Deck 20: B: Understanding Personal Finances and Investments

Question 1

Stocks are a good way to satisfy the growth factor in personal investing.

Answer 1

True

Question 2

Since stocks have greater returns than other investment alternatives, they are the logical choice for all investors.

Answer 2

False

Question 3

For most investors, the amount of time your investments have to work for you is of no concern.

Answer 3

False

Question 4

Asset allocation is the process of spreading your money among several different types of investments to lessen risk.

Question 5

A personal budget lists your assets and liabilities.

Question 6

A true financial planner has had at least two years of training in investments, insurance, taxation, retirement planning, and estate planning.

Question 7

Your age should be taken into account when determining which investments are right for your investment portfolio.

Question 8

Bank accounts that pay interest are considered a form of conservative investment.

Question 9

One of the primary reasons to begin investing when you are young is that your investments have more time to work for you.

Question 10

Most CFPs and ChFCs do not charge for their services, but rather receive commissions for the securities they recommend to their clients.

Question 11

Generally, small cash dividends or no dividends are received from an investment in a corporation that is in the process of growing.

Question 12

Mary Lou asks for your help. She must prepare a personal balance sheet for a class assignment. You tell her that a personal balance sheet simply lists her income and expenses for a specified period of time.

Question 13

When evaluating an investment, the potential return should be directly related to the assumed risk.

Question 14

Investors often choose investments like precious metals and antique collectibles because they offer substantial income possibilities.

Question 15

An important, and often first, warning sign of credit card trouble is the inability to pay you entire balance each month.

Question 16

Investments in the stock issued by new, start-up companies are an excellent way to generate investment income.

Question 17

The purpose of portfolio management is to increase both risk and returns.

Question 18

For an investor, liquidity can be defined as the ease with which an investment can be converted into cash.

Question 19

A blue-chip stock is an investment that generally attracts a high-risk or speculative investor.

Question 20

To be useful, investment goals must be specific and measurable.

Question 21

Shares in an exchange-traded fund (ETF) are available only from the investment company that sponsors the ETF.

Question 22

The market value is the price of one share of a stock at a particular time.

Question 23

A dividend that is paid in the form of additional shares of ownership is called a stock dividend.

Question 24

A closed-end fund sells shares in the fund to investors only when the fund is originally organized.

Question 25

U.S. savings bonds are purchased for one-half of their maturity value.

Question 26

Treasury bills are sold in $100 units and have a maturity of thirty years.

Question 27

The interest paid on bank accounts can be withdrawn to serve as income, or it can be left on deposit to provide growth.

Question 28

Bonds issued by municipal government units do not need to be evaluated.

Question 29

The net asset value per share is equal to the current market value of a mutual fund's portfolio minus the mutual fund's liabilities, divided by the number of outstanding shares.

Question 30

John Mathews purchased a corporate bond with a face value of $1,000 and a stated interest rate of 8 percent; he will receive an $80 interest payment twice a year.

Question 31

There is convincing evidence that the performance of load funds routinely outperforms the performance of no-load funds.

Question 32

Treasury notes are issued in $100 units with a maturity of more than one year but not more than ten years.

Question 33

The corporation can force a convertible bondholder to convert the bond to common stock.

Question 34

Dividends paid to investors who purchase preferred stock are paid before dividends are paid to common stockholders.

Question 35

Tavia Jones purchased mutual funds because she knows this investment provides professional management and guaranteed returns.

Question 36

In order to obtain a capital gain, you must sell your investment when the current market value is less than the amount you paid for the investment.

Question 37

A corporate bond with a face value of $1,000 is always worth $1,000.

Question 38

If interest rates in the economy decrease, a corporate bond with a fixed interest rate will increase in value.

Question 39

Load funds generally charge higher fees to purchase shares than do no-load funds.

Question 40

There are no guarantees that a stock will increase in value after a stock split.

Question 41

Real estate is a great investment as property values always increase.

Question 42

Over a period of time, security averages indicate trends, but they do not predict the performance of individual investments.

Question 43

When Kathy Wright completed her training, she expected to be given a stockbroker's position. Instead, she is an account executive. This is a better descriptive term than stockbroker because she actually buys and sells all types of securities, not just stock.

Question 44

Because of the cost, most investors are unable to obtain research information about stock investments by using the Internet.

Question 45

Standard & Poor's, Value Line, and Mergent, Inc., provide professional advisory and investment services.

Question 46

Over a long time period, real estate ownership represents one of the best hedges against inflation.

Question 47

The family-of-funds concept allows investors to exchange shares in one mutual fund for shares in another fund providing that the investor is willing to pay a 10 percent penalty of the value of the funds transferred.

Question 48

If the value of a stock you bought on margin decreases to approximately 60 percent of its original price, you will receive a margin call from the brokerage firm.

Question 49

Today, most corporations, investment companies that sponsor mutual funds, and federal, state, and local governments have a home page where investors can obtain valuable investment information.

Question 50

Kevin Lon sold stock he owned at a price below what he paid for it. This is an example of selling short.

Question 51

The Wall Street Journal and Barron's devote their reporting almost exclusively to financial and economic news.

Question 52

Selling short is a term used to describe a situation in which an investor is selling stock he or she does not own but has borrowed from a brokerage firm and will repay at a later date.

Question 53

A prospectus is a corporation's annual report on its operations.

Question 54

If a bond were listed at 84, its price would be $84.00.

Question 55

Over many years, managed funds outperform index funds.

Question 56

Investors pay a contingent deferred sales fee every time they purchase shares in a mutual fund.

Question 57

Morningstar provides detailed financial information about corporate bonds.

Question 58

All stock information on the Internet is provided free of charge by professional advisory services.

Question 59

If the Federal Reserve has set the margin requirement at 50 percent, an investor can buy three times as many shares of stock by choosing to buy on margin.

Question 60

A high-risk investment is made in the uncertain hope of earning a relatively large profit in a short time span.

Question 61

NYSE stands for New York Stock Exchange.

Question 62

A limit order is a request that a stock be bought or sold at a price equal to or better than some specified price.

Question 63

The Securities Act of 1933 requires that investors have full access to all important facts about stocks, bonds, and other securities so that they can make informed decisions.

Question 64

There is rarely a commission charged for purchasing mutual funds.

Question 65

The Securities Exchange Act of 1934 created the Securities and Exchange Commission.