Deck 8: Investments

Question 1

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.

Answer 1

Income stock.

Question 2

Which of the following refers to ownership in a company?

A) Stock.
B) Individual retirement account (IRA).
C) Certificate of deposit.
D) Bond.

Answer 2

Stock.

Question 3

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.

Answer 3

Growth stock.

Question 4

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.

Question 5

Which of the following refers to the gross sales minus expenses?

A) Rate of return.
B) Net profit.
C) Price difference.
D) Income.

Question 6

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.

Question 7

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.

Question 8

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.

Question 9

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.

Question 10

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.

Question 11

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.

Question 12

How often are dividends typically paid?

A) Every month.
B) Every 3 months.
C) Twice a year.
D) Annually.

Question 13

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).

Question 14

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.

Question 15

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.

Question 16

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.

Question 17

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.

Question 18

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.

Question 19

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.

Question 20

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.

Question 21

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.

Question 22

Considering your time horizon, the longer you have, the ________ risk you can take.

A) less
B) more
C) Time horizon doesn't affect risk.

Question 23

How much do online brokerage firms charge per trade?

A) $1−$15.
B) $16−$30.
C) $31−$40.
D) $41−$50.

Question 24

Bonds are considered

A) ownership in the company.
B) debt owed to a company.
C) a share of the company.
D) risky investments.

Question 25

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.

Question 26

Which of the following represents contractual loans to corporations and governments?

A) Stocks.
B) Bonds.
C) CDs.
D) Value stocks.

Question 27

Which of the following firms are discount brokers?

A) Scottrade.
B) TD Ameritrade.
C) Fidelity.
D) All of these answer choices are correct.

Question 28

The commission is ________ for online brokerage firms compared with full-service brokers.

A) higher
B) lower
C) the same
D) There is no commission.

Question 29

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.

Question 30

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.

Question 31

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.

Question 32

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.

Question 33

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.

Question 34

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.

Question 35

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.

Question 36

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.

Question 37

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.

Question 38

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.

Question 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.

Question 40

Which of the following refers to the length of the loan contract?

A) Coupon rate.
B) Coupon payment.
C) Maturity date.
D) Face value.

Question 41

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.

Question 42

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.

Question 43

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.

Question 44

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.

Question 45

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.

Question 46

What type of risk does diversification eliminate?

A) Systematic risk.
B) Unsystematic risk.
C) Market risk.
D) It doesn't eliminate any risk.

Question 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.

Question 48

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.

Question 49

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.

Question 50

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.

Question 51

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.

Question 52

Which of the following is an investment that pools individual investors' money?

A) Mutual fund.
B) Stock.
C) Bond.
D) CD.

Question 53

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.

Question 54

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.

Question 55

Calculate the annual coupon payment. Coupon rate is 5%, and the face value is $1,000.

A) $40.
B) $50.
C) $75.
D) $100.

Question 56

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.

Question 57

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.

Question 58

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.

Question 59

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.

Question 60

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.

Question 61

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.

Question 62

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.

Question 63

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.

Question 64

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.

Question 65

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.

Question 66

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.

Question 67

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.

Question 68

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.

Question 69

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.

Question 70

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.

Question 71

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.

Question 72

When did ETFs first appear in the U.S. market?

A) 1963.
B) 1973.
C) 1983.
D) 1993.

Question 73

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%.

Question 74

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.

Question 75

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.

Question 76

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.

Question 77

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.

Question 78

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%.

Question 79

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.

Question 80

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.