Personal Finance Exam 5

Which of the following is not a true statement? A) To be useful, investment goals must be specific and measurable. B) The decision to start an investment plan is one you must make for yourself. C) The sooner you start an investment program, the more time your investments have to work for you.D) Because investment goals deal with the future, it is ineffective to make long-term goals. E) A short-term investment goal involves a period of 12 months. D) Because investment goals deal with the future, it is ineffective to make long-term goals.
Which of the following steps is NOT a factor to be considered before making your first investment? A) Have access to other sources of cash for emergency needs. B) Manage your credit card debt. C) Start an emergency fund.D) Save at least $10,000 to invest. E) Work to balance your budget. D) Save at least $10,000 to invest.
A ________ is an employer-sponsored retirement account, and participating in one is one of the easiest ways to begin an investment program. A) 301(a) account B) 509(re) account C) TRA accountD) 401(k) account E) 321(a) account D) 401(k) account
When choosing an investment, you should consider risk. The four primary risk components are A) Stock, interest rate, market, buying power. B) Business failure, inflation, buying power, stock. C) Buying power, inflation, interest rate, market.D) Inflation, interest rate, business failure, market. E) Market, bond, stock, inflation. D) Inflation, interest rate, business failure, market.
Which of the following risks reduces your purchasing power? A) Interest rate risk B) Business failure risk C) Market riskD) Inflation risk E) Stock risk D) Inflation risk
Which of the following risks deals with fluctuations in the economy from a period of rapid expansion followed by a period of recession?A) Market risk B) Interest rate risk C) Stock risk D) Business failure risk E) Inflation risk A) Market risk
Inflation risk deals with A) Bad management and/or unsuccessful products.B) A reduction in purchasing power. C) Political or social conditions. D) Predictable sources of income. E) Changes in interest rates. B) A reduction in purchasing power.
Business failure risk can be due to A) Political or social conditions.B) Bad management and/or unsuccessful products. C) A reduction in purchasing power. D) Changes in interest rates. E) Predictable sources of income. B) Bad management and/or unsuccessful products.
Market risk is associated with fluctuations in the market due to A) Changes in interest rates.B) Economic conditions such as rapid expansion and recession. C) Bad management and/or unsuccessful products. D) Predictable sources of income. E) A reduction in purchasing power. B) Economic conditions such as rapid expansion and recession.
Business failure riskA) Causes the business to be less profitable than originally anticipated. B) Causes the business to increase its dividends. C) Is associated with government bonds. D) In the worst case, leads to improved earnings. E) Cannot be diversified. A) Causes the business to be less profitable than originally anticipated.
Timothy Calibe purchased common stock in XYZWidgets.com. To be a successful investor, he shouldA) Continue to evaluate his investment in XYZWidgets.com after the purchase. B) Buy bonds in XYZWidgets.com. C) Buy preferred stock in XYZWidgets.com. D) Buy more common stock in XYZWidgets.com. E) Any of these would reduce his business failure risk. A) Continue to evaluate his investment in XYZWidgets.com after the purchase.
Which of the following investments is the most liquid? A) Corporate bond B) Preferred stockC) Interest-bearing checking account D) Municipal bond E) Certificate of deposit C) Interest-bearing checking account
The process of spreading your assets among several different types of investments to lessen risk is calledA) Asset allocation. B) Asset returns. C) Asset investments. D) Asset riskiness. E) Asset combination. A) Asset allocation.
A fancy way of saying you need to diversify your investments isA) Don’t put all of your eggs in one basket. B) Don’t judge a book by its cover. C) A bird in the hand is worth two in the bush. D) Birds of a feather flock together. E) A stitch in time saves nine. A) Don’t put all of your eggs in one basket.
Which of the following investments typically has the largest potential growth? A) Cash equivalentsB) Stocks C) Cash D) Certificates of deposit E) Government bonds B) Stocks
Which of the following investments typically has the most risk? A) Cash B) Cash equivalentsC) Stocks D) Government bonds E) Certificates of deposit C) Stocks
Which of the following has returned an average of almost 10% per year since 1926?A) Stocks B) Certificates of deposit C) Conservative portfolio D) Bonds E) Savings account A) Stocks
Some financial experts, such as Suze Orman, suggest that investors include a percentage of growth investments as part of their investment plan. This percentage can be calculated by subtracting your age from A) 200. B) 95. C) 120. D) 50.E) 100. E) 100.
Which of the following is not a U.S. Treasury security?A) Treasury stock B) Treasury note C) Treasury bond D) Treasury bill E) Treasury Inflation-Protected Securities (TIPS) A) Treasury stock
A discounted security means that the actual purchase price is A) The value at maturity. B) The face value. C) Greater than the face value. D) The expected interest rate.E) Less than the maturity value. E) Less than the maturity value.
A U.S. government security issued in minimum units of $100 with 4, 13, 26, or 52-week maturities is called a A) Subordinated bond. B) Treasury note. C) Treasury bond. D) Savings bond.E) Treasury bill. E) Treasury bill.
A U.S. government security issued in $100 units with maturities of more than 1 year but not more than 10 years is called a A) Subordinated bond. B) Treasury bond. C) Savings bond.D) Treasury note. E) Treasury bill. D) Treasury note.
A U.S. government security issued in minimum units of $100 with a 30-year maturity is called a A) Savings bond. B) Subordinated bond. C) Treasury note. D) Treasury bill.E) Treasury bond. E) Treasury bond.
A security issued by the U.S. government where the principal increases with inflation and decreases with deflation is called a A) Treasury bond. B) SAFE.C) TIPS. D) Treasury bill. E) Treasury note. C) TIPS.
A bond backed by the full faith, credit, and unlimited taxing power of the government that issued it is called a ________ bond. A) revenueB) general obligation C) mortgage D) debenture E) secured B) general obligation
A bond that is repaid from the income generated by the project it is designed to finance is called a(n)A) Revenue bond. B) Agency bond. C) Treasury bill. D) General obligation bond. E) Savings bond. A) Revenue bond.
A debt security issued by a state or local government is known as a A) Subordinated bond. B) Federal agency bond. C) Corporate bond. D) Treasury bond.E) Municipal bond. E) Municipal bond.
Generally, interest on corporate bonds is normally paid everyA) Six months. B) Year. C) Month. D) Three months. E) Nine months. A) Six months.
A bond that is backed only by the reputation of the issuing corporation is called a(n) ________ bond. A) preemptiveB) debenture C) indenture D) treasury E) mortgage B) debenture
A corporate bond that is secured by various assets of the issuing firm is called a(n) ________ bond. A) debenture B) preemptiveC) mortgage D) indenture E) treasury C) mortgage
A bond that can be exchanged, at the owner’s option, for a specified number of shares of the corporation’s stock is called a(n) ________ bond. A) mortgage B) subordinatedC) convertible D) debenture E) indenture C) convertible
A fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue is called a(n) ________ fund. A) serial B) debenture C) indenture D) moneyE) sinking E) sinking
Bonds of a single issue that mature on different dates are called ________ bonds. A) debenture B) subordinateC) serial D) sinking fund E) mortgage C) serial
Which of the following is incorrect? A) Some investors do not know where to get the information they need to evaluate potential investments. B) Beginning investors sometimes worry that they won’t know what the information they find about stocks really means.C) Very little information is available about stocks. D) There is no substitute for researching a potential investment. E) All of these statements are correct. C) Very little information is available about stocks.
Since World War II, the average annual return for stocks has been almost A) 14%. B) 16%.C) 10%. D) 8%. E) 12%. C) 10%.
Amanda wants to be part of the most basic form of ownership for a corporation. She should invest in A) Dividends. B) A savings account.C) Common stock. D) A proxy. E) Bonds. C) Common stock.
Equity financing is money received from the sale of A) Bonds.B) Common stock. C) A savings account. D) A proxy. E) Dividends. B) Common stock.
A distribution of money, stock, or other property that is paid to the stockholders of a company is called aA) Dividend. B) Bond. C) Proxy. D) Savings account. E) Common stock. A) Dividend.
A legal form that requests that stockholders transfer their voting rights to individual(s) is called a A) Bond. B) Dividend. C) Savings account.D) Proxy. E) Common stock. D) Proxy.
All of the following statements are correct exceptA) Dividend payments must be approved by the stockholders. B) Dividends are paid out of profits. C) Utility companies typically distribute a higher percentage of earnings than rapidly growing firms. D) A dividend can be a distribution of money, stock, or other property. E) Dividends are not mandatory. A) Dividend payments must be approved by the stockholders.
Why does a company split its stock? A) The stock is trading at a low price, and the company wants to increase its stock value. B) The company wants to guarantee that the stock price will increase. C) It wants fewer shares outstanding. D) It wants the total market capitalization to be lower than the current level.E) The stock is trading at a high price, and the company wants to bring the price in line with a theoretical ideal range. E) The stock is trading at a high price, and the company wants to bring the price in line with a theoretical ideal range.
Which of the following statements about stock splits is correct? A) If a company has a 3-for-1 split, the price will increase by a factor of 3. B) 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.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 2-for-1 split, the price will be doubled. 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.
Megan decided to start investing in stocks. Which of the following should she do first? A) Pick stocks at random. B) Buy stocks based solely on her stockbroker’s recommendation.C) Research the corporations she is interested in as well as their industries. D) Choose stocks based on recommendations from her family members. E) Base her investing decisions on hot tips she hears at work. C) Research the corporations she is interested in as well as their industries.
Which of the following statements is correct? A) Websites like Yahoo! Finance are not dependable. B) Individual company websites usually charge for access to their own financial reports. C) The Internet is not to be trusted as a reliable source to evaluate potential investments.D) The Internet provides websites that may be more up to date and thorough than printed materials. E) None of these is correct. D) The Internet provides websites that may be more up to date and thorough than printed materials.
A stock issued by a stable corporation that generally attracts conservative investors is called a(n) ________ stock. A) midcap B) income C) micro cap D) pennyE) blue chip E) blue chip
An investment that pays higher-than-average dividends is called a(n) ________ stock. A) midcapB) income C) penny D) micro cap E) blue chip B) income
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) midcapB) penny C) micro cap D) blue chip E) income B) penny
A stock issued by a corporation that has a capitalization between $2 billion and $10 billion is called a(n) ________ stock.A) midcap B) income C) penny D) micro cap E) blue chip A) midcap
A stock issued by a company that has a capitalization between $50 and $300 million or less is called a(n) ________ stock.A) micro cap B) blue chip C) midcap D) income E) penny A) micro cap
Cliff retired 10 years ago and wants to still own a few stocks. Dividends are important to him, and he wants to invest in a large, stable corporation. He should purchase ________ stocks. A) cyclical B) midcap C) micro cap D) pennyE) blue chip E) blue chip
Which of the following is some of the information found on a financial website such as Yahoo! Finance? A) Market capitalization (Market Cap). B) 52-week price range, number of shares traded (volume). C) Company name, last price (previous day’s close), target price, price change (day’s range). D) Dividend paid and yield.E) All of this information is included. E) All of this information is included.
Annual reports A) Include the same information as a prospectus. B) Include estimated financial data only. C) Are available only online from a corporation’s Internet website. D) Are available only to current stockholders.E) May be sent to all stockholders on an annual basis. E) May be sent to all stockholders on an annual basis.
Which of the following is correct? A) Ability to generate earnings is a minor factor in determining the value of a stock. B) Corporate earnings are reported in the proxy statement. C) EPS is a key factor that serious investors use to evaluate stock investments. D) Earnings per share uses the price of the stock in the calculation.E) The price/earnings ratio is the price of a share of stock divided by the corporation’s earnings per share of stock. E) The price/earnings ratio is the price of a share of stock divided by the corporation’s earnings per share of stock.
If you want to compare two companies, you should use A) Net income. B) Price per share.C) Price-earnings ratio. D) Book value per share. E) Dividend yield. C) Price-earnings ratio.
This ratio uses the market price per share of the stock and the earning per share. A) Earnings per share B) Capital gain C) Book value per shareD) Price-earnings ratio E) Net income D) Price-earnings ratio
Which of the following changes would NOT cause analysts to change earnings estimates for a health care corporation? A) The economy in general B) Industry C) Company’s salesD) Weather E) Company’s profits D) Weather
This calculation uses the current price per share and the annual amount of money paid to investors from the company. A) Earnings per share B) Price-earnings ratio C) Book valueD) Dividend yield E) Market value D) Dividend yield
The formula “(Assets − Liabilities)/Number of Shares outstanding” equalsA) Book value. B) Dividend yield. C) Price-earnings ratio. D) Market value. E) Earnings per share. A) Book value.
This calculation includes the yearly dividends in dollars plus the increase in the original purchase price of the investment.A) Total return B) Market value C) Book value D) Capital gain E) Price-earnings ratio A) Total return
Total return equals A) Capital gains. B) Yearly dividends in dollars less capital gains.C) Yearly dividends in dollars plus capital gains. D) Capital gains less yearly dividends in dollars. E) Dividend yield. C) Yearly dividends in dollars plus capital gains.
Dividend yield equals A) Annual dividend amount/Earnings per share.B) Annual dividend amount/Current price per share. C) Quarterly dividend amount/Book value per share. D) Annual dividend amount/Book value per share. E) Quarterly dividend amount/Price per share. B) Annual dividend amount/Current price per share.
Book value equalsA) (Assets − Liabilities)/Number of shares outstanding. B) (Assets + Liabilities)/Number of shares outstanding. C) (Liabilities − Assets)/Number of shares outstanding. D) (Assets + Liabilities)/Earnings per share. E) (Liabilities + Assets/Price-earnings ratio. A) (Assets − Liabilities)/Number of shares outstanding.
A marketplace where member brokers who represent investors meet to buy and sell securities is called a(n) A) Intermediary market. B) Primary market. C) Initial public offering.D) Securities exchange. E) Investment bank. D) Securities exchange.
NYSE stands for A) New York Securities Exchange. B) New Year Selling Exchange.C) New York Stock Exchange. D) Never Yet So Even. E) New York School of Engineering. C) New York Stock Exchange.
A licensed individual who works for a brokerage firm and buys or sells securities for his or her clients is called a(n) A) Market maker. B) Account investor. C) Online executive.D) Account executive. E) All of these are correct. D) Account executive.
Excessive buying and selling of securities to generate commissions is called A) Flipping.B) Churning. C) Scamming. D) Prospecting. E) Marketing. B) Churning.
Which of the following are major reasons that investors purchase mutual funds? A) Professional management. B) Diversification. C) Loads of up to 8.5%.D) Diversification and professional management. E) All of these options are correct. D) Diversification and professional management.
What percentage of all mutual funds are exchange-traded funds? A) 85%B) 13% C) 36% D) 93% E) 6% B) 13%
Which type of fund has the prices determined by factors of supply and demand like the prices of a stock? A) Open-end fund B) SEC government fundC) Closed-end fund D) No-load fund E) Net asset value fund C) Closed-end fund
Which of the following is a fund that invests in the stocks or securities contained in a specific stock or securities index?A) Exchange-traded fund B) Closed-end fund C) Net asset value fund D) No-load fund E) Open-end fund A) Exchange-traded fund
Whose shares are issued and redeemed by the investment company at the request of investors? A) Net asset value fund B) Closed-end fund C) No-load fund D) Exchange-traded fundE) Open-end fund E) Open-end fund
How is an ETF similar to a closed-end fund? A) 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. B) An investor can purchase as little as one share of a fund. C) Shares can be traded in the over-the-counter market. D) Shares can be traded on a securities exchange.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 actively managed by professional fund managers. B) It is not traded on a securities exchange.C) The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations. D) Investors are free to buy and sell shares at the net asset value. E) Its load cannot exceed 2%. C) The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations.
Many mutual funds charge a commission every time shares are purchased by investors. These are called A) Closed-end funds. B) Net asset value funds.C) Load funds. D) Open-end funds. E) Exchange-traded funds. C) Load funds.
Many exceptions exist, but the average load charge for mutual funds is A) 0%.B) 3-5%. C) 8.5%. D) 2%. E) 11.5-14.5%. B) 3-5%.
The average upfront sales charge for the purchase of a no-load mutual fund is A) 3-5%. B) 2%. C) 8.5%.D) 0%. E) 11.5-14.5%. D) 0%.
A no-load mutual fund A) Is available only via the Internet. B) Charges commission when you buy shares. C) May allow investors to pay a sales charge. D) Uses salespeople to sell the funds.E) Can charge a 12b-1 fee of up to 0.25% of its assets. E) Can charge a 12b-1 fee of up to 0.25% of its assets.
A contingent deferred sales load is known as a A) Back-end load. B) Redemption fee. C) B fund. D) None of these are correct.E) Back-end load, B fund and redemption fee are all correct. E) Back-end load, B fund and redemption fee are all correct.
Which class of shares charges a commission when withdrawals are made over the first five years? A) AB) B C) C D) K E) Q B) B
Which of the following types of stock funds invests in stock issued by companies with a long history of paying dividends? A) Regional funds B) International fundsC) Equity income funds D) Index funds E) Growth funds C) Equity income funds
Which of the following types of stock funds invests in stock issued by companies expecting higher-than-average revenue and earnings growth? A) Equity income fundsB) Growth funds C) Regional funds D) International funds E) Index funds B) Growth funds
Which of the following types of stock funds invests in the same companies included in the Standard & Poor’s 500 stock index?A) Index funds B) International funds C) Equity income funds D) Growth funds E) Regional funds A) Index funds
Which of the following types of stock funds invests in stock issued by companies throughout the world outside the United States? A) Growth funds B) Regional funds C) Equity income fundsD) International funds E) Index 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 funds B) International funds C) Index fundsD) Regional funds E) Growth funds D) Regional funds
Sally wants to invest in a fund that invests only in stock. Which of the following will meet her needs?A) Midcap funds B) Balance funds C) Junk bond funds D) Asset allocation funds E) Short-term corporate bond funds A) 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 funds B) Aggressive growth funds C) Midcap funds D) Short-term corporate bond funds E) Junk 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) Short-term corporate bond funds B) Midcap funds C) Cyclical fundsD) Balanced funds E) Junk bond funds D) Balanced funds
An example of a lifecycle fund is a fund that A) Initially invests in conservative securities, then changes to invest in more risk-oriented securities as time goes by.B) Assists investors with planning for retirement by a specific date. C) Invests in shares of other mutual funds in order to increase diversification and asset allocation. D) Has principal protection as its main objective. E) None of these is an example of a lifecycle fund. B) Assists investors with planning for retirement by a specific date.
If you start a new job and are offered the opportunity to participate in the company’s 401(k) or 403(b) retirement plan, which of the following decisions can affect your financial future? A) Participating in the retirement account as a way to reduce income taxes. B) Basing your actual choice of investments on your age, how long before you retire, and your tolerance for risk. C) Choosing mutual funds from a number of different fund options for your retirement account. D) Participating in the retirement account to take advantage of the employer’s matching contributions.E) All of these decisions can affect your financial future. E) All of these decisions can affect your financial future.
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 status of the economy. C) The life of the companies in the fund.D) The length of time that the present fund manager has been managing the fund. E) None of these. D) The length of time that the present fund manager has been managing the fund.
Which of the following is not correct? A) Over many years, the majority of managed mutual funds have failed to outperform the Standard & Poor’s 500 stock index.B) A managed fund will outperform an index fund only 60% of the time. C) A benchmark of a good fund manager is the ability to increase share value when the economy is good and retain that value when the economy is bad. D) When evaluating a mutual fund, an important consideration is how long the present fund manager been managing the fund. E) Managed funds may be open-end funds or closed-end funds. B) A managed fund will outperform an index fund only 60% of the time.
Professional advisory services provide research on mutual funds in a report that includes all of the following areas except A) A historical profile. B) Performance, risk, and portfolio analysis. C) Statistical information. D) Summary of the analyst’s research.E) All of these are included by professional advisory services. E) All of these are included by professional advisory services.
Sally wants to invest in a mutual fund. The mutual fund must provide a(n) ________ to her as a potential investor. A) quarterly report B) analysis from a financial publication C) summary reportD) prospectus E) past performance report D) prospectus
Which of the following provides up-to-date information that can help investors made decisions quickly without having to make a trip to the library? A) Financial publications B) Mutual fund annual report C) Newspapers D) Professional advisory servicesE) Internet E) Internet
Which of the following have reduced or eliminated mutual fund coverage? A) Internet resources B) Mutual fund annual report C) Financial publications D) Professional advisory servicesE) Newspapers E) Newspapers
Which of the following contains a letter from the president of the investment company, detailed financial information, a schedule of investments, and a letter from the fund’s independent auditors?A) Mutual fund annual report B) Internet C) Professional advisory services D) Financial publications E) Newspapers A) Mutual fund annual report
How do mutual funds provide returns to their shareholders? A) Capital gains. B) Income dividends. C) Capital gain distributions.D) All of these. E) None of these. D) All of these.
If you hold mutual fund shares in your Roth individual retirement account, the taxes on reinvested income will beA) Eliminated. B) Deferred. C) Payable immediately. D) Evaluated. E) None of these. A) Eliminated.
All of the following are valid ways to purchase open-end mutual funds except A) A voluntary savings plan. B) A regular account transaction. C) A reinvestment plan. D) A contractual savings plan.E) All of the ways listed are valid purchase options. E) All of the ways listed are valid purchase options.

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