Test Bank Answers Investments Chapter 8 - Personal Finance Journey 1e Test Bank by John E. Grable. DOCX document preview.
Introduction to Personal Finance, 1e (Grable)
Chapter 8 Investments
1) Which of the following refers to ownership in a company?
A) Stock.
B) Individual retirement account (IRA).
C) Certificate of deposit.
D) Bond.
Diff: 1
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
2) Which of the following refers to stock that is owned by a relatively small number of people or family members?
A) Public stock.
B) Privately held stock.
C) Stock market.
D) Shareholder.
Diff: 1
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
3) Which of the following refers to the firm that helps other companies raise money?
A) Underwriter.
B) Privately held stock.
C) Stock market.
D) Shareholder.
Diff: 2
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
4) Which of the following refers to the first time privately held stock is made available to the public?
A) Subsequent public offering.
B) Primary market.
C) Secondary market.
D) Initial public offering (IPO).
Diff: 2
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
5) Which of the following refers to the highest price a buyer will pay to purchase a specified number of stocks at a specific time?
A) Bid price.
B) Stock price.
C) Ask price.
D) Sales price.
Diff: 2
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
6) Which of the following refers to the lowest price a seller will sell a share of stock?
A) Bid price.
B) Stock price.
C) Ask price.
D) Sales price.
Diff: 2
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
7) Which of the following refers to the difference between the bid price and the ask price?
A) Middle.
B) Stock price.
C) Spread.
D) Sales price.
Diff: 1
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
8) Which of the following refers to organized markets where buyers and sellers conduct stock transactions?
A) Public offerings.
B) Secondary markets.
C) Stock exchanges.
D) Supermarkets.
Diff: 1
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
9) Which of the following refers to the gross sales minus expenses?
A) Rate of return.
B) Net profit.
C) Price difference.
D) Income.
Diff: 2
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
10) Which of the following refers to the difference between what a person bought and sold a stock for?
A) Bid price.
B) Capital gain or loss.
C) Ask price.
D) Spread.
Diff: 2
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
11) How often are dividends typically paid?
A) Every month.
B) Every 3 months.
C) Twice a year.
D) Annually.
Diff: 3
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
12) Which of the following refers to stocks that focus on stock price appreciation?
A) Growth stock.
B) Income stock.
C) Both growth and income stocks.
D) Private stock.
Diff: 2
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
13) Which of the following refers to stocks that pay out a large portion of earnings in dividends?
A) Growth stock.
B) Income stock.
C) Both growth and income stocks.
D) Private stock.
Diff: 2
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
14) Which of the following refers to stocks that focus on a combination of stock price appreciation and dividends?
A) Growth stock, only.
B) Income stock, only.
C) Both growth and income stocks.
D) Private stock.
Diff: 2
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
15) Which of the following allows you to purchase shares in firms with little or no transaction cost?
A) Dollar cost averaging.
B) Dividend reinvestment plan.
C) A 401(k) plan.
D) Direct stock purchase plan.
Diff: 3
LO: 8.1, Section 8.1
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
16) Which of the following refers to an account with an investment company into which you deposit money and then use it to buy stock?
A) Full-service broker.
B) Brokerage account.
C) Discount broker.
D) Stock exchange.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
17) Which of the following is an entity that provides advice before you buy and sell stocks?
A) Full-service broker.
B) Brokerage account.
C) Discount broker.
D) Stock exchange.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
18) Which of the following could be used by investors who do not need or want advice?
A) Full-service broker.
B) Brokerage account.
C) Discount broker.
D) Stock exchange.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
19) Which of the following refers to where all publicly traded stocks are bought and sold?
A) Full-service broker.
B) Brokerage account.
C) Discount broker.
D) Stock exchange.
Diff: 1
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
20) Which of the following is a major stock exchange in the United States?
A) The NASDAQ.
B) The Dow Jones.
C) The S&P 500.
D) The Russell 2000.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
21) Which of the following is a way to become better informed yourself?
A) Opening an online brokerage account.
B) Conducting your own research using Internet sources.
C) Buying and selling stocks and other investments online to create your own portfolio of investments.
D) All of these answer choices are correct.
Diff: 1
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
22) Which of the following is the value of a stock relative to its earnings?
A) Stock price.
B) P/E ratio.
C) A dividend.
D) The discount dividend valuation model.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
23) Which of the following firms are full-service brokers?
A) Merrill Lynch.
B) Edward Jones.
C) UBS.
D) All of these answer choices are correct.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
24) Which of the following firms are discount brokers?
A) Scottrade.
B) TD Ameritrade.
C) Fidelity.
D) All of these answer choices are correct.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
25) The commission is ________ for online brokerage firms compared with full-service brokers.
A) higher
B) lower
C) the same
D) There is no commission.
Diff: 1
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
26) How much do online brokerage firms charge per trade?
A) $1−$15.
B) $16−$30.
C) $31−$40.
D) $41−$50.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
27) Which of the following is a way to estimate a company's growth rate?
A) Reviewing its history of dividend payments.
B) Using either 2% or 3% per year.
C) Mathematically projecting performance.
D) All of these answer choices are correct.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
28) Stocks typically trade in what P/E range?
A) Between 10 and 20.
B) Between 10 and 30.
C) Between 20 and 30.
D) Between 20 and 40.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
29) Value-oriented investors prefer to purchase stocks in ________ P/E ratios.
A) lower
B) higher
C) medium
D) All of these answer choices are correct.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
30) Why would investors intentionally choose stocks with high P/E ratios?
A) They expect these stocks' earnings to grow quickly.
B) These stocks typically have lower prices.
C) These stocks are traded on lower commissions.
D) They expect these stocks to be less risky.
Diff: 3
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
31) Which of the following is an advantage of bonds?
A) Low-risk fixed income.
B) Tax incentive for companies that issue them.
C) Portfolio diversification.
D) All of these answer choices are correct.
Diff: 1
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
32) Which of the following refers to spreading your investments across different types of assets as a way to manage financial risk?
A) Diversification.
B) Portfolio maximization.
C) Commission.
D) Asset allocation.
Diff: 1
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
33) Which of the following represents contractual loans to corporations and governments?
A) Stocks.
B) Bonds.
C) CDs.
D) Value stocks.
Diff: 1
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
34) Which of the following refers to an approach where you assign different percentages to investments in one portfolio?
A) Bonds.
B) Portfolio maximization.
C) Portfolio diversification.
D) Asset allocation.
Diff: 2
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
35) Historically, the returns of the three major asset categories–stocks, bonds, and cash–have
A) moved up and down at the same rate.
B) not moved up and down at the same rate.
C) been inconsistent.
D) decreased at the same time.
Diff: 2
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
36) Considering your time horizon, the longer you have, the ________ risk you can take.
A) less
B) more
C) Time horizon doesn't affect risk.
Diff: 1
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
37) Which of the following refers to the length of the loan contract?
A) Coupon rate.
B) Coupon payment.
C) Maturity date.
D) Face value.
Diff: 1
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
38) How does spreading your investment money across more than one asset category reduce risk?
A) It reduces uncertainty, only.
B) It reduces volatility, only.
C) It reduces uncertainty and volatility.
D) It doesn't reduce risk.
Diff: 1
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
39) Which of the following is a typical asset allocation strategy?
A) 85% stocks, 10% bonds, and 5% highly liquid assets.
B) 10% stocks, 10% bonds, and 80% highly liquid assets.
C) 100% stocks.
D) 25% stocks, 60% bonds, and 15% highly liquid assets.
Diff: 3
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
40) Bonds are considered
A) ownership in the company.
B) debt owed to a company.
C) a share of the company.
D) risky investments.
Diff: 1
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
41) Which of the following refers to the amount of money that the bond insurer will pay to the bondholder on the maturity date?
A) Coupon rate.
B) Coupon payment.
C) Face value.
D) Bond rate.
Diff: 2
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
42) Which of the following refers to the contractual interest rate that the bond issuer has agreed to pay the bondholder?
A) Coupon rate.
B) Coupon payment.
C) Face value.
D) Bond rate.
Diff: 2
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
43) Which of the following refers to the amount of interest that the bond issuer will pay the bondholder?
A) Coupon rate.
B) Coupon payment.
C) Face value.
D) Bond rate.
Diff: 2
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
44) Calculate the annual coupon payment. Coupon rate is 5%, and the face value is $1,000.
A) $40.
B) $50.
C) $75.
D) $100.
Diff: 2
LO: 8.3, Section 8.3
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
45) Which of the following is a rating agency that analyzes corporations and governments regarding their ability to repay their debts?
A) Standard & Poor's, only.
B) Moody's, only.
C) Both Standard & Poor's and Moody's.
D) Dow Jones Industrial Average.
Diff: 3
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
46) Which of the following is an investment that pools individual investors' money?
A) Mutual fund.
B) Stock.
C) Bond.
D) CD.
Diff: 1
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
47) Which of the following consists of individual stocks, bonds, and other assets that collectively represent the total investment assets of an individual or entity?
A) Mutual fund.
B) Allocation.
C) Diversification.
D) Investment portfolio.
Diff: 2
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
48) Which of the following refers to the process of purchasing a variety of different securities?
A) Mutual fund.
B) Allocation.
C) Diversification.
D) Investment portfolio.
Diff: 1
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
49) What type of risk does diversification eliminate?
A) Systematic risk.
B) Unsystematic risk.
C) Market risk.
D) It doesn't eliminate any risk.
Diff: 2
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
50) Which of the following refers to the combination of systematic and unsystematic risk?
A) Economic risk.
B) Business risk.
C) Total risk.
D) Market risk.
Diff: 2
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
51) Which of the following refers to a management strategy category used by mutual fund managers?
A) Active management, only.
B) Passive management, only.
C) Both active management and passive management.
D) Diversification.
Diff: 2
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
52) Which of the following refers to when an investor is looking for underpriced stocks or bargains?
A) Value-oriented.
B) Growth-oriented.
C) Large market cap.
D) Small market cap.
Diff: 1
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
53) Which of the following refers to when an investor is looking for stocks whose share price is quickly increasing?
A) Value-oriented.
B) Growth-oriented.
C) Large market cap.
D) Small market cap.
Diff: 1
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
54) Which of the following seeks to mirror the returns in the stock market rather than beat them?
A) Value-oriented.
B) A passive fund manager.
C) Large market cap.
D) Small market cap.
Diff: 2
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
55) Which of the following refers to an unmanaged grouping of stocks that has been identified as representative of some aspect of the economy or stock or bond market?
A) Value-oriented.
B) Growth-oriented.
C) Market index.
D) Small market cap.
Diff: 2
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
56) How many mutual funds are in the United States?
A) Less than 1,000.
B) Between 1,000 and 2,500.
C) Between 2,500 and 5,000.
D) More than 5,000.
Diff: 2
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
57) Which of the following refers to a one-time commission paid to an investment salesperson either when the mutual fund is purchased or sold?
A) Sales load.
B) No-load.
C) 12b-1 fee.
D) Expense ratio.
Diff: 3
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
58) Which of the following, by definition, does not charge an upfront fee that saves the investor's money?
A) A fund with a sales load.
B) A no-load fund.
C) A fund with a 12b-1 fee.
D) A fund with an expense ratio.
Diff: 2
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
59) Which of the following refers to an annual fund marketing expense that is passed on to the shareholders in the mutual fund?
A) Sales load.
B) No-load.
C) 12b-1 fee.
D) Expense ratio.
Diff: 3
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
60) Which of the following refers to a measure of the total management fees and expenses charged to the mutual fund on an annual basis?
A) Sales load.
B) No-load.
C) 12b-1 fee.
D) Expense ratio.
Diff: 2
LO: 8.4, Section 8.4
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
61) Limitations of mutual funds include which of the following?
A) When you can buy and sell shares of the fund.
B) How you can buy and sell shares of the fund.
C) Few actively managed mutual funds beat the performance of the markets over time.
D) All of these answer choices are correct.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
62) Which of the following refers to a team of professionals who manage mutual funds?
A) Portfolio managers.
B) Robo traders.
C) Exchange traders.
D) All of these answer choices are correct.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
63) Which of the following is a cost associated with hiring professionals to manage your mutual fund?
A) Commissions on the purchase.
B) Commissions on the sale.
C) Additional fees paid as compensation for managing the fund's assets.
D) All of these answer choices are correct.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
64) How often can a mutual fund be bought or sold?
A) Once per day.
B) At any time during normal trading hours.
C) Once per week.
D) Once per month.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
65) How often can exchange-traded fund (ETF) shares be bought and sold?
A) Once per day.
B) At any time during normal trading hours.
C) Twice per day.
D) Once per week.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
66) How much is the average mutual fund expense ratio annually?
A) Less than 0.5%.
B) Between 0.5% and 1.0%.
C) Between 1.0% and 2.0%.
D) More than 2.0%.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
67) How much is the average ETF expense ratio annually?
A) Less than 0.5%.
B) Between 0.5% and 1.0%.
C) Between 1.0% and 2.0%.
D) More than 2.0%.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
68) Which of the following refers to the belief that someone can consistently determine the highs and lows in the market before they occur?
A) Diversification.
B) Market timing.
C) Active management.
D) Passive management.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
69) Which of the following is a step in buying an ETF?
A) Establish a brokerage account. You can do this online or through a financial advisor.
B) Deposit enough money in the brokerage account to fund the purchase of shares plus commissions charged by the brokerage firm.
C) Find an ETF that matches your financial objective, time horizon, and tolerance for financial risk.
D) All of these answer choices are correct.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
70) Which of the following is a benefit of an ETF?
A) Fees and costs are low.
B) Allows you to buy a diversified portfolio of stocks (or almost any other asset).
C) Can buy and sell throughout the day.
D) All of these answer choices are correct.
Diff: 1
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
71) Which of the following is an ETF?
A) Vanguard Total Stock Market (VTI).
B) Vanguard S&P 500 (VOO).
C) iShares MSCI EAFE (EFA).
D) All of these answer choices are correct.
Diff: 3
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
72) When did ETFs first appear in the U.S. market?
A) 1963.
B) 1973.
C) 1983.
D) 1993.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
73) How many ETFs were in existence in 2016?
A) Less than 250.
B) Between 250 and 500.
C) Between 500 and 1,000.
D) More than 1,000.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
74) Which of the following represents the per-share value of an ETF's assets minus its liabilities?
A) Net asset value.
B) Net worth.
C) Expense ratio.
D) Total value.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
75) ETFs totaled what amount in value in 2016 in the United States?
A) Less than $100 billion.
B) Between $100 billion and $500 billion.
C) Between $500 billion and $1 trillion.
D) More than $1 trillion.
Diff: 2
LO: 8.5, Section 8.5
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
76) Which of the following refers to a measure of the total size of an economy?
A) Gross domestic product.
B) Price of goods.
C) Investments.
D) Stock market.
Diff: 1
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
77) Which of the following refers to when Americans tend to prefer U.S. investments and U.S. markets?
A) Availability bias.
B) Confirmation bias.
C) Familiarity bias.
D) Representativeness bias.
Diff: 1
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
78) Which of the following refers to a familiarity bias?
A) A preference to own assets that one feels comfortable with.
B) A preference to own investments despite having little information about them.
C) A preference for investing in passively managed funds to reduce risk.
D) A preference for investing in actively managed funds to reduce risk.
Diff: 2
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
79) Which of the following is a risk of foreign investments?
A) Currency exchange rate fluctuations.
B) Different market operations.
C) High trading costs.
D) All of these answer choices are correct.
Diff: 2
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
80) Which of the following is a risk of foreign investments?
A) Low trading costs.
B) More regulatory oversight.
C) Country risk.
D) All of these answer choices are correct.
Diff: 2
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
81) Events like war, insurrections, and sanctions are examples of what type of foreign investment risk?
A) Currency exchange rates.
B) Less regulatory oversight.
C) Country risk.
D) High trading costs.
Diff: 2
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
82) A "buyer beware" attitude is an example of what type of foreign investment risk?
A) Currency exchange rates.
B) Less regulatory oversight.
C) Systematic risk.
D) High trading costs.
Diff: 2
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
83) High trading costs make foreign investments relatively
A) less liquid.
B) less marketable.
C) less risky.
D) more likely to provide positive returns.
Diff: 2
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
84) Which of the following is an option when it comes to investing in stock in foreign markets using mutual funds and ETFs?
A) Global funds.
B) International funds.
C) Regional funds.
D) All of these answer choices are correct.
Diff: 2
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
85) A company in which of the following countries would be a good investment opportunity?
A) A country in which the GDP is declining rapidly.
B) A country in which the GDP is growing rapidly.
C) A country in which the GDP is growing slowly.
D) A country in which the GDP is declining slowly.
Diff: 2
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
86) Which of the following funds invest in foreign companies as well as U.S. firms?
A) Global funds.
B) International funds.
C) Regional funds.
D) Country funds.
Diff: 2
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
87) Which of the following funds only invest outside the United States?
A) Global funds.
B) International funds.
C) Regional funds.
D) Country funds.
Diff: 2
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
88) Which of the following funds invest in specific areas, such as Europe or Asia?
A) Global funds.
B) International funds.
C) Regional funds.
D) Country funds.
Diff: 2
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
89) Which of the following funds invest in specific countries, like China?
A) Global funds.
B) International funds.
C) Regional funds.
D) Country funds.
Diff: 1
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
90) Which of the following represents one or more shares of a foreign stock?
A) ETF.
B) American Depositary Receipt (ADR).
C) Regional fund.
D) Country fund.
Diff: 3
LO: 8.6, Section 8.6
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
91) Which of the following includes the possibility of gains and losses?
A) Financial risk.
B) Pure risk.
C) Market risk.
D) Liquidity risk.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
92) Which of the following refers to uncertainty or volatility?
A) Pure risk.
B) Investment risk.
C) Marketability risk.
D) Liquidity risk.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
93) Which of the following refers to how quickly you can convert an asset to cash without price concession or loss?
A) Exchange rate.
B) Diversification.
C) Marketability.
D) Liquidity.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
94) Which of the following refers to the possible inability to sell your asset quickly and receive cash in a timely manner?
A) Financial risk.
B) Investment risk.
C) Marketability risk.
D) Liquidity risk.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
95) To obtain higher returns you must do which of the following?
A) Take greater financial risk.
B) Invest in liquid assets.
C) Trade in highly active markets.
D) All of these answer choices are correct.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
96) The marketability risk of stocks and bonds is
A) high.
B) low.
C) medium.
D) There is no risk.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
97) Financial risk increases as marketability risk
A) decreases.
B) increases.
C) doubles.
D) stays the same.
Diff: 1
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
98) How does an increase in financial risk affect the amount of return you expect on your investment?
A) Decreases.
B) Increases.
C) Doubles.
D) Stays the same.
Diff: 1
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
99) Which of the following is your most liquid asset?
A) Money in your pocket.
B) Real estate.
C) Bonds.
D) Money in your savings account.
Diff: 1
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
100) Which of the following is your least liquid asset?
A) Money in your pocket.
B) Real estate.
C) Bonds.
D) Money in your savings account.
Diff: 1
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
101) Which of the following describes the relationship between taking risks and obtaining returns?
A) Positive.
B) Negative.
C) Inverse.
D) There is no relationship.
Diff: 1
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
102) Which of the following includes the possibility for gains and losses, as well as threats associated with losing purchasing power, default, and other negative events?
A) Financial risk.
B) Pure risk.
C) Market risk.
D) Liquidity risk.
Diff: 1
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
103) Which of the following refers to a reason why it is easier to buy than to sell?
A) Depending on the asset, it can sometimes take a long time to find a buyer.
B) The sales process gets complicated because you can never be sure how much you can get others to pay for the things you own.
C) Marketability of assets is tied to risk.
D) All of these answer choices are correct.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
104) Your risk tolerance includes your willingness to invest in assets with
A) liquidity risk, only.
B) marketability risk, only.
C) both liquidity and marketability risk.
D) neither liquidity nor marketability risk.
Diff: 1
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
105) If your risk tolerance is low, what investments should you consider?
A) Junk bonds.
B) Savings bonds.
C) Investment real estate.
D) Collectibles.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
106) Which of the following refers to a prefunded arrangement between you and a broker-dealer firm that allows you to buy and sell investment assets?
A) A brokerage account.
B) A margin account.
C) An individual retirement account (IRA).
D) An escrow account.
Diff: 2
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
107) A firm acting as a broker-dealer is most often associated with which type of account?
A) A margin account.
B) An individual retirement account (IRA).
C) A full-service brokerage account.
D) A self-directed brokerage account.
Diff: 2
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
108) Which of the following is offered by full-service brokerage accounts but not self-directed brokerage accounts?
A) The opportunity to trade in stocks, bonds, and mutual funds.
B) The ability to buy uncommon investments such as REITs.
C) The option to receive investment advice from a brokerage employee.
D) Low management fees and, sometimes, no commissions on sales.
Diff: 2
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
109) Investment representatives, registered representatives, and account managers are all synonymous with
A) custodians.
B) stock brokers.
C) real estate agents.
D) All of these answer choices are correct.
Diff: 2
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
110) Which of the following firms provide self-directed brokerage account options?
A) Charles Schwab.
B) TD Ameritrade.
C) E*Trade.
D) All of these answer choices are correct.
Diff: 3
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
111) By definition, which of the following requires you to pay in advance for all securities purchased?
A) Cash account.
B) Margin account.
C) Full-service brokerage account.
D) Self-directed brokerage account.
Diff: 2
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
112) Which of the following, by definition, allows you to buy stocks, bonds, and other assets with borrowed money?
A) Cash account.
B) Margin account.
C) Full-service brokerage account.
D) Self-directed brokerage account.
Diff: 2
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
113) Advisors at broker-dealers must
A) learn enough about their clients' goals, attitudes, and risk tolerance to make suitable recommendations.
B) only make recommendations in their clients' best interest, even if that means terminating the relationship.
C) have their clients complete a federally regulated questionnaire about their goals, attitudes, and risk tolerance.
D) None of these answer choices are correct.
Diff: 3
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
114) Which of the following refers to insurance that protects your accounts up to $500,000 per customer, per firm, with up to $250,000 for cash?
A) Liability insurance.
B) Securities Investor Protection Corporation (SIPC) insurance.
C) Federal Deposit Insurance Corporation (FDIC).
D) Insurance is not offered.
Diff: 2
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
115) Which of the following instructs the brokerage firm to buy or sell at the current market rate?
A) Market order.
B) Limit order.
C) Stop order.
D) Stop-loss order.
Diff: 1
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
116) Which of the following instructs the brokerage firm to buy only at a specific price or lower?
A) Market order.
B) Limit order.
C) Stop order.
D) Stop-loss order.
Diff: 2
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
117) Which of the following instructs the brokerage firm to sell only when the price reaches a set point below the current price?
A) Market order.
B) Limit order.
C) Stop order.
D) Sell order.
Diff: 2
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
118) If you instruct a brokerage firm to buy at $26.50 or higher, you are placing what type of order?
A) Market order.
B) Limit order.
C) Stop order.
D) Buy order.
Diff: 2
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
119) Which of the following refers to the brokerage firm being shown as the owner of record even though you actually own the shares?
A) Street name.
B) Stock certificate.
C) Ticket symbol.
D) Market order.
Diff: 3
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
120) Which of the following sets a limit on how much you are willing to pay?
A) Market order.
B) Limit order.
C) Sell stop order.
D) Buy stop order.
Diff: 2
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
121) Which of the following refers to land, buildings, and other structures permanently attached to the land?
A) Real property.
B) Personal property.
C) Liquid assets.
D) Used assets.
Diff: 1
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
122) Which of the following includes dwellings that are individually owned and where people live?
A) Personal property.
B) Residential real estate.
C) Commercial real estate.
D) Used assets.
Diff: 1
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
123) Which of the following includes land and buildings used by businesses and other income-producing activities?
A) Business property.
B) Residential real estate.
C) Commercial real estate.
D) Use assets.
Diff: 1
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
124) Which of the following is an example of commercial real estate?
A) Condominiums.
B) Duplexes.
C) Retirement communities.
D) Warehouses.
Diff: 2
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
125) Which of the following is an example of residential real estate?
A) Condominiums.
B) Duplexes.
C) Retirement communities.
D) All of these answer choices are correct.
Diff: 1
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
126) Which of the following includes things that people purchase with the primary intent to maintain their current lifestyle?
A) Liquid assets.
B) Residential real estate.
C) Commercial real estate.
D) Use assets.
Diff: 2
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
127) Which of the following is an example of a use asset?
A) Clothing.
B) Furniture.
C) Electronics.
D) All of these answer choices are correct.
Diff: 2
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
128) Which of the following is a benefit of owning a home?
A) Having a place to live.
B) Having a mortgage payment offset by income from renters.
C) Having an investment that you could sell later for a profit.
D) All of these answer choices are correct.
Diff: 2
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
129) Which of the following refers to the fair market value of a home minus the outstanding mortgage balance?
A) Equity.
B) Real estate investment trusts (REITs).
C) Capital improvements.
D) Use assets.
Diff: 2
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
130) Which of the following provides a way to add real estate to your investment portfolio at a relatively low cost?
A) Residential real estate.
B) REITs.
C) Commercial real estate.
D) A home mortgage.
Diff: 2
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
131) Which of the following is a real estate risk?
A) Decreased property values.
B) Foreclosure.
C) Unpaid rent from tenants.
D) All of these answer choices are correct.
Diff: 2
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
132) Which of the following refers to owing more on a mortgage than the home is worth?
A) Underwater mortgage.
B) Foreclosure.
C) Short sale.
D) All of these answer choices are correct.
Diff: 2
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
133) Which of the following refers to losing a home to the lender?
A) Underwater mortgage.
B) Foreclosure.
C) Short sale.
D) All of these answer choices are correct.
Diff: 1
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
134) In which of the following scenarios must the unpaid balance of a mortgage be recognized as taxable income?
A) An underwater mortgage.
B) A short sale.
C) A foreclosure.
D) All of these answer choices are correct.
Diff: 2
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
135) A foreclosure or short sale will hurt a homeowner's credit for how many years?
A) Up to 3 years.
B) Up to 5 years.
C) Up to 10 years.
D) Up to 15 years.
Diff: 2
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
136) Which of the following refers to jewelry, art, stamps, and coins?
A) Real estate.
B) Collectibles.
C) Portfolio.
D) Use asset.
Diff: 1
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
137) Which of the following refers to a public sale in which goods are sold to the highest bidder?
A) Event.
B) Collection.
C) Auction.
D) Pawnshop.
Diff: 1
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
138) Which of the following refers to a place where individuals can buy and sell collectibles and other personal property for cash?
A) Broker-dealer.
B) Brokerage account.
C) Auction.
D) Pawnshop.
Diff: 1
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
139) Collectibles may also be described as
A) intangible assets.
B) tangible assets.
C) liquid assets.
D) use assets.
Diff: 2
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
140) Which of the following refers to something you can hold, buy, and sell, such as gold, silver, platinum, or minerals and real estate?
A) Intangible assets.
B) Collectibles.
C) Hard assets.
D) Liquid assets.
Diff: 2
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
141) Which of the following refers to the developer of an asset?
A) Creator.
B) Hobbyist.
C) Collector.
D) Investor.
Diff: 1
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
142) Which of the following refers to someone who is involved in buying and selling items in which they are interested without consideration for future profit?
A) Creator.
B) Hobbyist.
C) Collector.
D) Investor.
Diff: 2
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
143) Which of the following refers to someone who purchases tangible assets primarily with the intent to generate capital gains?
A) Creator.
B) Hobbyist.
C) Collector.
D) Investor.
Diff: 2
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
144) If you own a collectible, which of the following refers to the price offered to you by a dealer?
A) Bid price.
B) Ask price.
C) Spread.
D) Sales price.
Diff: 2
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
145) Which of the following refers to the price the dealer sets to sell the item?
A) Bid price.
B) Ask price.
C) Spread.
D) Sales price.
Diff: 2
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
146) Which of the following refers to the difference between what the dealer bought an item for and what the dealer sold it for?
A) Bid price.
B) Ask price.
C) Spread.
D) Sales price.
Diff: 1
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
147) Which of the following is a tangible investment?
A) Jewelry.
B) Art.
C) Stamps.
D) All of these answer choices are correct.
Diff: 2
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
148) Which of the following is a hard asset?
A) Gold.
B) An automobile.
C) Real estate.
D) All of these answer choices are correct.
Diff: 2
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
149) If a dealer buys an item for $25 and sells if for $60, what is the spread?
A) $25.
B) $35.
C) $45.
D) $60.
Diff: 2
LO: 8.10, Section 8.10
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
150) If a dealer buys an item for $55 and sells if for $120, what is the spread?
A) $55.
B) $65.
C) $85.
D) $120.
Diff: 2
LO: 8.10, Section 8.10
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
151) Which of the following risks is not associated with the possibility of a positive investment return?
A) Volatility.
B) Fraud.
C) Illiquidity.
D) Uncertainty.
Diff: 2
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
152) Which of the following protects investors against the loss of cash and securities held at a brokerage firm in case the firm goes bankrupt?
A) FDIC.
B) Securities Investor Protection Corporation (SIPC).
C) Liability insurance.
D) Homeowner's insurance.
Diff: 2
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
153) Which of the following is a step to take to be aware of possible frauds?
A) Always being skeptical of unrealistic promises.
B) Never relying solely on reputation or word-of-mouth referrals.
C) Verifying details of investment proposals.
D) All of these answer choices are correct.
Diff: 1
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
154) Which of the following refers to a private investment company that caters to the investment needs of very wealthy individuals and organizations?
A) Hedge fund.
B) Investment fund.
C) Brokerage firm.
D) Securities Investor Protection Corporation (SIPC).
Diff: 2
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
155) Bernie Madoff used what to defraud investors?
A) Hedge fund.
B) Investment fund.
C) Brokerage firm.
D) SIPC.
Diff: 2
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
156) Which of the following is a common service provided by a financial advisor?
A) Helping clients establish financial goals.
B) Assisting clients create and maintain spending plans.
C) Providing tax advice related to household issues.
D) All of these answer choices are correct.
Diff: 1
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
157) Which of the following is a common service provided by a financial advisor?
A) Recommending investment products and services.
B) Developing insurance strategies across the life span.
C) Helping create a realistic retirement plan.
D) All of these answer choices are correct.
Diff: 1
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
158) Which of the following is a common service provided by a financial advisor?
A) Helping create a realistic retirement plan.
B) Assisting clients with daily financial questions, such as funding education needs for children and grandchildren, purchasing cars and homes, and building emergency savings funds.
C) Providing advice regarding wills and estates.
D) All of these answer choices are correct.
Diff: 1
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
159) Which of the following describes a professional who is engaged in the business of providing financial and investment advice for a fee?
A) A manager.
B) A financial advisor.
C) A broker.
D) An accountant.
Diff: 1
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
160) A financial advisor who receives some or all of his or her compensation from commissions generated when a client buys or sells a financial product is said to be
A) fee-based.
B) commission-based.
C) fee-only.
D) None of these answer choices are correct.
Diff: 1
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
161) A financial advisor who charges clients directly for services and receives no commissions based on what or how much a client buys is said to be
A) fee-based.
B) commission-based.
C) fee-only.
D) None of these answer choices are correct.
Diff: 1
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
162) Which of the following should you inquire about to find the right advisor?
A) The advisor's credentials.
B) The advisor's organizational memberships.
C) The advisor's minimum asset requirements.
D) All of these answer choices are correct.
Diff: 2
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
163) A financial advisor who is required to act in their clients' best interests is said to be
A) engaged.
B) a fiduciary.
C) a broker-dealer.
D) an investment manager.
Diff: 2
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
164) Which of the following should you check on while searching for a financial advisor?
A) References.
B) Specializations.
C) Fee structures.
D) All of these answer choices are correct.
Diff: 1
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
165) Which of the following companies would be the most attractive investment to a very conservative investor?
A) Company A, with a P/E ratio of −30.
B) Company B, with a P/E ratio of −15.
C) Company C, with a P/E ratio of 15.
D) Company D, with a P/E ratio of 30.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
166) Which of the following is most likely to be a considered a growth stock?
A) A company with a P/E ratio between 0 and 20.
B) A company with a P/E ratio greater than 20.
C) A company with a long history of stable dividend payments.
D) A company with relatively high earnings per share.
Diff: 2
LO: 8.2, Section 8.2
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
167) Which of the following bonds, if all are purchased today, would have the longest date to maturity?
A) A Treasury bill.
B) A Treasury note.
C) A Treasury bond.
D) There is too little information to answer this question.
Diff: 2
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
168) An investor with a 50% marginal tax rate is trying to decide on a bond. Which of the following bonds offers the best tax-equivalent yield?
A) A corporate bond with an 8% yield to maturity.
B) A corporate bond with a 15% yield to maturity.
C) A municipal bond with a 5% yield to maturity.
D) A municipal bond with a 10% yield to maturity.
Diff: 3
LO: 8.3, Section 8.3
Bloom: E
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
169) Zero coupon bonds are unlike other bonds in that they
A) do not pay interest directly to bondholders.
B) are not subject to federal taxes.
C) have a holding period less than one year.
D) are offered by corporations but not by governments.
Diff: 2
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
170) Municipal bonds are issued by
A) local and state governments.
B) corporations.
C) the federal government.
D) individuals.
Diff: 2
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
171) Purchasing power risk is particularly an issue for which of the following investments?
A) Stocks.
B) Inflation-protected U.S. government bonds.
C) AAA corporate bonds.
D) All of these answer choices are correct.
Diff: 2
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
172) If prevailing interest rates increase, the market price of previously issued bonds will
A) decrease.
B) increase.
C) be unaffected.
D) There is insufficient information to answer this question.
Diff: 2
LO: 8.3, Section 8.3
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
173) A mutual fund's average annual return is 8% and its standard deviation is 8%. An investor would expect 95% of the fund's returns to fall within what range?
A) Between 0% and 8%.
B) Between 0% and 16%.
C) Between −16% and 32%.
D) Between −8% and 24%.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
174) The longer an investor holds a mutual fund, the lower its ________ tend(s) to be.
A) returns.
B) volatility.
C) cost.
D) All of these answer choices are correct.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
175) Over the long run, investors should seek returns that are
A) higher than inflation.
B) about equal to inflation.
C) lower than inflation.
D) The answer depends on an investor's risk tolerance.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
176) Not all prices inflate at the same rate. Notably, the average price of which of the following has far exceeded general inflation?
A) Education.
B) Food.
C) Electronics.
D) All of these answer choices are correct.
Diff: 2
LO: 8.7, Section 8.7
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
177) A brokerage account statement includes which of the following?
A) Fees.
B) Ending account balance.
C) Allocations of investments in account.
D) All of these answer choices are correct.
Diff: 1
LO: 8.8, Section 8.8
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
178) According to traditional macroeconomic theory, which of the following goods would have the highest price?
A) One with both low supply and low demand.
B) One with low supply but high demand.
C) One with high supply but low demand.
D) One with high supply and high demand.
Diff: 2
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
179) An investor is trying to calculate how much she made while trading collectibles. Based on the following information, how much did she make per hour? Total purchase cost: $1,000; gross sales: $1,500; dealer commission: 20%; hours worked: 10.
A) $20.
B) $40.
C) $50.
D) $120.
Diff: 3
LO: 8.10, Section 8.10
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
180) Unlike investors with a lower risk tolerance, investors with a very high risk tolerance may be interested in
A) stocks.
B) bonds.
C) collectibles.
D) real estate.
Diff: 2
LO: 8.10, Section 8.10
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
181) Investors who are interested in purchasing a real estate investment trust must work with a
A) broker.
B) lawyer.
C) real estate agent.
D) collectibles dealer.
Diff: 2
LO: 8.9, Section 8.9
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
182) Which of the following correctly describes a Ponzi scheme?
A) Investors are required to purchase inventory which they may later sell.
B) Investors are given a bonus if they help recruit new investors.
C) Investors may not realize they are victims until they check their credit report.
D) Early investors are paid with new investors' money.
Diff: 2
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
183) Which of the following best describes an accredited investor?
A) A person with an educational or professional background in finance and investing.
B) A financial institution such as a bank or pension fund.
C) A person with a relatively high income or net worth.
D) A person or organization with a history of successful investment decisions.
Diff: 2
LO: 8.11, Section 8.11
Bloom: K
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
184) Last quarter, Tech Inc. paid a dividend of $3 per share. Analysts suggest that the dividend will grow by 5% this year and every year hereafter. If you require a 10% rate of return, what price would you be willing to pay for a share of Tech Inc. stock?
A) $3.15.
B) $3.30.
C) $63.00.
D) $66.00.
Diff: 2
LO: 8.2, Section 8.2
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
185) Last year, Orange Inc. reported earnings per share of $20 and a $5 per share dividend. If that company's stock is currently trading at $160, what is its P/E ratio?
A) 6.4.
B) 8.0.
C) 20.0.
D) 32.0.
Diff: 2
LO: 8.2, Section 8.2
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
186) GetFit Clothing is currently trading at $5.90 per share with 25,000,000 shares outstanding. Also, a recent audit revealed that its total assets minus liabilities is $65,000,000. According to this information, what is GetFit's approximate market capitalization?
A) $11,000,000.
B) $65,000,000.
C) $148,000,000.
D) $384,000,000.
Diff: 2
LO: 8.2, Section 8.2
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
187) PlexiCo has issued new bonds to fund the construction of a synthetic glass factory. The bonds currently trade for $800 with a face value at maturity of $1,000. If the bonds' coupon rate is 5% and the bonds mature in 10 years, how much money should investors expect when the bond issues a coupon payment every 6 months?
A) $20.
B) $25.
C) $40.
D) $50.
Diff: 2
LO: 8.3, Section 8.3
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
188) You are trying to decide whether it is worth investing in a municipal bond or a corporate bond. You have identified a corporate bond you like with an 8% yield. If you are in the 30% marginal tax bracket, what comparable interest rate on a municipal bond would you accept?
A) 2.4% or lower.
B) 2.4% or higher.
C) 5.6% or lower.
D) 5.6% or higher.
Diff: 3
LO: 8.3, Section 8.3
Bloom: E
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
189) Rita is choosing between two mutual funds. While both funds have the same risk level, Fund A has historical returns of 9.3% and Fund B has historical returns of 8.5%. Fund A also has an expense ratio of 1.1% while Fund B has an expense ratio of 0.4%. Based on this information, which fund should Rita choose and why?
A) Fund A because its historical return is higher: 9.3% vs. 8.5%.
B) Fund A because its after-fee return is higher: 10.4% vs. 8.9%.
C) Fund A because its after-fee return is higher 8.2% vs. 8.1%.
D) Fund A because its expense ratio is higher 1.1% vs. 0.4%.
Diff: 3
LO: 8.4, Section 8.4
Bloom: E
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
190) Eduardo is buying three ETFs in his brokerage account. ETF A trades at $80 per share, ETF B trades at $50 per share, and ETF C trades at $40 per share. If he is buying 50 shares of A, 50 shares of B, and 25 shares of C, and the brokerage charges an $8 commission per trade, how much will he need to make this purchase?
A) $7,500.
B) $7,508.
C) $7,524.
D) $8,500.
Diff: 2
LO: 8.5, Section 8.5
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
191) Yang Bai is investing $10,000 and wants a portfolio that is 80% stocks and 20% bonds. She has decided to accomplish this using just two ETFs: a stock ETF trading for $50 a share and a bond ETF trading for $100 a share. What should she do to meet her asset allocation goal?
A) Purchase 80 shares of the stock ETF and 10 shares of the bond ETF.
B) Purchase 80 shares of the stock ETF and 20 shares of the bond ETF.
C) Purchase 160 shares of the stock ETF and 10 shares of the bond ETF.
D) Purchase 160 shares of the stock ETF and 20 shares of the bond ETF.
Diff: 3
LO: 8.5, Section 8.5
Bloom: E
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
192) What is the downside and the upside, respectively, on a mutual fund with a mean return of 10% and a standard deviation of 10%?
A) −20% and 40%.
B) −10% and 30%.
C) 0% and 10%.
D) 0% and 20%.
Diff: 2
LO: 8.7, Section 8.7
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
193) You've recently learned of a mutual fund offering a mean return of 12% and a standard deviation of 8%. In any given year, there is about a 95% chance that this fund's annual return falls within
A) −12% and 36%.
B) −4% and 28%.
C) 4% and 20%.
D) There is not enough information to answer this question.
Diff: 2
LO: 8.7, Section 8.7
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
194) Ten years ago, Madison and Toby purchased a house for $200,000. Today the market value of the house is $400,000. They still owe a balance of $125,000 on the mortgage. What is their equity in the house?
A) $75,000.
B) $125,000.
C) $275,000.
D) $400,000.
Diff: 2
LO: 8.9, Section 8.9
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
195) Which of the following houses would be considered "underwater"?
A) Purchase price: $100,000; current fair market value: $80,000; outstanding mortgage: $90,000.
B) Purchase price: $200,000; current fair market value: $150,000; outstanding mortgage: $100,000.
C) Purchase price: $125,000; current fair market value: $0; outstanding mortgage: $0.
D) All of these houses are "underwater."
Diff: 2
LO: 8.9, Section 8.9
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
196) The current stock price for 3N is $140.21 per share. According to your broker's trading platform, the current bid price is $140.19 and the current ask price is $140.22 per share. According to this information, what is the current spread on 3N?
A) $0.01.
B) $0.02.
C) $0.03.
D) The answer depends on the commission charged by the broker.
Diff: 2
LO: 8.10, Section 8.10
Bloom: A
AACSB / IMA: none; none
AICPA: FC: none
Min: 1
______________________________________________________________________________
© 2019 John Wiley & Sons Canada, Ltd. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.