Deck 20: Understanding Personal Finance and Investments

Question 1

In selecting appropriate investments for your portfolio, it would be important for you to consider all of the following EXCEPT which one?

A) the degree of investment risk with which you're comfortable
B) how quickly you could sell the investment if you needed the cash
C) how much diversification you currently have in your portfolio
D) how many shares of stock the company has outstanding

Answer 1

B

Question 2

Which of the following investments is MOST liquid?

A) stocks
B) real estate
C) corporate bonds
D) savings accounts

Answer 2

D

Question 3

What is the purpose of a budget?

A) to determine the amount of your total liabilities
B) to develop a plan for spending your future income over a specific time period
C) to increase monthly expenses
D) to develop a plan for increasing credit purchases

Answer 3

B

Question 4

After graduation, you receive a job offer that includes an excellent salary, health benefits, paid vacation, and a company sponsored retirement saving plan. Your company will match 100% of your contributions, up to 6% of your salary. You decide to enroll in the retirement savings plan and contribute 15% of your salary. This is an example of which stage of creating a financial plan? ​

A) setting goals
B) implementing, monitoring, and revising your financial plan
C) taking control of your finances
D) creating an emergency fund

Question 5

Which of the following statements is most in keeping with investment advisers' suggestions for investment goals?

A) By the time I am 30 years old, I will have total assets of at least $150,000.
B) In 20 years or so, I want to have $10,000 in a bank account.
C) I want to invest in stock that is growing.
D) By December 2021 or 2022, I want to hold shares in a Fortune 500 company.

Question 6

Lillian would rather keep her money in a savings account at the bank even if it doesn't earn much interest, because investing in the stock market makes her anxious. Which factor in selecting investments does this best illustrate?

A) diversification
B) liquidity needs
C) investment horizon
D) risk tolerance

Question 7

Rather than invest in the stock of just one or two companies, you purchase a variety of different types of investments in order to minimize risk. What is this approach known as?

A) insider trading
B) investment apportionment
C) asset allocation
D) asset turnover

Question 8

Why would an investor consider risk to be a good thing?

A) The higher the risk, the larger the possible return.
B) The higher the risk, the lower the possible investment.
C) The lower the risk, the larger the possible return.
D) The lower the risk, the lower the rate of investment.

Question 9

What is the purpose of asset allocation?

A) to reduce capital gains
B) to increase investment risk
C) to reduce broker fees associated with investing
D) to reduce investment risk

Question 10

Which of the following describes the ease with which an investment can be converted into cash?

A) convertibility
B) exchangeability
C) redemption value
D) liquidity

Question 11

Tsui's New Year's resolution was to save money by the end of the year. What fault would financial planners find with Tsui's goal?

A) not specific enough
B) overly specific
C) not future-oriented
D) not time-specific

Question 12

Suppose that before you started college your parents gave you $2000 to cover expenses for your first year, like books, supplies, and food. You need this money, and your parents will not replace it if you spend it on items other than school necessities. You want to invest this money in a safe place. When considering where to invest this money, what is the factor that most affects your decision?

A) your investment horizon
B) investment diversification
C) your liquidity needs
D) asset allocation goals

Question 13

Which of the following would be the first step in creating your personal financial plan?

A) monitoring the plan and making adjustments as required
B) evaluating various alternatives to reach your goals
C) making intentional, informed decisions about maximizing income and minimizing unnecessary spending
D) establishing short-, medium- and long-term financial goals

Question 14

Alysha is nervous about layoffs at work, so she wants to be sure that her investments can be easily converted to cash if she gets laid off and needs the money to pay her bills. Which factor in selecting investments does this illustrate?

A) investment horizon
B) investment diversification
C) asset allocation
D) liquidity needs

Question 15

You would like to invest some money so that you can use it as a down payment for a house. You assume that you will not be ready to purchase a house for several years, so you will not need to sell the investment or access the money quickly. In considering which type of investment to select, which of the following factors impacts your decision?

A) asset allocation goals
B) liquidity needs
C) investment diversification
D) your risk tolerance

Question 16

After taking this class, you decide to create a financial plan. You follow your plan all through college, allocating the money from your part-time job to pay for necessities and putting some money into a savings account. After you graduate, you receive a job offer that includes a $40,000 a year salary, benefits, and paid vacation. Based on this salary, you adjust the amount you are putting away in savings by increasing it to $250 a month. This is part of which stage of creating a financial plan?

A) Implementing, monitoring, and revising your financial plan
B) Setting goals
C) Taking control of your finances
D) Creating an emergency fund

Question 17

When investing in your company's retirement savings plan, you choose a mix of foreign and domestic stocks, bonds, and mutual funds. This mix of stocks helps to lessen your risk. Which factor did you use to select your investments?

A) liquidity needs
B) asset allocation goals
C) your investment horizon
D) your risk tolerance

Question 18

After taking this course, you have decided that a year after graduating you would like to have an emergency fund in place. By age 25, you would like to have enough money saved to buy a new car. Which stage of creating a financial plan does this represent?

A) Evaluating alternatives for reaching your goals
B) Taking control of your finances
C) Setting goals
D) Implementing, monitoring, and revising your financial plan

Question 19

Most investment counsellors recommend that an individual establish an emergency fund equal to at least what amount?

A) one month of living expenses
B) six months of your gross pay
C) three to six months of living expenses
D) one year of living expenses

Question 20

An individual's investment horizon refers to which of the following?

A) an investment strategy that attempts to avoid loss of value
B) the level of investment risk with which the investor is comfortable
C) the period of time for which the investor expects to own the security
D) allocating the portfolio among various types of investment asset classes

Question 21

For a corporate bond with a face value of $1000 and a stated interest rate of 6%, the owner would receive which of the following?

A) $60 every six months
B) $60 every month
C) $30 every six months
D) $30 every month

Question 22

Having struggled to save money for his retirement, Ahmed is wary of risky investments. He'd rather earn a low rate of return than risk losing money on the investment. Based on this information, which investment would be the most appropriate for Ahmed?

A) guaranteed investment certificate
B) blue-chip stocks
C) derivatives
D) municipal bonds

Question 23

Marty is now retired and asks for your help choosing an investment that will provide a steady source of income. What do you recommend to Marty in this situation?

A) growth stocks
B) investment-grade corporate bonds
C) commodities
D) high-risk corporate bonds

Question 24

Which of the following would most likely be classified as a growth investment?

A) blue-chip stocks
B) guaranteed investment certificate
C) mid-cap shares
D) municipal bonds

Question 25

Because Maggie and David are nearing retirement age, they are concerned with the need for their investments to provide income. If you were a financial planner, which of the following would you recommend to Maggie and David as an investment?

A) government bonds
B) a money market account
C) small-cap shares
D) mutual funds

Question 26

Which of the following would be considered the most conservative investment?

A) savings accounts
B) common shares
C) corporate bonds
D) mutual funds

Question 27

What is the general relationship between risk and return?

A) These two factors are not related.
B) As risk increases, returns should decrease.
C) As risk increases, returns should increase.
D) As returns increase, the risk should decrease.

Question 28

Haverting Inc. is a fast-growing biotech company. What is Haverting likely to do with any profits it generates?

A) pay them out to shareholders as dividends
B) reinvest them in Haverting to finance growth
C) use the money to reduce corporate debt
D) keep half and pay the rest to shareholders

Question 29

How often are interest payments on corporate bonds usually paid?

A) every quarter
B) every six months
C) every year
D) when the bond matures

Question 30

Robert has been saving his money and decides he wants to invest it. Which of the following is considered the most speculative?

A) corporate bonds
B) real estate
C) derivatives
D) preferred shares

Question 31

In order to reach goals of high dollar returns on your investments, what must you generally give up?

A) risk
B) safety
C) diversification
D) speculation

Question 32

Corporate bonds are a form of which of the following?

A) short-term debt financing
B) long-term equity financing
C) long-term debt financing
D) short-term equity financing

Question 33

All of the following would be considered relatively low-risk investments EXCEPT which one?

A) blue-chip stocks
B) highly rated municipal bonds
C) guaranteed investment certificate
D) antiques and collectibles

Question 34

Zhao owns a $1000 corporate bond. She receives semiannual payments of $35 for this bond. What is the bond's stated interest rate?

A) 3.5%
B) 5%
C) 7%
D) 8%

Question 35

What do growing corporations typically do instead of paying dividends to their shareholders?

A) pay bonuses to their shareholders
B) sell more shares to the public
C) pay back their bank loans more quickly
D) reinvest profits in the business

Question 36

Christine wants to start investing in the market, but she wants to buy only relatively "safe" stocks for now. Of the following, which would be the most appropriate investment for Christine?

A) high-tech stocks
B) blue-chip stocks
C) options
D) commodities

Question 37

Maja would like some help choosing an investment that will grow over the next 10 years. Which of the following investments would you recommend for growth?

A) savings accounts
B) municipal bonds
C) mid-cap shares
D) investment-grade corporate bonds

Question 38

When selecting which funds offered with your retirement savings program to invest in, you choose some riskier funds because you have 40 years before retirement. Which of the four factors that impact your selection of investments are you considering with this decision?

A) your asset allocation goals
B) your financial plan
C) your liquidity needs
D) your risk tolerance

Question 39

Which of the following is defined as the total return you receive on an investment over a specific period of time divided by the amount invested?

A) rate of investment
B) rate of return
C) yield to maturity
D) income return

Question 40

If Richard wants to invest in large-cap stocks, he should seek companies that have an overall value of what amount?

A) over $10 billion
B) over $100 billion
C) $300 million to $1 billion
D) less than $10 billion

Question 41

Which of the following is a fund that invests in shares or other securities to track the movement of an index or industrial sector?

A) hedge fund
B) exchange-traded fund
C) mutual fund
D) derivative fund

Question 42

Which of the following would most likely be considered the safest investment?

A) corporate bond
B) guaranteed investment certificate
C) common stock
D) preferred stock

Question 43

Fatima puts her money in a single investment that is made up of many different securities and is managed by a team of professionals. Which of the following has Fatima invested in?

A) a mutual fund
B) municipal bonds
C) derivatives
D) a money market account

Question 44

Which of the following would NOT be considered a speculative investment?

A) buying stock on margin
B) derivatives
C) blue-chip stocks
D) commodities

Question 45

Suppose you have just inherited $10,000 from an uncle who passed away. You would like to invest this money so that it will grow and you can use it in the future to help supplement your retirement. Which of the following is an appropriate investment for growth?

A) guaranteed investment certificates
B) money market accounts
C) foreign stocks
D) corporate bonds

Question 46

High-risk investment techniques include all of the following EXCEPT which one?

A) buying common shares for cash
B) derivatives
C) commodities
D) trading in stock options

Question 47

Which of the following is often used as a benchmark or a measure of how the Canadian stock market is performing?

A) Dow Jones Index
B) NASDAQ Composite Index
C) S&P/TSX Composite Index
D) S&P 500 Index

Question 48

Many investors like mutual funds because they instantly provide which of the following?

A) diversification
B) profitability
C) financial returns
D) access

Question 49

Which of the following is defined as the process of spreading money across several different types of investments to reduce risk?

A) speculation
B) hedging
C) asset allocation
D) putting margin on shares

Question 50

Which of the following sectors is NOT as sensitive to changes in the economy as others?

A) technology
B) consumer staples
C) automotive
D) biotech

Question 51

A Canadian province wants to build a new highway. Which method of raising money would it most likely use?

A) issue bonds
B) issue preferred shares
C) issue common shares
D) borrow from a bank

Question 52

Which of the following is a select list of securities that generally reflects the performance of a particular type of investment?

A) mutual fund
B) derivative
C) index
D) option

Question 53

Which of the following is the investment goal that aims at avoiding loss of funds?

A) capital preservation
B) asset maintenance
C) securing value
D) safe asset allocation

Question 54

Which of the following describes investments in biotech or technology companies, derivatives, and commodities?

A) low risk
B) investments for capital preservation
C) investments for income
D) high risk

Question 55

If you wanted to purchase stocks in a certain sector of the market, which of the following would likely provide the least volatility?

A) real estate
B) energy
C) consumer staples
D) information technology

Question 56

Which of the following is NOT one of the three common ways to differentiate between shares in the stock market?

A) country
B) sector
C) volatility
D) size

Question 57

Which of the following describes the shares of a company that distributes the majority of its profits to its shareholders in the form of dividends?

A) a growth stock
B) a derivative
C) an income stock
D) a sector stock

Question 58

A company's equity is determined by multiplying its common share price by the number of common shares outstanding. What is another term used to describe this?

A) corporate net worth
B) market capitalization
C) stock market value
D) equity appraisal

Question 59

Rowe Price pools money from many investors and invests those funds in professionally managed portfolios of stocks and bonds. This best describes which of the following?

A) an exchange-traded fund
B) a mutual fund
C) a money market account
D) a derivative

Question 60

Which type of investment combines and invests the funds of many individual investors under the guidance of a portfolio manager who evaluates and selects securities to meet the portfolio objectives?

A) exchange-traded fund (ETF)
B) prospectus
C) mutual fund
D) option fund

Question 61

How do you calculate the rate of return on an investment?

A) divide the sale price of the investment by its original purchase price
B) subtract the amount of the original investment from the gain
C) divide the original investment by the amount of the gain
D) divide the amount of the gain by the original amount invested

Question 62

Jared has purchased a corporate bond with a face value of $10,000. He receives interest in the amount of $300 every six months. What is the interest rate of the bond?

A) 4%
B) 5%
C) 3%
D) 6%

Question 63

Suppose you are a college graduate ready to invest part of your income to save for retirement. Which of the following would be the least appropriate for you to select as part of your portfolio?

A) corporate bonds
B) foreign stocks
C) guaranteed investment certificate
D) blue-chip stocks

Question 64

Which of the following is NOT a website that provides online information on most investment, personal-finance topics, and detailed financial information about individual companies?

A) Wealthy Barber
B) CNN/Money
C) Market Watch
D) Yahoo! Finance

Question 65

Jacinda has finished her surgery residency and has joined a medical practice. She is now earning substantial income and wants to begin investing for her retirement. Which of the following investment portfolios would be most appropriate for her portfolio?

A) aggressive-growth portfolio of domestic and foreign stocks
B) investment-grade corporate bonds designed to provide income
C) a conservative mix of municipal bonds and blue-chip stocks
D) income-producing investments such as bonds and dividend-yielding stocks

Question 66

Suppose your parents invested $1500 into a savings account on the day you were born and never invested any other money in the account. Today that account is worth $4300. What is the rate of return on the savings account?

A) 34.8%
B) 186%
C) 51.7%
D) 81.5%

Question 67

Larry is a few years away from retirement. Which of the following portfolios is appropriate for Larry?

A) 15% bonds, 65% large- and small-cap stocks, 20% foreign stocks
B) 30% bonds, 50% large- and small-cap stocks, 20% foreign stocks
C) 70% bonds, 25% large- and small-cap stocks, 10% foreign stocks
D) 45% bonds, 40% large- and small-cap stocks, 15% foreign stocks

Question 68

Which of the following must publish annual reports that include a description of the company's performance, information about the business's products or services, and detailed financial statements, that readers can use to evaluate the company's performance?

A) non-profit corporations
B) private companies
C) Crown corporations
D) public companies

Question 69

Your grandmother calls you for advice on where to invest $3000 she received from selling an antique piece of furniture. She knows you have taken business classes, so she wants you to guide her toward an investment that will help maintain the value of her money. You know that your grandmother needs an investment for capital preservation, so what do you tell her is the best option?
A) invest in a guaranteed investment certificate

A) invest in corporate bonds
B) purchase mutual funds
C) purchase stock options

Question 70

Lucia has just celebrated her one-year anniversary at her job. She started investing in the company's retirement savings program a year ago, and she is curious how her investments have performed. Over the year she invested a total of $4000 into the retirement savings program, and today her account is worth $4700. What is Lucia's rate of return?

A) 7%
B) 14.9%
C) 17.5%
D) 23.2%

Question 71

Which of the following magazines provides not only general economic news but also detailed financial information about individual companies?

A) Forbes
B) Time
C) Economist
D) Maclean's

Question 72

Suppose Lane invested $5000 in the stock market. After two years, the value of Lane's investment is $8385. What is Lane's rate of return?

A) 67.7%
B) 38.9%
C) 59.7%
D) 40.4%

Question 73

Quentin is in his late thirties and would like to see his investments continue to grow in the next 10 years. Which of the following portfolios would be ideal for Quentin?

A) aggressive-growth portfolio of domestic and foreign stocks
B) money market accounts and guaranteed investment certificates
C) a conservative mix of bonds and blue-chip stocks
D) income-producing investments such as bonds and dividend-yielding stocks

Question 74

Which of the following statements would be an example of a medium-term goal?

A) save $2000 over the next two years toward the purchase of a new car
B) pay off my credit card balance within the next 60 day
C) pay off the mortgage on the house by 2025
D) have all of my student loans paid off within 10 years of graduation

Question 75

At the beginning of the year, John invested $10,000. Twelve months later, John sold his investment for $11,000. Assuming he received no dividends or interest during this time, what is his rate of return?

A) 110%
B) 100%
C) 10%
D) 1%

Question 76

Pawel knows that the stock market is doing really well at the moment and he wants to capitalize on it but doesn't have the time to pick individual stocks. What is the best type of investment for him to make gains in his investment similar to the stock market?

A) exchange-traded fund
B) derivatives
C) mutual fund
D) stock options

Question 77

Amelia has recently retired from her dental practice, and she is most interested in investments that will provide income during her retirement. Which of the following would be the least appropriate investment for Amelia to select?

A) government bonds
B) preferred stock
C) blue-chip stocks
D) derivatives

Question 78

Which of the following measures the performance of a stock?

A) risk-return ratio
B) revenue growth ratio
C) rate of return
D) margin rating