Investing Fundamentals Complete Test Bank Chapter 13 - Personal Finance 13e Answer Key + Test Bank by Jack Kapoor. DOCX document preview.
Personal Finance, 13e (Kapoor)
Chapter 13 Investing Fundamentals
1) The first step to creating an investment plan is to establish investment goals.
Difficulty: 1 Easy
Topic: Investment goals
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
2) Potential investors should not wait until their financial affairs are in good shape before starting an investment program.
Difficulty: 2 Medium
Topic: Investment plans
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
3) An emergency fund is an amount of money that can be obtained quickly in case of immediate need.
Difficulty: 1 Easy
Topic: Financial crisis and emergencies
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
4) A line of credit is a short-term loan that is approved before the money is actually needed.
Difficulty: 1 Easy
Topic: Sources of consumer credit
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
5) A ceiling on a credit card is determined by the borrower and is the dollar amount that they want to borrow using the cash advance provision on their credit card.
Difficulty: 2 Medium
Topic: Sources of consumer credit
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
6) The rate of return on an investment has no effect on an investment program.
Difficulty: 2 Medium
Topic: Dollar and percentage yields and returns
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
7) There is no relationship between risk and safety.
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
8) The potential return on any investment should be directly related to the risk that the investor assumes.
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
9) During periods of high inflation, there is a risk that the financial return on an investment will not keep pace with the rate of inflation.
Difficulty: 1 Easy
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
10) With most investments, more information is available than you can read and comprehend.
Difficulty: 2 Medium
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
11) The U.S. government is the world's largest provider of investment information.
Difficulty: 1 Easy
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
12) Common stock that an investor expects will increase in value is known as a growth stock.
Difficulty: 1 Easy
Topic: Investment choices and considerations
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
13) Liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment's value.
Difficulty: 1 Easy
Topic: Liquidity
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
14) Asset allocation is the process of spreading your assets among several different types of investments to lessen risk.
Difficulty: 1 Easy
Topic: Asset allocation and diversification
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
15) The amount of time that your investments have to work for you is an important factor when establishing your long-term investment program.
Difficulty: 1 Easy
Topic: Investment plans
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
16) Younger investors tend to invest a large percentage of their nest egg in growth-oriented investments.
Difficulty: 1 Easy
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
17) The most important priority an investor in preferred stock enjoys is receiving cash dividends before common stockholders are paid any cash dividends.
Difficulty: 2 Medium
Topic: Preferred stock
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
18) A speculative investment is a high-risk investment that is made in the hope of earning a relatively large profit over a long period of time.
Difficulty: 1 Easy
Topic: Investment goals
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
19) Generally, options are conservative, long-term investments.
Difficulty: 2 Medium
Topic: Derivatives
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
20) Once you have developed an asset allocation plan for your investments, you never need to adjust it.
Difficulty: 2 Medium
Topic: Asset allocation and diversification
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
21) Once you have developed an investment program, there is no need for continued evaluation of it.
Difficulty: 2 Medium
Topic: Investment plans
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
22) Accurate record keeping can help you spot opportunities to maximize profits or reduce dollar losses when you sell your investments.
Difficulty: 1 Easy
Topic: Investment strategies and techniques
Learning Objective: 13-04 Recognize the importance of your role in a personal investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
23) Although useful for many things, the internet cannot be used to monitor the current price of stock, bond, and mutual fund investments.
Difficulty: 2 Medium
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
24) Brokerage firms, investment companies, banks, and most corporations have a home page where you can obtain valuable investment information.
Difficulty: 1 Easy
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
25) Few investors find many of the investor services to be too expensive for personal subscriptions.
Difficulty: 2 Medium
Topic: Stock information and advice
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
26) A corporation must give each potential investor an annual report.
Difficulty: 2 Medium
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
27) A prospectus discloses information about corporate earnings, assets and liabilities, products or services, and the qualifications of top management.
Difficulty: 1 Easy
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
28) Both fiscal policy and monetary policy are used on a regular basis to stabilize the economy and encourage economic growth.
Difficulty: 2 Medium
Topic: Financial planning process
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
29) Which of the following is a true statement regarding investment goals?
A) To be useful, investment goals must be written.
B) To be useful, investment goals must be very general.
C) Investment goals are the same for each individual.
D) Because investment goals deal with the future, it is useless to plan more than five years in the future.
E) A long-term investment goal involves a time period of five years or less.
Difficulty: 2 Medium
Topic: Investment goals
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
30) A short-term investment goal is one that will be accomplished within a period of:
A) one year or less.
B) two to five years.
C) more than five years.
D) three years or less.
E) two years or less.
Difficulty: 2 Medium
Topic: Investment goals
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
31) An intermediate-term investment goal is defined as one that will be accomplished within a period of:
A) five to ten years.
B) two to eight years.
C) more than five years.
D) one to five years.
E) less than one year.
Difficulty: 2 Medium
Topic: Investment goals
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
32) All of the following statements are considered to be good advice for a potential investor starting an investment program except:
A) Work to balance your budget.
B) Increase credit purchases to conserve cash.
C) Establish specific and measurable investment goals.
D) Start an emergency fund.
E) Perform a financial checkup.
Difficulty: 2 Medium
Topic: Investment plans
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
33) A good rule of thumb is to limit consumer credit payments to no more than ________ percent of your net (after tax) income.
A) 20
B) 30
C) 40
D) 50
E) 60
Difficulty: 2 Medium
Topic: Credit capacity and ratio analysis
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
34) An emergency fund should be deposited in a:
A) savings account or other near-cash investments.
B) six-month certificate of deposit.
C) checking account.
D) safe place at home.
E) safe deposit box in a bank vault.
Difficulty: 1 Easy
Topic: Investment plans
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
35) Eric Patterson earns $80,000 a year. His monthly expenses total $4,500. What is the minimum amount of money that he should set aside in an emergency fund?
A) $2,150
B) $4,500
C) $9,000
D) $13,500
E) $40,000
Explanation: $4,500 × 3 months = $13,500
Difficulty: 2 Medium
Topic: Financial crisis and emergencies
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Apply
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
36) Jack Carson earns $40,000 a year. His monthly expenses total $2,500. What is the minimum amount of money that he should set aside in an emergency fund?
A) $2,500
B) $5,000
C) $7,500
D) $10,000
E) $20,000
Explanation: $2,500 × 3 months = $7,500
Difficulty: 2 Medium
Topic: Financial crisis and emergencies
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Apply
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
37) Which of the following features does not accurately describe a line of credit?
A) A loan approved before the money is actually needed
B) Funds available immediately when needed once the loan is preapproved
C) Obtainable from a credit union, savings and loan association, or bank
D) It has a ceiling
E) Long-term loan
Difficulty: 2 Medium
Topic: Sources of consumer credit
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
38) All except which one of the following are good ways to acquire money for starting an investment program?
A) Pay bills first, and then save a reasonable amount of money for investment
B) Participate in an elective savings program
C) Make a special savings effort one month per year
D) Borrow money specifically for investment purposes
E) Take advantage of an employer-sponsored retirement program
Difficulty: 2 Medium
Topic: Investment plans
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
39) Allen Arnold earns $2,500 per month. He pays his mortgage, utilities, grocery and other bills and then he makes sure to set aside $100 for his savings and investment accounts before he spends money to go to movies and other personal expenses. Which suggestion for obtaining the money he needs for investing is he following?
A) Paying himself first
B) Taking advantage of employer-sponsored retirement programs
C) Participating in an elective savings program
D) Making a special effort once or twice a year to save
E) Taking advantage of gifts, inheritance and other windfalls
Difficulty: 2 Medium
Topic: Investment plans
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
40) Alice Cooper contributes six percent of her monthly earnings to her 401k plan at work. The plan allows her to invest in several different types of mutual funds and her employer matches up to 3% of her salary. Which suggestion for obtaining the money she needs for investing is she following?
A) Paying herself first
B) Taking advantage of employer-sponsored retirement programs
C) Participating in an elective savings program
D) Making a special effort once or twice a year to save
E) Taking advantage of gifts, inheritance and other windfalls
Difficulty: 2 Medium
Topic: Investment plans
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
41) James Gray has a mutual fund that automatically takes $50 out of his paycheck each month. Which suggestion for obtaining the money he needs for investing is he following?
A) Taking advantage of gifts, inheritance and other windfalls
B) Taking advantage of employer-sponsored retirement programs
C) Participating in an elective savings program
D) Making a special effort once or twice a year to save
E) Using financial leverage to increase investment returns
Difficulty: 2 Medium
Topic: Investment plans
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
42) After Christmas is over, Ted Riley works hard to control his expenses in February so that he can make an extra payment into a mutual fund. Which suggestion for obtaining the money he needs for investing is he following?
A) Paying himself first
B) Taking advantage of employer-sponsored retirement programs
C) Participating in an elective savings program
D) Making a special effort once or twice a year to save
E) Taking advantage of gifts, inheritance and other windfalls
Difficulty: 2 Medium
Topic: Investment plans
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
43) Sam Waters just received $12,000 from his grandmother's estate. He has thought about buying himself a new Harley with the money but has decided instead to add the money to his mutual fund account. What is he doing to obtain the money for investing?
A) Paying himself first
B) Taking advantage of employer-sponsored retirement programs
C) Participating in an elective savings program
D) Making a special effort once or twice a year to save
E) Sacrificing some purchases to provide financing for investments
Difficulty: 2 Medium
Topic: Investment plans
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
44) Forty years ago, you began investing $2,000 a year. Because your investments earned an average of 2 percent a year, your investment portfolio has a current dollar value of $120,804. How much did you earn on your investments over the 40-year period of time?
A) $2,000
B) $40,000
C) $40,804
D) $80,000
E) $120,804
Explanation: $2,000 × 40 years = $80,000; $120,804 − $80,000 = $40,804
Difficulty: 2 Medium
Topic: Dollar and percentage yields and returns
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Apply
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
45) Twenty years ago, you began investing $200 a month. Because your investments earned an average of 8 percent a year, your investment portfolio has a current dollar value of $128,000. How much did you earn on your investments over the 20-year period of time?
A) $48,000
B) $60,000
C) $80,000
D) $100,000
E) $128,000
Explanation: ($200 × 12 months) × 20 years = $48,000; $128,000 − $48,000 = $80,000
Difficulty: 3 Hard
Topic: Dollar and percentage yields and returns
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Apply
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
46) Gina Davidson has received $35,000 in a divorce settlement and is trying to decide how to invest it. She has looked at stocks but is uncertain as some stocks have lost a lot of value for their owners recently. What aspect of investing is she most concerned about?
A) Risk
B) Inflation
C) Diversification
D) Liquidity
E) Investment growth
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
47) Which one of the following individuals should be receptive to speculative investments with higher risks?
A) Joan Cummings, who is a single mother with two small children
B) Darren Carter, who works for American Airlines and is worried that he is going to be laid off soon
C) Barry Parks, who is an investment banker with financial training
D) Michael Clark, who is 74 years old and has been retired for 6 years
E) Fred Funderbunk, who is a pizza delivery person and makes about $15,000 per year
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Analyze
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
48) Brenda Lee has received a $12,000 gift from her mother and is trying to decide how to invest it. She thinks she would like to invest it in stocks, because she knows that stocks have been appreciating by about 10% over the last several years. What aspect of investing interests Brenda?
A) Risk
B) Return
C) Diversification
D) Liquidity
E) Income
Difficulty: 2 Medium
Topic: Dollar and percentage yields and returns
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
49) Which one of the following is a true statement regarding the components of the risk factor?
A) When choosing an investment, it is not necessary to consider the risk factor.
B) During inflationary times, there is no risk that the financial return on an investment will not keep pace with the rate of inflation.
C) The interest rate risk associated with corporate bonds is the result of changes in the interest rates in the economy.
D) The risk of business failure deals with changes in the value of stocks and bonds due to changes in interest rates in the market.
E) The prices of stocks, bonds, and other investments never fluctuate in the market.
Difficulty: 3 Hard
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
50) If interest rates in the overall economy decrease to 4 percent, which one of the following is most likely to be the approximate market value of a $1,000 corporate bond with a fixed interest rate of 6 percent?
A) $1,000
B) $1,500
C) $2,000
D) $4,000
E) $6,000
Explanation: $1,000 × 6% = $60; $60/0.04 = $1,500
Difficulty: 3 Hard
Topic: Bond valuation
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Apply
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
51) If interest rates in the overall economy increase to 8 percent, which one of the following is most likely to be the approximate market value of a $1,000 corporate bond with a fixed interest rate of 4 percent?
A) $0
B) $400
C) $500
D) $1,000
E) $1,700
Explanation: $1,000 × 4% = $40; $40/0.08 = $500
Difficulty: 3 Hard
Topic: Bond valuation
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Apply
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
52) After the death of her husband, Gina Baker, 35, received a check for $250,000 from a life insurance company. Gina has two small children and wants to make sure that both she and the children are taken care of in the future. Based on this information, which of the investment factors listed below would be the most important to Gina in her investment program?
A) Beta
B) Safety
C) Business failure
D) Market risk
E) Liquidity
Difficulty: 3 Hard
Topic: Investment goals
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
53) If interest rates in the overall economy decrease, what will happen to the market value of a corporate bond with a fixed interest rate?
A) The bond will lose all its value.
B) The value of the bond will increase.
C) The value of the bond will decrease.
D) The value of the bond will not change.
E) It is impossible to determine if the bond's value will increase, decrease, or remain constant.
Difficulty: 3 Hard
Topic: Bond valuation
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
54) An example of ________ risk occurs when the financial return on an investment does not keep up with prices that are increasing in the overall economy.
A) market
B) interest
C) inflation
D) business failure
E) current
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
55) A $1,000 corporate bond pays 5 percent a year. What is the annual interest you will receive?
A) $0.50
B) $5.00
C) $50.00
D) $500.00
E) $1,000.00
Explanation: $1,000 × 0.05 = $50.00
Difficulty: 1 Easy
Topic: Bond coupons and yields
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Apply
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
56) Unsuccessful products or bad corporate management may result in investors experiencing ________ risk.
A) inflation
B) interest rate
C) business failure
D) systematic
E) income
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
57) When a bond decreases in value because interest rates in the economy increase, it is an example of ________ risk.
A) market
B) interest rate
C) inflation
D) business failure
E) current
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
58) Lester McCann wants to invest but is worried about risk. In particular, he is worried that the money he invests today will not buy as much ten years from now. What type of risk concerns Lester?
A) Inflation risk
B) Interest rate risk
C) Business failure
D) Market risk
E) Global investment
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
59) Allison Peavy wants to invest but is worried about risk. In particular, she is worried that bad management and increased competition in the wireless phone market will make these companies less profitable than expected. What type of risk is Allison most concerned with?
A) Inflation
B) Interest rate
C) Business failure
D) Systematic
E) None of these
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
60) Which one of the following statements is true regarding global investments?
A) Global investments must be evaluated just like domestic investments.
B) Global investments can only be bought in the U.S.
C) Today, very few investors are investing in stocks and bonds issued by foreign firms or in global mutual funds.
D) For most small investors, it is safer to invest in foreign firms, rather than in global mutual funds.
E) Investing in global investments does not diversify your portfolio.
Difficulty: 3 Hard
Topic: Investment choices and considerations
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
61) John Hernandez is 24 years old and has saved enough money to fund an adequate emergency fund. In addition, he has saved $5,600 that can be used to fund an investment program. He is single, has no dependents, and would like to retire when he is 60 years old. Which one of the investment factors listed below would be most important for an investor like Mr. Hernandez?
A) Beta
B) Investment income
C) Investment growth
D) Risk
E) Investment liquidity
Difficulty: 3 Hard
Topic: Investment strategies and techniques
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
62) Fluctuations in the prices of stocks, bonds, or other investments due to political activity may cause investors to experience ________ risk.
A) inflation
B) interest rate
C) business failure
D) market
E) income
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
63) An investor concerned with a predictable source of income provided by an investment would choose:
A) U.S. government securities.
B) commodities.
C) options.
D) common stocks.
E) speculative investments.
Difficulty: 2 Medium
Topic: Investment choices and considerations
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
64) Which one of the following investments offers the least amount of growth potential?
A) Real estate
B) Common stock
C) Mutual funds
D) Options
E) Preferred stock
Difficulty: 3 Hard
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
65) Which one of the following investments offers the greatest opportunity for growth?
A) Bank accounts
B) Common stock
C) Corporate bonds
D) Government bonds
E) Options
Difficulty: 2 Medium
Topic: Investment choices and considerations
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
66) Matt Jackson is single and 28 years old. He has just graduated from college with a master's degree and obtained a job making $27,500 a year. Which one of the following investments would you recommend for his long-term investment program?
A) Corporate bonds
B) Government bonds
C) Growth stocks
D) Certificates of deposits
E) Savings account
Difficulty: 2 Medium
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
67) The ability of an investment to be converted to cash without a substantial loss in dollar value is called:
A) asset value.
B) liquidity.
C) growth potential.
D) fixed cost factor.
E) variable cost factor.
Difficulty: 1 Easy
Topic: Liquidity
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
68) Which one of the following investments offers the greatest liquidity?
A) Checking account
B) Common stock
C) Corporate bond
D) Real estate
E) Collectibles
Difficulty: 2 Medium
Topic: Liquidity
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
69) Which one of the following investments offers the least liquidity?
A) Checking account
B) Near-cash investment
C) Real estate
D) Savings account
E) Certificate of deposit
Difficulty: 2 Medium
Topic: Liquidity
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
70) Bill Teague has just gotten a gift of $15,000 from his parents and is trying to decide how to invest it. He is thinking about investing in a money market mutual fund, because he knows he can withdraw the money whenever he needs it with little chance of a loss in value. What aspect of investing is Bill most concerned about?
A) Risk
B) Return
C) Diversification
D) Liquidity
E) Investment growth
Difficulty: 2 Medium
Topic: Liquidity
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
71) Carl Reimer has just received an inheritance of $25,000 from his mother and is trying to decide how to invest it. Carl is young and earns a good salary. Carl wants to invest in a small cap mutual fund. While he won't receive much in the way of cash dividends, the companies are reinvesting significant amounts so the sales revenue and earnings in the future will be much larger. What aspect of investing is Carl most concerned about?
A) Market risk
B) Rate of return
C) Diversification
D) Liquidity
E) Investment growth
Difficulty: 2 Medium
Topic: Investment goals
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Analyze
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
72) Based on historical performance, which one of the following investments is most likely to provide an average return of 10 percent a year between now and the year 2025?
A) U.S. Treasury bills
B) Corporate bonds
C) Stocks
D) Options
E) Zero-coupon bonds
Difficulty: 2 Medium
Topic: Dollar and percentage yields and returns
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
73) Terry Hamilton has just received $22,000 from an uncle who died and is trying to decide how to invest it. She has done some research and has decided that about 30% of the money should go into large cap stocks, 20% into medium cap stocks, 15% into small cap stocks, 10% into bonds, 10% into foreign stock, and 15% into cash. She thinks that even if one area does not do that well, the rest will so that her overall return will be pretty good. What aspect of investing is Terry most concerned about?
A) Income
B) Return
C) Diversification
D) Liquidity
E) Investment growth
Difficulty: 2 Medium
Topic: Asset allocation and diversification
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Analyze
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
74) What is the primary goal of asset allocation?
A) Investment income
B) Growth
C) Liquidity
D) Return
E) Risk reduction
Difficulty: 2 Medium
Topic: Asset allocation and diversification
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
75) Which one of the following statements is true?
A) Investors should put all of their "eggs in one basket."
B) Individuals can ignore their tolerance for risk when selecting specific investments.
C) Diversification is one way to increase your risk.
D) The amount of time a specific investment has to work is an important factor when managing an investment.
E) Younger investors tend to invest a large percentage of their portfolio in conservative investments.
Difficulty: 3 Hard
Topic: Asset allocation and diversification
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
76) Which one of the following investments would rank the highest with regard to safety?
A) U.S. Government bond
B) Common stock
C) Preferred stock
D) Corporate bond
E) Real estate
Difficulty: 2 Medium
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
77) Equity capital is money:
A) obtained from the owners of a business.
B) borrowed through banks.
C) obtained by employee benefit programs.
D) that has to be repaid.
E) that has been allocated to a retirement program.
Difficulty: 1 Easy
Topic: Equity securities
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
78) If you seek financial security, which investments are appropriate for you?
A) Speculative stocks, options, and commodities
B) Growth stocks and rental property
C) U.S. securities and conservative mutual funds
D) CDs and U.S. government bonds
E) All of these are appropriate for financial security.
Difficulty: 3 Hard
Topic: Investment goals
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
79) Garrett Jennings is thinking about buying an investment that represents safety and income within the investment pyramid. Which investment is Garrett thinking about purchasing?
A) Speculative stocks, options, and commodities
B) Growth stocks and rental property
C) U.S. securities and conservative mutual funds
D) CDs and U.S. government bonds
E) All of these are appropriate for safety and income.
Difficulty: 2 Medium
Topic: Investment goals
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Analyze
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
80) Mike Lively is thinking about buying an investment that represents an ownership claim on a company. The most important priority he has with this investment is receiving his dividends before dividends are paid on other types of investments. What investment is Mike thinking about purchasing?
A) Common stock
B) Preferred stock
C) Corporate bond
D) Option
E) Mutual fund
Difficulty: 2 Medium
Topic: Investment goals; Preferred stock
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Analyze
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
81) Audrey is thinking about an investment that involves buying a written pledge by a corporation to repay a specified amount of money. It also pays interest every 6 months until it matures. What investment is Audrey thinking about purchasing?
A) Common stock
B) Preferred stock
C) Corporate bond
D) Real estate
E) Mutual fund
Difficulty: 2 Medium
Topic: Investment goals; Bond features
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Analyze
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
82) A corporation selling stock is obligated to:
A) guarantee the shareholders' investment.
B) repay money obtained from the sale of that stock.
C) repurchase shares of stock at a later date.
D) pay dividends to the common shareholders.
E) pay dividends to preferred stockholders before common stockholders.
Difficulty: 2 Medium
Topic: Stock classifications and characteristics
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
83) Which of the following is a true statement regarding stock investments?
A) A corporation generally obtains equity capital from bondholders.
B) A corporation must issue preferred stock before issuing common stock.
C) When a corporation is experiencing financial problems, an investor should purchase common rather than preferred stock.
D) Corporations are required to pay dividends every year.
E) There are no guarantees that a stock's value will go up after you purchase it.
Difficulty: 3 Hard
Topic: Stock classifications and characteristics
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
84) The money obtained by a company from selling corporate bonds:
A) is obtained from investors.
B) is obtained from the owners of the business.
C) is obtained from employee stock option programs.
D) does not have to be repaid.
E) must be allocated to retirement programs.
Difficulty: 2 Medium
Topic: Bond features
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
85) If a $1,000 bond pays 4.6% interest each year, how much would each semiannual interest payment be?
A) $5
B) $10
C) $20
D) $23
E) $46
Explanation: $1,000 × 0.046 = $46; $46/2 = $23
Difficulty: 2 Medium
Topic: Bond coupons and yields
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
86) The maturity dates for most bonds range between ________ years.
A) 0 to 5
B) 5 to 20
C) 10 to 20
D) 1 to 30
E) 15 to 40
Difficulty: 2 Medium
Topic: Bond features
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
87) Which one of these investments pools the money from many investors, hires a professional money manager to manage those funds, and offers diversification to investors?
A) NOW account
B) Securities exchange
C) Certificate of deposit
D) Mutual fund
E) Stock option
Difficulty: 1 Easy
Topic: Fund characteristics and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
88) Which one of the following is a true statement regarding mutual funds?
A) Professional management is an especially important factor for investors purchasing a mutual fund.
B) The only reason investors purchase mutual funds is the high growth expected.
C) While mutual funds may experience loss, your original investment is guaranteed.
D) Mutual funds are all designed to appeal only to conservative investors.
E) The responsibility for choosing the right mutual fund is based on the professional manager's evaluation.
Difficulty: 3 Hard
Topic: Fund characteristics and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
89) Hugh Jackson is thinking about buying an investment. The investment option that he is thinking about buying is an investment where investors pool their money. One of the key features is that it is managed by professional managers. What investment is Hugh thinking about purchasing?
A) Common stock
B) Preferred stock
C) Corporate bond
D) Real estate
E) Mutual fund
Difficulty: 2 Medium
Topic: Fund characteristics and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Analyze
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
90) Chris O'Donnell is thinking about investing in an investment that is high-risk in the hope of earning a relatively large profit in a short amount of time. Which investment is he most likely considering?
A) U.S. government bond
B) Certificate of deposit
C) Low-growth stock
D) Speculative stock
E) Low-risk bond
Difficulty: 2 Medium
Topic: Stock classifications and characteristics
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Analyze
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
91) Bob McDowell is thinking about buying an investment. The most important consideration when making this investment is the location of the investment. What investment is Bob thinking about purchasing?
A) Common stock
B) Preferred stock
C) Corporate bond
D) Real estate
E) Mutual fund
Difficulty: 1 Easy
Topic: Real estate investment considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Analyze
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
92) Which one of the following is false regarding mutual fund investments?
A) Mutual funds invest in a variety of securities.
B) Diversification provided by a mutual fund reduces risk.
C) The goals of one mutual fund investor may differ from those of another.
D) Since mutual fund managers are professionals, there is no need for the investor to evaluate a mutual fund.
E) Mutual fund investments range from very conservative to extremely speculative investments.
Difficulty: 3 Hard
Topic: Fund characteristics and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
93) Which one of the following is a true statement regarding real estate investments?
A) It is not possible for real estate values to decrease.
B) Location is the least important factor when making a real estate investment.
C) The growth rate of real estate makes it a long-term investment.
D) There is no reason to evaluate a real estate investment because real estate always increases in value sooner or later.
E) The growth rate of real estate makes it a "get-rich-quick" scheme.
Difficulty: 2 Medium
Topic: Real estate investment considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
94) Which one of the following would not be considered a safe investment for a conservative investor?
A) Cash
B) Certificates of deposit
C) Savings accounts
D) U.S. Government bonds
E) Collectibles
Difficulty: 2 Medium
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
95) Which one of the following investments would provide the most predictable source of income?
A) Global mutual funds
B) Real estate
C) Collectibles
D) Common stock
E) U.S. Government securities
Difficulty: 2 Medium
Topic: Investment choices and considerations
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
96) For an investor who wants to be conservative, which of the following investments would not be appropriate?
A) U.S. government bonds
B) Coins and stamps
C) U.S. securities
D) CDs
E) Conservative mutual funds
Difficulty: 2 Medium
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
97) Which of the following statements is true regarding the steps for effective investment planning?
A) When establishing an investment program, you should begin by monitoring your investments.
B) When you are choosing an investment, you should examine only the interest rate risk factor associated with each investment.
C) When establishing an investment program, you should examine the potential return for all investments.
D) Leave the financial planning to the professionals.
E) There is no need to monitor your investments after you have made your investment decision.
Difficulty: 2 Medium
Topic: Investment plans
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
98) Which newspaper is one of the most readily available sources of information for the average investor?
A) The Wall Street Journal
B) Government publications
C) Corporate reports
D) www.google.com
E) www.yahoo.com
Difficulty: 1 Easy
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
99) Which one of the following is not a business periodical?
A) Barron's
B) Bloomberg Businessweek
C) New York Stock Exchange Report
D) Forbes
E) Fortune
Difficulty: 1 Easy
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
100) Which one of the following is false regarding sources of investment information?
A) You can obtain recommendations to buy or sell stocks and other securities by accessing internet sites.
B) Personal subscriptions to investor services are relatively inexpensive.
C) You can obtain current price information for stocks, bonds, and mutual funds by using the internet.
D) You can trade securities online.
E) Federal, state, and local governments have a home page where you can obtain investment information.
Difficulty: 3 Hard
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
101) Mergent and Value Line are companies that would be examples of:
A) stockbrokers.
B) securities exchanges.
C) stock regulations.
D) investor services.
E) stock underwriters.
Difficulty: 1 Easy
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
102) Which of the following does not offer investor services?
A) Value Line Stock Reports
B) www.yahoo.com
C) Morningstar Investment Reports
D) Mergent
E) All of these offer investor services
Difficulty: 2 Medium
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
103) Which one of the following is not a recommended step individuals can use to withstand an economic downturn?
A) Establish a smaller than usual emergency fund
B) Consider converting investments to cash to preserve value
C) Notify lenders and credit card companies if you are unable to make payments
D) Reduce spending
E) Monitor the value of your investment and retirement accounts
Difficulty: 2 Medium
Topic: Financial crisis and emergencies
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
104) To avoid the financial problems associated with excessive credit card debt, you should:
A) Pay your credit card balance in full each month
B) Use your credit card to pay for small purchases
C) Take advantage of the cash advance feature
D) Use a large number of credit cards
E) Avoid getting help if you think you are in trouble
Difficulty: 2 Medium
Topic: Debt management
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
105) Which type of risk affects only a specific company or a specific industry?
A) Interest rate
B) Systematic
C) Unsystematic
D) Economic
E) Inflation
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
106) Which one of these is not an example of systematic risk?
A) War
B) Inflation
C) Political activity
D) Decline in the auto industry
E) Increasing interest rates
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
107) Stocks provide average safety while government bonds provide ________ safety.
A) low
B) medium
C) high
D) average
E) below average
Difficulty: 1 Easy
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
108) The average credit card debt for a graduating college student is over:
A) $500.
B) $3,000.
C) $4,000.
D) $5,000.
E) $10,000.
Difficulty: 2 Medium
Topic: Debt management
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
109) In the beginning of 2018, the average balance on credit cards for U.S. families was about how much?
A) $6,354
B) $7,500
C) $10,000
D) $15,400
E) $18,000
Difficulty: 2 Medium
Topic: Debt management
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
110) In how many of the years since 1926 have stocks lost money?
A) 0
B) 10
C) 25
D) 40
E) 55
Difficulty: 3 Hard
Topic: Dollar and percentage yields and returns; Stock valuation
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
111) It is suggested that you allocate a percentage of your assets to growth investments based on the:
A) difference between your age and 100.
B) difference between your age and 75.
C) difference between your age and 70.
D) difference between your age and 65.
E) difference between your age and 62.
Difficulty: 2 Medium
Topic: Asset allocation and diversification
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
112) Because of the age factor, older investors tend to be more conservative and invest in:
A) speculative stocks.
B) commodities.
C) collectibles.
D) very safe corporate stocks.
E) options.
Difficulty: 2 Medium
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
113) Which of the following types of investment information can be found on the internet?
A) Interest rates for certificates of deposit
B) Current price information for stocks, bonds, and mutual funds
C) Broker's buy and sell recommendations
D) Financial calculators
E) All of these
Difficulty: 1 Easy
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
114) Establishing a(n) ________ ensures that you will have an amount of money that can be obtained quickly in case of immediate need.
A) traditional IRA
B) emergency fund
C) Roth IRA
D) 403b
E) 401k
Difficulty: 1 Easy
Topic: Financial crisis and emergencies
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
115) The maximum dollar amount that can be borrowed using the cash advance provision on a credit card is called the:
A) ceiling.
B) finance charge.
C) interest rate.
D) emergency fund.
E) rate of return.
Difficulty: 2 Medium
Topic: Debit, credit, and other cards
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
116) Which of the following is not true of stocks?
A) Since the end of World War II, stocks have returned almost 10 percent a year.
B) Since 1926, stocks had positive gains in 66 years.
C) Since 1926, stocks lost money in 25 years.
D) In February 2018, the Dow Jones experienced its worst one-day decline in history.
E) In reality, stocks do not have a place in every investment portfolio.
Difficulty: 3 Hard
Topic: Dollar and percentage yields and returns; Stock valuation
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
117) An investment program can be seen as a pyramid consisting of ________ levels.
A) 1
B) 2
C) 3
D) 4
E) 5
Difficulty: 2 Medium
Topic: Investment goals
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
118) Bondholders normally receive interest payments every ________ months.
A) 3
B) 6
C) 9
D) 12
E) 24
Difficulty: 2 Medium
Topic: Bond coupons and yields
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
119) Which of the following is not true of mutual funds?
A) Mutual funds range from very conservative to extremely speculative investments.
B) They do not offer diversification.
C) They can be used for retirement accounts.
D) This investment provides professional management.
E) A mutual fund pools the money from many investors.
Difficulty: 2 Medium
Topic: Fund characteristics and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
120) Typical asset classes used for diversification include all of the following except:
A) Bonds
B) Foreign stocks
C) Credit cards
D) Small cap stocks
E) Midcap stocks
Difficulty: 2 Medium
Topic: Asset allocation and diversification
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
121) The advantages of asset allocation include all of the following except:
A) It lessens risk for the investment program.
B) It helps avoid the pitfall of putting all your eggs in one basket.
C) It uses different asset classes to provide a measure of safety.
D) It helps offset a loss in one investment with gains in other investments.
E) It is extremely difficult to find the right mix of asset classes.
Difficulty: 2 Medium
Topic: Asset allocation and diversification
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
122) If you need to withdraw your investment money in two years, you should probably invest in:
A) stocks.
B) mutual funds.
C) certificates of deposits.
D) long-term government bonds.
E) long-term corporate bonds.
Difficulty: 2 Medium
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
123) According to many financial planners, what percentage of your assets should be invested in safer, more conservative investments if you are 25 years of age?
A) 15%
B) 25%
C) 60%
D) 75%
E) 100%
Explanation: 100 − 25 = 75% for growth investments; 25% for conservative investments.
Difficulty: 1 Easy
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Apply
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
124) For a corporation, equity capital is provided by:
A) stockholders.
B) lenders.
C) bondholders.
D) financial managers.
E) government agencies.
Difficulty: 2 Medium
Topic: Stock information and advice
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
125) Many financial planners recommend that you choose a mutual fund with an expense ratio of:
A) 1 percent or less
B) 2 percent or less
C) 3 percent or less
D) 4 percent or less
E) 5 percent or less
Difficulty: 2 Medium
Topic: Fund characteristics and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Remember
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Gradable: automatic
126) If you do not pay for products or services purchased on credit, then all of the following can occur, except:
A) Merchandise can be repossessed.
B) You can develop a good relationship with creditors.
C) A business can sue to recover the cost of the product or service.
D) Your credit score can be lowered to reflect late or missed payments.
E) The cost of additional credit may be higher.
Difficulty: 2 Medium
Topic: Investment plans
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
127) Which of the following is defined as the increase and decrease in a nation's economic activity?
A) Business cycle
B) Recession
C) Monetary policy
D) Fiscal policy
E) Economics
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
128) If you invest $2,000 in a stock and the stock pays you $35 in dividends each year and is worth $2,150 at the end of one year, then what is your rate of return?
A) 9.25%
B) 8.25%
C) 7.25%
D) 6.25%
E) 5.25%
Explanation: [($2,150 − $2,000) + $35] / $2,000 = 0.0925 = 9.25%
Difficulty: 3 Hard
Topic: Dollar and percentage yields and returns
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Apply
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Gradable: automatic
129) If you can leave your investments alone and let them work for 5 to 10 years or more, then you can invest in:
A) short-term government bonds
B) stocks and mutual funds
C) highly rated corporate bonds
D) certificates of deposit
E) cash
Difficulty: 2 Medium
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: automatic
130) The investment pyramid describes four levels of investment. State the name of each level and provide examples of investments at each level.
Level 2: Safety and Income: Examples include U.S. securities, selected corporate and municipal bonds, income stocks, and conservative mutual funds.
Level 3: Growth: Examples include growth stocks, growth-oriented mutual funds, and rental property.
Level 4: Speculation: Examples include speculative stocks, options, commodities, and other high-risk investments.
Difficulty: 3 Hard
Topic: Investment goals
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: manual
131) Karen Johnson paid $1,000 for a corporate bond issued by an oil and gas corporation. The annual interest rate for the bond is 6 percent.
a. What is the annual interest amount for this bond?
b. Since the annual interest for this bond is paid every six months or semiannually, how much will Karen receive for her bond each six months?
c. If comparable, new bonds pay 8 percent interest, what is the approximate market value for Karen's oil and gas bond?
b. $60/2 = $30 interest payment for each six months
c. $60/0.08 = $750 market value
Difficulty: 3 Hard
Topic: Bond coupons and yields
Learning Objective: 13-02 Assess how safety, risk, income, growth, and liquidity affect your investment decisions.
Bloom's: Apply
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Gradable: manual
132) Choose three of the six traditional investments and describe how the factors of safety, risk, income, and growth are ranked for evaluating each of these investments.
Common stock: average safety, average risk, average income, high growth
Preferred stock: average safety, average risk, high income, average growth
Corporate bonds: average safety, average risk, high income, low growth
Government bonds: high safety, low risk, low income, low growth
Mutual funds: average safety, average risk, average income, average growth
Real estate: average safety, average risk, average income, average growth
Difficulty: 3 Hard
Topic: Investment choices and considerations
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: manual
133) Bob and Mary Martin are both 32 years old. Although they graduated from college almost 10 years ago, they have never developed a diversified investment program. What extra money they had was invested in high-tech stocks that did quite well until the last five years. Then, with the economic downturn, they encountered major losses. How could asset allocation have reduced the dollar amounts of the Martins' losses?
Asset allocation is the process of spreading your assets among several different types of investments to lessen risk. Instead of investing all of their money in high-tech stocks, the Martins could have taken a more diversified approach with some of their money invested in more conservative stocks. Depending on their risk tolerance, they could have also chosen to invest some of their money in corporate or government bonds. Many financial planners suggest that you subtract your age from 100, and the difference (100−32 = 68% in this case) is the percentage of your assets that should be invested in growth-oriented investments. The remainder of their assets (100−68 = 32% in this case) should be invested in safer, more conservative investments.
Difficulty: 3 Hard
Topic: Asset allocation and diversification
Learning Objective: 13-03 Explain how asset allocation and different investment alternatives affect your investment plan.
Bloom's: Analyze
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Gradable: manual
134) List the sources of investment information that investors can use to evaluate a potential investment.
Difficulty: 2 Medium
Topic: Investment information
Learning Objective: 13-05 Use various sources of financial information to reduce risks and increase investment returns.
Bloom's: Remember
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Gradable: manual
135) To manage an economic crisis, many experts recommend that you manage your personal finances and your investment program with what six steps?
1. Establish a larger than usual emergency fund. Under normal circumstances, an emergency fund of three to six months' living expenses is considered adequate, but you may want to increase your fund in anticipation of a crisis.
2. Know what you owe. Make a list of all your debts and the amount of the required monthly payments, and then identify the debts that must be paid. Typically these include the mortgage or rent, medicine, utilities, food, and transportation.
3. Reduce spending. Cut back to the basics and reduce the amount of money spent on entertainment, dining at restaurants, and vacations.
4. Notify credit card companies and lenders if you are unable to make payments. Although not all lenders are willing to help, many will work with you and lower your interest rate, reduce your monthly payment, or extend the time for repayment.
5. Monitor the value of your investment and retirement accounts. Tracking the value of your stock, mutual fund, and other investments, for example, will help you decide which investments to sell if you need cash for emergencies.
6. Consider converting investments to cash to preserve value. According to personal finance experts, most investors accumulate more money when they use a buy-and-hold approach over a long period of time. Still, there may be times when you could sell some of your investments and place the cash in a savings account to weather an economic crisis. For this strategy to work, you must be able to sell when the economy is beginning a downturn and then repurchase quality investments before the economy begins to rebound.
Difficulty: 2 Medium
Topic: Financial crisis and emergencies
Learning Objective: 13-01 Describe why you should establish an investment program.
Bloom's: Remember
Accessibility: Keyboard Navigation; Screen Reader Compatible
Gradable: manual