to support a projecte. determining how to allocate investment funds to multiple projects c. determining how much debt should be assumed to fund a project
Which one of the following is included in a firm’s market value but yet is excluded from the firm’s accounting value?a. an item held by the firm for future saleb. good reputation of the company c. money due from a customerd. equipment owned by the firme. real estate investment b. good reputation of the company
Non-cash items refer to:a. accrued expensesb. the ownership of intangible assets such as patentsc. sales which are made using store creditd. expenses which do not directly affect cash flowe. inventory items purchased using credit d. expenses which do not directly affect cash flow
Which one of the following must be true if a firm had a negative cash flow from assets?a. Newly issued shares of stock were soldb. The firm borrowed moneyc. The firm had a net loss for the periodd. The firm acquired new fixed assetse. The firm utilized outside funding e. the firm utilized outside funding
Depreciation: a. decreases net fixed assets, net income, and operating cash flowsb. reduces both taxes and net income c. reduces both the net fixed assets and the costs of a firmd. increases the net fixed assets as shown on the balance sheete. is a noncash expense which increases the net income b. reduces both taxes and net income
The cash flow of a firm which is available for distribution to the firm’s creditors and stockholders is called the:a. cash flow to stockholdersb. net working capitalc. operating cash flowd. net capital spendinge. cash flow from assets e. cash flow from assets
The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.a. averageb. marginal c. totald. residuale. mean b. marginal
Which one of the following will increase the value of a firm’s net working capital?a. collecting an accounts receivableb. selling inventory at a profitc. using cash to pay a supplierd. depreciating an assete. purchasing inventory on credit b. selling inventory at a profit
Cash flow to stockholders is defined as:a. the total amount of interest and dividends paid during the past yearb. operating cash flow minus the cash flow to creditorsc. cash flow from assets plus the cash flow to creditorsd. dividend payments less net new equity raisede. the change in total equity over the past year d. dividend payments less net new equity raised
The book value of a firm is:a. adjusted to the market value whenever the market value exceeds the stated book valueb. based on historical cost c. more of a financial than an accounting valuationd. equivalent to the firm’s market value provided that the firm has some fixed assetse. generally greater than the market value when fixed assets are included b. based on historical cost
Shareholder’s equity:a. is equal to total assets plus total liabilitiesb. increases in value anytime total assets increasesc. includes long-term debt, preferred stock, and common stockd. represents the residual value of a firm e. decreases whenever new shares of stock are issued d. represents the residual value of a firm
The cash flow related to interest payments less any net new borrowing is called the:a. cash flow to creditors b. cash flow from assetsc. net working capitald. operating cash flowe. capital spending cash flow a. cash flow to creditors
Which one of the following statements concerning net working capital is correct?a. The lower the value of net working capital the greater the ability of firm to meet its current obligationsb. Firms with equal amounts of net working capital are also equally liquidc. Net working capital is a part of the opreating cash flowd. An increase in net working capital must also increase current assetse. Net working capital increases when inventory is sold for cash at a profit e. Net working capital increases when inventory is sold for cash at a profit
Which one of these is most apt to be a fixed cost?a. office salaries b. raw materialsc. manufacturing wagesd. shipping and freighte. management bonuses a. office salaries
Which one of the following is classified as an intangible fixed asset?a. accounts receivableb. inventoryc. production equipmentd. trademark e. building d. trademark
Which one of the following accounts is the most liquid?a. inventoryb. landc. accounts receivabled. equipmente. building c. accounts receivable
The common set of standards and procedures by which audited financial statements are prepared is known as the :a. Financial Accounting Reporting Principlesb. matching principlec. cash flow identityd. Standard Accounting Value Guidelinese. Generally Accepted Accounting Principles e. Generally Accepted Accounting Principles
Which one of the following is the financial statement that shows the accounting value of a firm’s equity as of a particular date?a. statement of cash flowsb. income statementc. creditor’s statementd. balance sheet e. dividend statement d. balance sheet
Activities of a firm which require the spending of cash are known as:a. cash receiptsb. uses of cash c. cash on handd. sources of cashe. cash collections b. uses of cash
Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?a. common-base year statement b. statement of standardizationc. statement of cash flowsd. common size statemente. base reconciliation statement a. common-base year statement
A common-size income statement is an accounting statement that expresses all of a firm’s expenses as a percentage of:a. total equityb. net incomec. salesd. taxable incomee. total assets c. sales
Relationships determined from a firm’s financial information and used for comparison purposes are known as:a. scenario analysisb. dimensional analysisc. identitiesd. financial ratiose. solvency analysis d. financial ratios
The formula which breaks down the return on equity into three component part is referred to as which one of the following?a. equity performance formulab. Du Pont identityc. SIC formulad. equity equatione. profitability determinant b. Du Pont identity
An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.a. increase in the cash ratiob. increase in the net working capital to total assets ratioc. increase in the current ratiod. decrease in the cash coverage ratioe. decrease in the quick ratio e. decrease in the quick ratio
A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of the action?a. profit margin b. equity multiplierc. return of equityd. total asset turnovere. return on assets b. equity multiplier
Which one of the following is a source of cash?a. repurchase of common stockb. purchase of inventoryc. acquisition of debt d. granting credit to a customere. payment to a supplier c. acquisition of debt
Which on of the following is a source of cash?a. decrease in notes payableb. decrease in common stockc. increase in accounts payabled. increase in accounts receivable e. increase in inventory c. increase in accounts payable
A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is currently at 40 percent. If the firm has a positive external financing need, that need will be met by:a. long-term debt b. retained eariningsc. accounts payabled. fixed assetse. common stock a. long-term debt
Atlas Industries combines the smaller investment proposals from each operational unit into a single project for planning purposes. This process is referred to as which one of the following?a. summationb. conjoiningc. appropriationd. conglomeratione. aggregation e. aggregation
When constructing a pro forma statement, net working capital generally:a. varies only if the firm is producing at less than full capacityb. remains fixedc. varies only if the firm maintains a fixed debt-equity ratiod. varies proportionally with sales e. varies only if the firm is currently producing at full capacity d. varies proportionally with sales
Which one of the following terms is defined as dividends paid expressed as a percentage of net income?a. dividend sectionb. dividend portionc. dividend payout ratiod. dividend yielde. dividend retention ratio c. dividend payout ratio
Financial planning:a. is a process that firms employ only when major changes to a firm’s operations are anticipatedb. considers multiple options and scenarios for the next two to five years c. provides minimal benefits for firms that are highly responsive to economic changesd. is a process that firms undergo once every five yearse. focuses solely on the short-term outlook for a firm b. considers multiple options and scenarios for the next two to five years
Which one of the following is correct in relation to pro forma statements?a. Fixed assets must increase if sales are projected to increaseb. The addition to retained earnings is equal to net income plus dividends paidc. Net working capital is affected only when a firm’s sales are expected to exceed the firm’s current production capacityd. Inventory changes are directly proportional to sales changes e. Long-term debt varies directly with sales when a firm is currently operating at maximum capacity d. inventory changes are directly proportional to sales changes
You are getting ready to prepare pro forma statements for your business. Which one of the following are you most apt to estimate first as you begin this process?Select one:a. external financing needb. fixed assetsc. current assetsd. sales forecast e. projected net income d. sales forecast
A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume that the firm:a. currently has excess capacityb. is projected to grow at the sustainable rate of growthc. retains all of its net incomed. is projected to grow at the internal rate of growthe. is currently operating at full capacity e. is currently operating at full capacity
Phil is working on a financial plan for the next three years. The time period is referred to as which one of the following?a. planning agendab. short-runc. planning horizond. financial rangee. current financing period c. planning horizon
Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values?a. sales dilution methodb. common-size methodc. sales reconciliation methodd. trend methode. percentage of sales method e. percentage of sales method
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Finance Flashcards

Finance Test 3

1. ​The basic purpose of insurance is to _____. b. ​protect yourself from economic losses
2. ​The purchase of insurance is a common form of _____ by the insured. b. ​risk transfer
4. ​The probability of a loss occurring can be reduced by_____. a. ​the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums.
3. ​Insurance underwriting is best described as: b. ​loss prevention
5. ​The primary purpose of life insurance is to provide: a. ​financial security for dependents in the event of death.
6. ​Actuarial data is used to measure: b. ​the risk of loss for a population.
7. ​_____ is an activity that reduces the chance that a loss will occur. b. ​Loss prevention
8. ​The single most valuable technique in personal risk management to assist an individual in determining how much life insurance is needed is: c. ​assessing the family’s total economic needs and subtracting the financial resources available to meet those needs.
9. ​Identify a true statement about the multiple-of-earnings method. b. ​The multiple-of-earnings method considers the insurance coverage to be 5 to 10 times the annual income.
10. ​Term life insurance is characterized by _____. b. ​premium amounts related to age
11. ​If a term life insurance is convertible, the policy can be: d. ​converted to a comparable whole life policy.
12. ​Henry must make set premium payments on his insurance policy until he dies, and if he cancels the policy, he will receive the cash value. His plan is a _____ policy. b. ​whole life
13. ​Employers often provide _____ life insurance as a fringe benefit for their employees. a. ​group
14. ​A grace period permits the policy holder to retain insurance even though the premium has not been paid for: e. ​31 days.
15. ​Nonforfeiture rights guarantee that a policy owner will not lose his or her _____. c. ​cash value
1. ​Advances in medical technology, drug prescriptions, and treatments have substantially reduced the cost of health care in recent decades. b. False
2. ​You would have a better chance of choosing your own doctor with a PPO than with an HMO. True
3. ​A preferred provider organization has characteristics of both Individual practice association (IPA) and an indemnity plan. True
4. Generally, insurance is more reasonably priced through group plans than as individual policies.​ True
5. ​Living a healthy lifestyle is an example of loss prevention and control. True
6. ​During the past few decades, the percentage of our income spent on health care: a. ​has increased due to an aging U.S. population.
7. ​Which of the following is true of the workers’ compensation insurance? d. ​Workers’ compensation insurance compensates workers who are injured on the job or become ill through work-related causes.
8. ​Which of the following is true of the health care industry? b. ​In a traditional indemnity plan, the premium cost is low if it is a high-deductible plan.
9. ​Group health insurance premiums are _____. a. ​lower than individual health insurance premiums
10. ​One of the key goals of the Affordable Health Care Act of 2010 is _____. b. ​to reduce the number of uninsured citizens in the country
11. ​Which of the following programs is a public assistance program that provides health insurance benefits only to those who are unable to pay for healthcare? b. ​Medicaid
12. ​Employees should consider risk assumption for certain health risks as: c. ​they are required to pay additional insurance premium to cover the lapse of insurance coverage for them.
13. ​Long-term care is a term used to describe _____. b. ​the delivery of medical care to persons with chronic medical conditions in a nursing home
14. ​In order to qualify for disability insurance under social security, a person must be: b. ​unable to carry out the duties of any job.
15. Dependent children will usually be covered under your health insurance b. up to age 26.
1. ​Negligence results when someone: c. ​fails to act as a “reasonable person”.​
2. The principle of indemnity would prevent: b. ​an insured from collecting more than he or she lost.
3. ​A liability suit could result against you when: d. ​your dog bites the neighbor.
4. ​Which homeowners’ policy is best suited for a renter of an apartment? d. ​HO-4
5. ​A personal property floater: a. ​provides coverage for items of expensive personal property not adequately covered under the standard homeowner’s policy.
6. ​Section I of the homeowner’s insurance policy covers: d. ​hospitalization cost provided to the insured.
7. ​Section II of the homeowner’s insurance contract covers: d. ​the cost of defending the insured.
8. ​A higher home insurance cost may result from: b. ​low credit scores of the insured.
9. Replacement cost coverage is the reimbursement of: a. ​the cost of repairing or replacing damaged structures without deducting physical depreciation.
10. ​Donna, who is single and 30-years-old, has received several speeding tickets recently and was shocked by the effect they had on her auto insurance. Donna drives a 2002 Pontiac Firebird. She is currently not covered by health insurance, has an emergency fund of $25,000, an income of $100,000 per year, and an investment portfolio of $230,000. She is trying to reduce the price of her auto insurance. Which of the following actions is most likely to help Donna reduce the price of her auto insurance? c. Raising her deductible from $250 to $1,000
11. ​A homeowner’s policy does not provide protection for the personal property of: d. ​tenants.
12. ​Auto insurance is needed primarily: b. ​as protection against potential liability claims.
13. ​Liability coverage provides payment to: e. ​the non-family members involved in the accident.
14. ​Comprehensive automobile coverage refers to: b. ​complete coverage including liability, medical payments, and damage to the automobile.
15. ​A personal liability umbrella policy typically includes: b. coverage for auto related liability losses in excess of the limits purchased in the automobile insurance.​
True or False – A house with a replacement value of $110,000 is currently insured for $90,000. The house has suffered a $15,000 loss from windstorm damage. The insurance company will pay the full $15,000 less the deductible. True
Funds for Medicare benefits come from _________. Social Security taxes paid by covered workers and their employers
Workers’ compensation insurance would make compensation payments to an injured worker only if he or she had been hurt ______. on the job
From the standpoint of the person buying insurance, the central purpose of insurance should be: to transfer risks of serious losses.
Insurance is a tool that can reduce _____ risk. economic or financial
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Finance Flashcards

Finance 301 Exam 1- chapter 1

At its most basic level, the function of financial intermediaries is to ________. move money from lenders to borrowers and back again
Which of the following is NOT an example of a financial transaction?A) Your parents use their credit card to pay this term’s college tuition.B) You use the ATM to withdraw British pounds so you can fly to London.C) Your roommate lends you $20 and you repay it in one week.D) All of the above are financial transactions. All of the above are financial transactions.
The movement of money from lender to borrower and back again is known as ________. the cycle of money
The common objective of borrowing and lending is to ________. make all parties better off
Which of the following is NOT a function of a financial intermediary in the lending/borrowing process?A) To help establish terms of the lending/borrowing agreementB) To match the borrower and the lenderC) To bear the risk that the borrower will not repayD) All of the above are functions of a financial intermediary. All of the above are functions of a financial intermediary.
You place $500 into your checking account at First Bank and earn 1% APR on your deposit. Your professor borrows money at a rate of 8% from the same bank for a tuition loan for her son. Which of the following statements is true? You benefit from earning interest on your deposit, safety for your funds, and having a recognizable means for paying for your financial obligations without having to hold cash.
The basic function of financial intermediaries is to move advice from lenders to borrowers and back to lenders. FALSE
In the lending/borrowing process, a financial intermediary function is to bear the risk that the borrower will not repay. TRUE
All financial transactions have a buyer and a seller. TRUE
Give three examples of a financial transaction (1) Your parents use their credit card to pay some of your college expenses.(2) You use the ATM to withdraw funds so you can buy your best friend a birthday gift.(3) Your roommate lends you $20 and you repay it back when you get your next pay check.
Which of the following best identifies the four main areas of finance? Corporate finance, investments, financial institutions and markets, international finance
Of the following, which is NOT one of the four main areas of finance?A) International financeB) Corporate financeC) InvestmentsD) All are considered main areas of finance. All are considered main areas of finance.
The set of financial activities that support the OPERATIONS of a business is best described by which main area of finance? Corporate finance
________ is the area of finance concerned with activities such as borrowing funds to finance projects such as plant expansions or new product launches. Corporate finance
________ is the area of finance concerned with activities such as repayment of borrowed funds through dividends or interest payments. Corporate finance
________ is the area of finance concerned with the activities of buying and selling financial assets such as stocks and bonds. Investments
Which of the following is NOT typically thought of as an investment activity? Repaying borrowed funds
The organized financial intermediaries and the forums that promote the cycle of money is a good definition of which of the following main areas of finance? Financial institutions and markets
Financial institutions and markets are the organized financial intermediaries and the forums that promote the cycle of money.
Of the following, which is NOT an example of a financial intermediary?A) Commercial bankB) Insurance companyC) Investment bankD) All of the above are financial intermediaries. All of the above are financial intermediaries.
Of the following, which is NOT an activity engaged in by a financial intermediary?A) Matching borrowers and lendersB) Bearing riskC) Managing retirement portfolios for large classes of employeesD) All of the above are activities of financial intermediaries. All of the above are activities of financial intermediaries.
“Concern with the multinational elements of financial activities” best describes which of the four main areas of finance? International finance
Which of the following is a reason why expertise in international finance is important?A) The process of assessing risk among many countries is more difficult than assessing risk for a single country.B) Financial regulatory rules and requirements differ from country to country.C) Changes in economic conditions impact the relative values of currency among countries.D) All of the above are reasons for gaining expertise in international finance. All of the above are reasons for gaining expertise in international finance.
Which of the following is NOT an activity of a financial institution or market?A) Bringing together buyers and sellers of financial assetsB) Providing a market for the transaction of financial assetsC) Providing information to buyers and/or sellers of financial assetsD) All are activities of financial institutions. All are activities of financial institutions.
Corporate Finance is the set of activities generally concerned with the buying and selling of financial assets such as stocks and bonds. FALSE
Financial institutions and markets are the organized financial intermediaries and the forums that promote the cycle of money. TRUE
The four main areas of finance (corporate, investments, financial markets and institutions, and international finance) are mutually exclusive topics. FALSE
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Finance Flashcards

Finance Information Practice

WACC Question The relevant WACC can change depending on the amount of funds a firm raises during a given year. Moreover, the WACC at each level of funds raised is a weighted average of the marginal costs of each capital component, with the weights based on the firm’s target capital structure.
If a project has normal cash flows… A project’s NVP increases as the WACC declines.
What can only occur if a cash flow has Multiple IRRs? If the signs of the cash flows change more than once.
If two projects are equally risky and mutually exclusive, if one has IRR 15% and the other has 12%, what is possible with their NVPs? If the WACC is 10%, both projects will have positive NVPs.
True of False, if an investment project would make use of land which the firm currently owns, the project should be charged with the opportunity cost of the land? True.
Operating Question. Changes in Net Operating working capital should be reflected in a capital budgeting cash flow analysis.
What should be considered when a company estimates the cash flows used to analyze a proposed project? The new project is expected to reduce sales of one of the company’s existing products by 5%.
What would make a company less likely to invest in another market? The investment would preclude the company from being able to make a profitable investment in China.
If the average risk projects have a WACC of 10%, it’s below average risk project is 8%, it’s above average risk projects have a WACC of 12%. Which should the company invest in? The 8% project since it’s below average risk but has a return of 8.5%
What is a Terminal Cash Flow? The cash flow at the end of the life of the project.
What is the Risk Analysis Technique that measures changes in the internal rate of return and net present value? Sensitivity Analysis
What is the risk of a project without factoring in the impact of Diversification? Stand-Alone Risk
What is an example of externality that can have a negative effect on a firm? Cannibalization
What creates value for a company because it gives the company the right, but not obligation to take future action to increase its cash flows? Real Option Marketing Studies are Sunk Costs!
If a company does not risk-adjust its discount rate for projects properly, what is likely to occur over time? The firm’s overall risk level will increase. The firm could potentially reject projects that provide a higher rate of the company than it should require.
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Finance Flashcards

Personal Finance Chapter 13

Aggressive growth funds typically buy stocks with high price/earnings ratios and stocks with volatile price fluctuations. True
Indexed funds have high realized capital gains False
A mutual fund allows investors to become owners of a widely diversified portfolio of securities.
Asset allocation funds invest in stocks, bonds, and money market securities. True
A balanced fund that emphasizes growth in capital is called a(n) growth-and-income fund.
Back-end load funds offer more liquidity to investors than no-load funds. False
Mutual funds do not offer guaranteed performance
Expected cash flows from real estate investments are determined by rent.depreciation.taxes.
Exchange-traded funds can create new shares to meet demand. True
A(n) ____ fund is quite speculative. aggressive growth
A closed-end investment company that invests in various types of real estate and mortgages is a hybrid real estate investment trust.
A guarantee of expected fund’s future performance is its past performance. False
Financial leverage is less of a factor in real estate investment returns than with other types of investments. False
More people invest in mutual funds than in any other type of investment product. True
In The Wall Street Journal’s listing of mutual funds, a “t” after the mutual fund name and before the NAV means that the particular mutual fund has a ____ associated with it. back-end load12b-1 fee
Investors tend to use mutual funds for which of the following reasons DiversificationProfessional managementFinancial returnsConvenience
Value funds look for stocks with relatively all the following except Rapid growth
A mutual fund is owned by the management company. False
Balanced funds invest in a proportionate amount of common and preferred stocks and bonds. True
Dividend income and capital gains distributions are taxed at identical tax rates. FALSE
What would the NAV of an open-ended mutual fund priced at $10 be if the load is 4%? $9.60
If you are a mutual fund investor who needs steady income, you might take advantage of a fund’s systematic withdrawal plans.
Exchange-traded mutual funds are actually closed-end mutual funds. False
By using automatic reinvestment plans, dividend and capital gains are used to automatically buy additional shares in the fund. true
A no-load fund has no charge to sell you shares.
Generally speaking, socially responsible funds abstain from investing in alcohol, gambling, or tobacco stocks. true
Asset allocation funds invest entirely in U.S. and foreign stocks and bonds. False
An open-end investment company is commonly known as a mutual fund. True
Which of the following bond mutual funds would provide tax-free income? Municipal bond fund
Which of the following combines the operating characteristics of an open-end fund with some of the trading characteristics of a closed-end fund? Exchange-traded fund
Loads are transaction charges for mutual funds. True
A downside of investing in income property is maintenance costs
A closed-end investment company can create an unlimited number of shares. False
The lower the R2, the closer the relationship between an ETF and its associated target index. False
A(n) ____ sells fund shares, either directly to the public or through certain authorized dealers. distributor
While ETFs offer many of the benefits of mutual funds, they have the tax-timing disadvantages not present with otherwise comparable mutual funds. False
Index funds are actively managed. False
A mutual fund with an objective of both growth and income is a(n) balanced fund.
The objective of bond and money market funds is growth. False
The major advantage of mutual funds to the small investor is diversification
The primary purpose of investing in income property is to produce an attractive annual cash flow. True
An annual fee charged by some mutual funds to cover marketing and distribution expenses is the 12b-1 fee
What type of REIT is most attractive to income-oriented investors? mortgage
The fund whose main objective is growth is known as a(n) ____ fund. none of these(balanced, preferred stock, money market, index)
A hybrid REIT would invest only in real estate mortgages. False
With open-end mutual funds, investors cannot lose more than they invested. True
A technology fund is an example of a sector fund. True
In The Wall Street Journal’s listing of mutual funds, an “r” after the mutual fund name and before the NAV means that the particular mutual fund has a ____ associated with it. back-end load
ETFs are set up to protect investors from capital gains taxes better than most mutual funds can. True
Which of the following are characteristic of exchange-traded mutual funds? Traded on listed exchanges
The net asset value (NAV) per share is found by dividing the market value of the fund’s securities less the fund’s liabilities by the number of shares outstanding true
A fund that invests only in a particular industry would be a ____ fund. Sector
A mutual fund prospectus is required to fully disclose all fund fees and expenses. true
Most mutual funds allow investors to participate in automatic reinvestment plans.automatic investment plans.
Growth funds are mutual funds designed for short-term investing. False
A(n) ____ actually runs the portfolio and makes the buy and sell decisions. management company
Socially responsible funds typically avoid investing in alcohol and tobacco stocks.
Advantages of exchange-traded funds over mutual funds include all of the following except better diversification
Mutual fund conversion privileges can often be exercised online. true
Balanced funds invest in a mix of utility and growth equities. False
Both load and no-load funds will always charge a management fee
Closed-end mutual funds can trade at either a discount or a premium from their net asset value. True
Index funds have provided competitive rates of return because -their costs are lower than other stock funds.-it is difficult to outperform the market.-they have very low turnover rates.-they are tax efficient
Equity-income funds emphasize capital appreciation in their investment goals. False
A mutual fund’s NAV is calculated atleast once a day
The approximate yield on a mutual fund depends only on the fund’s dividend income and capital gains distributions False
The major benefit to small investors of mutual funds is diversification. True
Spiders and Diamonds are examples of ETFs. True
Exchange-traded funds have characteristics of both closed-end and open-end funds. True
Real estate depreciation is considered a tax shelter. true
All no-load funds charge an upfront fee to purchase shares of a mutual fund. False
The current market value of all the securities a mutual fund owns is called the net asset value
Which of the following is not a source of mutual fund returns? changes in IDB
The share price of a closed-end fund is determined by -its NAV.-general supply-and-demand conditions.
____ would not be a reason for purchasing mutual funds. tax advantage
The major reason that investors use mutual funds is their contractual plans, which force regular investing. False
Load fees charged on mutual funds help insure that the fund is well managed and that the investor’s yields will be greater than those on no-load funds. False
A mutual fund’s NAV is its net asset value
In The Wall Street Journal’s listing of mutual funds, a “p” after the mutual fund name and before the NAV means that the particular mutual fund has a ____ associated with it. 12b-1 fee
Open-ended mutual funds can be traded on an intraday basis. FALSE
Low-load funds do not charge a commission upon initial purchase. False
Another name for a mutual fund is an open-end investment company.
Speculating in raw land is a low-risk investment approach False
The fund whose main objective is to simply match the market known as a(n) ____ fund. index
A mutual fund’s price per share will increase if its underlying holdings increase in value. True
There are more closed-end investment companies than there are open-end companies. False
Sector funds concentrate their holdings in specific targeted markets. True
Future fund performance is the real key to investment success with mutual funds. One important element to examine when attempting to predict a fund’s future performance is the future course of the market.
The ____ is a service offered by mutual funds that helps investors earn compound interest on their investments. automatic reinvestment plan
The price an investor can sell his shares of an open-end mutual fund is the net asset value. True
To be a true no-load fund, there can be a maximum ____ load and a maximum ____ 12(b)-1 fee. 0%; 0.25%
The price per share of a closed-end investment fund could be lower than its NAV. True
The expected cash flows of a real estate investment are determined by rent, depreciation, and taxes. True
Redeeming your mutual fund shares might result in a charge called a back-end load
An investment option that allows fund shareholders to funnel fixed amounts of money from their paychecks or bank accounts automatically into a mutual fund is a(n) automatic investment plan.
A mutual fund always provides active professional investment management. False
A behavioral bias in mutual fund investing where investors view recent performance as overly indicative of a fund’s future performance is known as representativeness.
Money funds are high in both liquidity and risk. False
Closed-end investment companies are characterized by availability for sale or purchase on security markets.
A(n) ____ fund invests primarily in a portfolio of common stocks for the income they provide. equity-income
Asset allocation funds invest money in -stocks-bonds-real estate
A real estate investment trust that invests only in mortgages is called an equity trust. False
Investors select and purchase securities held within mutual funds. False
The individual manager of a mutual fund has little to do with a fund’s success. False
If a mutual fund provides for automatic reinvestment, the reinvested dividends will not be taxed until the shares are redeemed. False
Closed-end mutual funds companies buy their shares back from investors at NAV. false
The most important advantage of a mutual fund is pooled diversification. true
Index funds, while trying to match market performance, consistently underperform market benchmarks. False
Global mutual funds can invest both in domestic and international stocks. True
For most investors, the best way to deal in foreign securities is through an international mutual fund. True
A fund’s prospectus would provide information about a fund’s fee structure. True
All mutual funds have management fees. True
An example of a commercial property is a(n) office building.shopping mall.warehouse.hotel
Closed-ended mutual funds are guaranteed, they cannot lose value. False
Value funds typically invest in stocks that do not pay dividends and have a high price/earnings ratio False
It is almost impossible to lose money in a mutual fund as the result of fraud or the mutual fund company’s bankruptcy. True
An investor with a small amount of money should stick to using load funds instead of no-load funds. False
The size of a mutual fund’s management fee is related to the fund’s performance. False
Growth-and-income funds invest most of their capital in common stocks. True
First-time real estate investors should consider investing in commercial properties. False
Asset allocation funds concentrate on one type of investment. False
Mutual funds do not offer guaranteed performance
Mutual funds may be classified by the types of securities they purchase. True
When evaluating a real estate investment, the main consideration is changes in the property value. False
The primary investment objective of bond funds is income. True
A 12b-1 fee can only be charged by a load mutual fund. False
A mutual fund cannot charge more than 6.5 percent in total sales charges and fees. False
Conversion privileges allow investors to exchange one fund’s shares for that of another, as long as the funds are in the same fund family. True
ETFs often distribute large capital gains to their shareholders. False
Open-ended mutual funds companies buy their shares back from investors at NAV. True
Advantages of exchange traded funds over mutual funds include a broader market focus. False