Question 1

Financial investments are made in efficient markets.The existence of these markets suggests that

Accepted Answer

A)  investors cannot earn superior returns 
B)  investors cannot expect to outperform the market consistently 
C)  security prices are random 
D)  bearing additional risk will not increase return 
A)  investors cannot earn superior returns 
B)  investors cannot expect to outperform the market consistently 
C)  security prices are random 
D)  bearing additional risk will not increase return B

Question 2

Sources of risk include
1)fluctuating exchange rates
2)a firm's financing decisions
3)higher interest rates
4)loss of purchasing power

Accepted Answer

A)  1 and 2 
B)  2 and 3 
C)  2 and 4 
D)  all four 
A)  1 and 2 
B)  2 and 3 
C)  2 and 4 
D)  all four D

Question 3

Diversification reduces

Accepted Answer

A)  systematic risk 
B)  unsystematic risk 
C)  market risk 
D)  purchasing power risk 
A)  systematic risk 
B)  unsystematic risk 
C)  market risk 
D)  purchasing power risk B

Question 4

Investments are made in anticipation of a return.

Accepted Answer

A) True 
 B)False

Question 5

The informed investor can expect to consistently outperform the market.

Accepted Answer

A) True 
 B)False

Question 6

Risk is the uncertainty that the anticipated return will not be realized.

Accepted Answer

A) True 
 B)False

Question 7

The investor should specify the goals of investing.

Accepted Answer

A) True 
 B)False

Question 8

Investors must bear the systematic risk associated with fluctuating securities prices.

Accepted Answer

A) True 
 B)False

Question 9

Unsystematic risk refers to factors that are unique to the specific asset.

Accepted Answer

A) True 
 B)False

Question 10

Exchange rate risk refers to fluctuations in the prices of foreign moneys (i.e.,foreign exchange).

Accepted Answer

A) True 
 B)False

Question 11

Risk

Accepted Answer

A)  depends solely on price fluctuations 
B)  should be maximized to increase returns 
C)  is reduced through specialization 
D)  refers to the uncertainty of returns 
A)  depends solely on price fluctuations 
B)  should be maximized to increase returns 
C)  is reduced through specialization 
D)  refers to the uncertainty of returns

Question 12

Inflation,which is a general decline in prices,is the source of financial risk.

Accepted Answer

A) True 
 B)False

Question 13

Many investments have common characteristics including
1)existence of secondary markets
2)risk
3)potential for capital gains

Accepted Answer

A)  1 and 2 
B)  1 and 3 
C)  2 and 3 
D)  all of these choices 
A)  1 and 2 
B)  1 and 3 
C)  2 and 3 
D)  all of these choices

Question 14

The anticipated and realized return may differ.

Accepted Answer

A) True 
 B)False

Question 15

Reasons for saving and investing include
1)need for funds to meet emergencies
2)retirement income
3)desire to leave an estate for children

Accepted Answer

A)  1 and 2 
B)  1 and 3 
C)  2 and 3 
D)  all of these choices 
A)  1 and 2 
B)  1 and 3 
C)  2 and 3 
D)  all of these choices

Question 16

Capital gains and income are the sources of the return on an investment.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not an investment in the lay person's general use of the term?

Accepted Answer

A)  equipment 
B)  land 
C)  stock 
D)  savings account 
A)  equipment 
B)  land 
C)  stock 
D)  savings account

Question 18

Which of the following is an investment as defined by an economist?

Accepted Answer

A)  equipment 
B)  land 
C)  stock 
D)  savings account 
A)  equipment 
B)  land 
C)  stock 
D)  savings account

Question 19

By accepting more risk,the investor will increase the realized return.

Accepted Answer

A) True 
 B)False

Question 20

Reinvestment rate risk results from higher stock prices in the future.

Accepted Answer

A) True 
 B)False

Exam 1: An Introduction to Investments

Financial investments are made in efficient markets.The existence of these markets suggests that

Sources of risk include 1)fluctuating exchange rates 2)a firm's financing decisions 3)higher interest rates 4)loss of purchasing power

Diversification reduces

Investments are made in anticipation of a return.

The informed investor can expect to consistently outperform the market.

Risk is the uncertainty that the anticipated return will not be realized.

The investor should specify the goals of investing.

Investors must bear the systematic risk associated with fluctuating securities prices.

Unsystematic risk refers to factors that are unique to the specific asset.

Exchange rate risk refers to fluctuations in the prices of foreign moneys (i.e.,foreign exchange).

Risk

Inflation,which is a general decline in prices,is the source of financial risk.

Many investments have common characteristics including 1)existence of secondary markets 2)risk 3)potential for capital gains

The anticipated and realized return may differ.

Reasons for saving and investing include 1)need for funds to meet emergencies 2)retirement income 3)desire to leave an estate for children

Capital gains and income are the sources of the return on an investment.

Which of the following is not an investment in the lay person's general use of the term?

Which of the following is an investment as defined by an economist?

By accepting more risk,the investor will increase the realized return.

Reinvestment rate risk results from higher stock prices in the future.

The Creation of Financial Assets

Securities Markets

The Time Value of Money

The Tax Environment

Risk and Portfolio Management

Investment Companies: Mutual Funds

Closed-End Investment Companies

The Valuation of Common Stock

Investment Returns and Aggregate Measures of Stock Markets

Dividends: Past, present, and Future

The Macroeconomic Environment for Investment Decisions

Analysis of Financial Statements

Behavioral Finance and Technical Analysis

The Bond Market

The Valuation of Fixed-Income Securities

Government Securities

Convertible Bonds and Convertible Preferred Stock

An Introduction to Options

Option Valuation and Strategies

Commodity and Financial Futures

Investing in Foreign Securities

Investing in Nonfinancial Assets: Collectibles, resources, and Real Estate

Portfolio Planning and Management in an Efficient Market Context

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