Question 1

Which of the following would not be a good method of asset allocation?

Accepted Answer

A)  Restrict your portfolio to stocks 
B)  Include bonds 
C)  Include real estate 
D)  Include mutual funds 
A)  Restrict your portfolio to stocks 
B)  Include bonds 
C)  Include real estate 
D)  Include mutual funds

Question 2

If a stock option is never exercised,the return on investment generated is

Accepted Answer

A)  100%. 
B)  0%. 
C)  -100%. 
D)  Not enough information given to determine. 
A)  100%. 
B)  0%. 
C)  -100%. 
D)  Not enough information given to determine.

Question 3

Your asset allocation should not be influenced by

Accepted Answer

A)  your risk tolerance. 
B)  economic conditions. 
C)  religion. 
D)  your age. 
A)  your risk tolerance. 
B)  economic conditions. 
C)  religion. 
D)  your age.

Question 4

In reality,many stocks are influenced by ________ the stock market overall.

Accepted Answer

A)  different conditions than 
B)  the same conditions as 
C)  other conditions than 
D)  unrelated conditions to 
A)  different conditions than 
B)  the same conditions as 
C)  other conditions than 
D)  unrelated conditions to

Question 5

In reality,many stocks are influenced by the same conditions as the stock market overall,so diversification by investing only in stocks is limited.

Accepted Answer

A) True 
 B)False

Question 6

Investing in Coke and Pepsico would be an example of

Accepted Answer

A)  highly correlated stocks. 
B)  investing in stocks that were not correlated. 
C)  diversifying by investing in both rather than one or the other. 
D)  investing in international growth stocks. 
A)  highly correlated stocks. 
B)  investing in stocks that were not correlated. 
C)  diversifying by investing in both rather than one or the other. 
D)  investing in international growth stocks.

Question 7

Because foreign stocks can produce such high returns,many investment advisers recommend that you invest about 45% of your portfolio in these stocks.

Accepted Answer

A) True 
 B)False

Question 8

________ risk is the risk that a stock is susceptible to poor performance due to weak stock market conditions.

Accepted Answer

A)  Business 
B)  Market 
C)  Default 
D)  Management 
A)  Business 
B)  Market 
C)  Default 
D)  Management

Question 9

As you fit investing for the future into your personal financial plan,you should consider ________ before investing into long term assets like stocks and bonds.

Accepted Answer

A)  your near term cash needs 
B)  your near term major expenses like home purchase 
C)  your willingness and tolerance to bear risk 
D)  All of the above should be considered 
A)  your near term cash needs 
B)  your near term major expenses like home purchase 
C)  your willingness and tolerance to bear risk 
D)  All of the above should be considered

Question 10

The primary benefit of diversification is that it

Accepted Answer

A)  is convenient. 
B)  is cheap. 
C)  reduces the exposure of your investments to adverse effects of any individual investment. 
D)  increases stock volatility. 
A)  is convenient. 
B)  is cheap. 
C)  reduces the exposure of your investments to adverse effects of any individual investment. 
D)  increases stock volatility.

Question 11

________ REITs invest money directly in properties.

Accepted Answer

A)  Asset 
B)  Equity 
C)  Mortgage 
D)  Property 
A)  Asset 
B)  Equity 
C)  Mortgage 
D)  Property

Question 12

Bond

Accepted Answer

A)  prices are positively related to interest rates. 
B)  prices are not directly influenced by stock market conditions. 
C)  returns are usually higher than stock returns. 
D)  Both A and B are correct 
A)  prices are positively related to interest rates. 
B)  prices are not directly influenced by stock market conditions. 
C)  returns are usually higher than stock returns. 
D)  Both A and B are correct

Question 13

The more similar the returns of individual investments in a portfolio,the more volatile the returns are over time.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements regarding put options is not true?

Accepted Answer

A)  You buy a put option when you expect the stock's price to increase. 
B)  You place an order for a put option in the same way you place an order for a call option. 
C)  Put options have an expiration date. 
D)  Put options allow an investor to lock in a price. 
A)  You buy a put option when you expect the stock's price to increase. 
B)  You place an order for a put option in the same way you place an order for a call option. 
C)  Put options have an expiration date. 
D)  Put options allow an investor to lock in a price.

Question 15

One way to reduce your diversification costs is to invest in various mutual funds.

Accepted Answer

A) True 
 B)False

Question 16

The returns from investing in stocks and from investing in bonds are not highly correlated.

Accepted Answer

A) True 
 B)False

Question 17

Selling options on stock you already own

Accepted Answer

A)  is illegal under federal law. 
B)  cannot benefit you financially. 
C)  is called a covered call strategy. 
D)  is not a very good idea. 
A)  is illegal under federal law. 
B)  cannot benefit you financially. 
C)  is called a covered call strategy. 
D)  is not a very good idea.

Question 18

In compiling a portfolio,which of the following should you not consider?

Accepted Answer

A)  Investments that exhibit a high positive correlation 
B)  Investments whose values are not influenced by similar conditions 
C)  Negatively correlated investments 
D)  Investments whose reaction to economic conditions will not be similar 
A)  Investments that exhibit a high positive correlation 
B)  Investments whose values are not influenced by similar conditions 
C)  Negatively correlated investments 
D)  Investments whose reaction to economic conditions will not be similar

Question 19

When you compile a portfolio,you should include investments that exhibit a high positive correlation.

Accepted Answer

A) True 
 B)False

Question 20

When two companies' profits tend to move in opposite directions in response to changing economic factors,the companies are likely

Accepted Answer

A)  negatively correlated. 
B)  not correlated. 
C)  unrelated in industry sector. 
D)  in different regions of the world. 
A)  negatively correlated. 
B)  not correlated. 
C)  unrelated in industry sector. 
D)  in different regions of the world.

Exam 18: Asset Allocation

Which of the following would not be a good method of asset allocation?

If a stock option is never exercised,the return on investment generated is

Your asset allocation should not be influenced by

In reality,many stocks are influenced by ________ the stock market overall.

In reality,many stocks are influenced by the same conditions as the stock market overall,so diversification by investing only in stocks is limited.

Investing in Coke and Pepsico would be an example of

Because foreign stocks can produce such high returns,many investment advisers recommend that you invest about 45% of your portfolio in these stocks.

________ risk is the risk that a stock is susceptible to poor performance due to weak stock market conditions.

As you fit investing for the future into your personal financial plan,you should consider ________ before investing into long term assets like stocks and bonds.

The primary benefit of diversification is that it

________ REITs invest money directly in properties.

Bond

The more similar the returns of individual investments in a portfolio,the more volatile the returns are over time.

Which of the following statements regarding put options is not true?

One way to reduce your diversification costs is to invest in various mutual funds.

The returns from investing in stocks and from investing in bonds are not highly correlated.

Selling options on stock you already own

In compiling a portfolio,which of the following should you not consider?

When you compile a portfolio,you should include investments that exhibit a high positive correlation.

When two companies' profits tend to move in opposite directions in response to changing economic factors,the companies are likely

Overview of a Financial Plan

Planning With Personal Financial Statements

Applying Time Value Concepts

Using Tax Concepts for Planning

Banking and Interest Rates

Managing Your Money

Assessing and Securing Your Credit

Managing Your Credit

Personal Loans

Purchasing and Financing a Home

Auto and Homeowners Insurance

Health and Disability Insurance

Life Insurance

Investing Fundamentals

Investing in Stocks

Investing in Bonds

Investing in Mutual Funds

Retirement Planning

Estate Planning

Integrating the Components of a Financial Plan

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