Deck 11: Investment Planning

Question 1

A corporation's annual stockholders' report provides financial data and other information related to both past and planned activities.

Answer 1

True

Question 2

Owning common stock represents a debt investment.

Answer 2

False

Question 3

Financial ratios of a company are included in its annual stockholders' report.

Answer 3

True

Question 4

Mutual funds provide professional management and diversification that individual investors-especially those with limited resources-can rarely obtain on their own.

Question 5

Diversification of investment securities increases risk.

Question 6

The NYSE index includes all stocks listed on the "big board."

Question 7

Subscription advisory services provide information and recommendations on various industries and specific securities.

Question 8

An investor will have a better safety net in case of online trading,when compared to trading with the help of human brokers.

Question 9

There is a trade-off between earning a high current income from an investment and obtaining significant capital appreciation from it.

Question 10

Online trading is the only valuable investment service available through the Internet.

Question 11

The over-the-counter market is an organized securities exchange.

Question 12

A retired couple can probably bear more risk in their portfolio than a young investor with a secure job.

Question 13

Once an asset allocation plan is developed and securities are selected,these decisions do not have to be made again.

Question 14

Online calculators and worksheets help you find answers related to stock exchanges.

Question 15

Your goals tend to set the tone for your investment program,and they play a major role in determining how conservative or aggressive you're likely to be in making investment decisions.

Question 16

Exchange traded notes (ETN)face both market risk and the risk of default of the issuing bank.

Question 17

The New York Stock Exchange (NYSE)is a part of the dealer market.

Question 18

The goal of sheltering income from taxes is an illegitimate goal.

Question 19

When completed,an investment plan is a way of translating an abstract investment target into a specific investment program.

Question 20

Reviewing the amounts of income that you can realistically expect to receive from Social Security and your employee pension helps you to decide whether they'll be adequate to meet your needs.

Question 21

Which of the following is an order to sell a stock when the market price drops to or below a specified level?

A)A market order
B)A limit order
C)A stop-loss order
D)A fill or kill order
E)A day order

Question 22

Which of the following is a characteristic of organized securities exchanges?

A)Organized securities exchanges facilitate the trading of unlisted securities with the issuer.
B)Prospectus is primarily traded in organized exchanges.
C)Organized securities exchanges commonly use pink sheets for trading.
D)Organized securities exchanges deal in mutual funds only.
E)Organized securities exchanges are also are known as broker market.

Question 23

Which of the following is true of bonds?

A)Bonds are liabilities of the issuer.
B)Individuals investing in bonds receive dividends.
C)Bonds cannot be purchased or sold prior to maturity.
D)Income from bonds varies every year.
E)The principal invested in bonds is not returned at the time of maturity.

Question 24

_____ are senior,unsecured,unsubordinated debt securities issued by an underwriting bank.

A)Mutual funds
B)Exchange traded notes
C)Corporate Bonds
D)Collateral debt obligations
E)Treasury bills

Question 25

James purchased five bonds of face value of $1,000 that paid 5 percent annual interest rate.The total annual interest income of James for each year is _____.

A)$50
B)$175
C)$250
D)$100
E)$500

Question 26

Reallocation of the assets in a portfolio is called rebalancing.

Question 27

Which of the following is a difference between an exchange traded fund (ETF)and a mutual fund?

A)An ETF is a fixed income instrument,whereas a mutual fund is a variable income instrument.
B)An ETF can only be traded at the end of the day,whereas a mutual fund can be bought or sold throughout the trading day.
C)An ETF provides more favorable tax treatment than a mutual fund.
D)An ETF is a convertible security,whereas a mutual fund is a non-convertible security.
E)An ETF is a hybrid security,whereas a mutual fund is not a hybrid security.

Question 28

The new securities sold in primary markets are handled by a(n):

A)security exchange council.
B)dealer.
C)investment banker.
D)credit bureau.
E)insurance agent.

Question 29

Which of the following is true of a securities exchange?

A)The stocks are traded on a securities exchange using pink slips only.
B)The traded securities change hands right there on the floor of the securities exchange.
C)The buyer and the seller in a securities exchange underwrite shares with the investment banker.
D)The securities exchange acts as a market maker where new securities are sold to the public.
E)The securities exchange is a primary market for sale of securities on the over-the-counter bulletin board (OTCBB).

Question 30

A bear market condition is associated with:

A)investor optimism.
B)declining securities prices.
C)economic recovery.
D)increased tax rate.
E)high returns.

Question 31

The federal government regulates the disclosure of information about securities through the:

A)Department of Commerce.
B)Federal Reserve System.
C)National Association of Securities Dealers.
D)Securities and Exchange Commission.
E)Federal Securities Agency.

Question 32

Which of the following types of brokers enables an investor to trade electronically from his or her personal computer?

A)A full service broker
B)A bank broker
C)A futures broker
D)An online broker
E)A market maker

Question 33

A bull market is characterized by:

A)investor optimism.
B)low returns.
C)economic slowdown.
D)falling stock prices.
E)investor pessimism.

Question 34

Which of the following securities or investment acts regulates the sale of mutual fund shares?

A)The Securities Act of 1933
B)The Securities and Exchange Act of 1934
C)The Investment Company Act of 1940
D)The Sarbanes/Oxley Act of 2002
E)The Securities and Protection Act of 1970

Question 35

The most important investment prerequisites are:

A)adequate income and debt.
B)adequate income and unpublished information.
C)adequate insurance and liquidity.
D)an investment plan and a non-monetary goal.
E)inconsistency and risk awareness.

Question 36

You have been offered an opportunity to buy shares of a diversified collection of securities.You will be investing in:

A)bonds.
B)common stocks.
C)mutual funds.
D)real estate.
E)stock options.

Question 37

Megan invested in ten bonds of total face value of $1,000,issued by Zen Corporation.The bonds paid 10 percent semiannual interest till the maturity date.Which of the following is the value of interest earned in the first installment on a single bond?

A)$50
B)$100
C)$500
D)$90
E)$75

Question 38

_____ is a short-term investment activity.

A)Buying life insurance
B)Buying real estate
C)Speculating in common stock
D)Investing in common stock
E)Systematically saving for retirement

Question 39

A trade in securities exchange:

A)brings the buyer and seller together.
B)is executed by the dealer.
C)is arranged by an investment banker.
D)is executed by the Securities Exchange Commission.
E)is guaranteed by the central bank.

Question 40

Stockbrokers are also known as:

A)market makers.
B)account executives.
C)underwriters.
D)commission sellers.
E)traders.

Question 41

Which of the following characteristics of an investor should be evaluated to formulate an effective portfolio strategy?

A)Level of professional investment knowledge
B)Social relationship with stock brokers
C)Level and stability of income
D)Level of Internet surfing skills
E)Judgment skills to buy and sell securities

Question 42

When you buy 300 shares of a company,you have purchased:

A)an odd lot.
B)a round lot.
C)a combined lot.
D)an even lot.
E)a prime lot.

Question 43

Which of the following best describes portfolio management?

A)The management of a marketplace in which stocks,bonds,and other financial instruments are traded
B)A procedure used to settle disputes between a brokerage firm and its clients,which makes a final and usually binding decision on the matter
C)The management of an agency of the federal government that regulates the disclosure of information about securities and generally oversees the operation of the securities exchanges and markets
D)The process of creation of a document that is made available to prospective security buyers that describes the firm and a new security issue
E)The buying,selling,and holding of various securities in order to meet a set of predetermined investment needs and objectives

Question 44

Maria has invested $200,000 in mutual funds and $20,000 in bonds.The total value of her portfolio is _____.

A)$220,000
B)$130,000
C)$250,000
D)$400,000
E)$310,000

Question 45

The Internet allows individual investors to legally:

A)perform investment research and screening.
B)collect money for trading.
C)participate in pump and dump schemes.
D)obtain information that is always completely accurate from chat rooms.
E)obtain unpublished information about a company.

Question 46

Which of the following is a characteristic of a stop-loss order?

A)The stop-loss order is the quickest way to have an order filled.
B)The stop-loss order allows buy orders to be filled at the lowest price.
C)The stop-loss order allows stocks to be purchased at the current market price.
D)The stop-loss order sells a stock when market price drops below a specified price.
E)The stop-loss order is used to buy stocks at a 10 percent margin.

Question 47

A diversified portfolio of securities is characterized by:

A)dissimilar risk-return characteristics of the financial instruments.
B)concentration on a single industry which has the highest growth rate.
C)erratic loss potential due to investment in latest financial vehicles.
D)unstable earnings for the entire investment horizon.
E)investing on a single security which has the lowest risk and the highest returns.

Question 48

A young investor with a secure job is:

A)more concerned about current income.
B)more able to bear risk.
C)less oriented toward investments with capital gains.
D)less interested in stock markets.
E)more skillful in tax evasion.

Question 49

The _____ reflects the total market value of over 98 percent to 99 percent of all publicly traded stock in the United States.

A)Dow Jones Industrial Average Index
B)Standard & Poor 500 Index
C)National Association of Securities Dealers Automated Quotations Index
D)Dow Jones Wilshire 5000 Index
E)New York Stock Exchange Index

Question 50

A market order is transacted at the:

A)lowest price of the day.
B)best price when the order is entered.
C)limit price.
D)price quoted by the broker.
E)average price of the stock on the transaction day.

Question 51

The Securities Investor Protection Corporation (SIPC)provides insurance to the investor from:

A)the declining security prices.
B)the company's failure to make dividend payments.
C)a brokerage firm's financial failure.
D)the loss of the marginal investment on the stock exchange.
E)the loss of the security deposit with the broker.

Question 52

Instructing your broker to buy or sell a stock at a particular price is a:

A)limit order.
B)market order.
C)margin order.
D)regular order.
E)stop order.

Question 53

A collection of investments assembled to meet a common investment goal is called:

A)a treasury.
B)a diversification.
C)a grouping.
D)an envelope.
E)a portfolio.

Question 54

A stock portfolio containing 80 percent common stocks is appropriate for:

A)a retired couple who needs a stable return.
B)a divorced middle-aged mother who needs a high current income.
C)a blue-collar,two-income family with five kids.
D)a young worker with a secure job putting money aside for retirement.
E)a couple in their mid-50s with dependent parents.

Question 55

An _____ provides financial and descriptive information about a firm's operations in the recent past to the internal and external interested parties.

A)annual stockholders' report
B)annual tax report
C)annual portfolio report
D)annual research report
E)annual education report

Question 56

_____ is a process to settle disputes between a brokerage firm and its clients.

A)Diversification
B)Estate planning
C)Arbitration
D)Asset allocation
E)Portfolio tracking

Question 57

Which of the following sections in the annual report gives information on ongoing litigation?

A)The Chief executive's letter
B)Management's discussion and analysis
C)Income statement
D)Auditor's report
E)Notes about the financial statements

Question 58

Discount brokers will:

A)execute orders at the best possible price.
B)give commission to the investment bankers.
C)issue prospectus of the new issue in the primary market.
D)provide finance to underwrite the shares issued for the first time.
E)maintain a minimum balance of unsold shares of loss-making corporations.

Question 59

_____ is a process of choosing securities in order to create a portfolio that provides an acceptable level of return and an acceptable exposure to risk.

A)Capitalization
B)Risk disposition
C)Diversification
D)Stratification
E)Risk ramification

Question 60

Mathew had purchased 100 shares of Blue Corporation for $100 per share.Currently,the stocks of Blue Corporation are trading at $150.Which of the following is the return on Mathew's investment on one share?

A)65%
B)50%
C)75%
D)80%
E)40%

Question 61

The Dow Jones Industrial Average is based on __________. ​

A)50 stocks
B)30 stocks
C)500 stocks
D)200 stocks

Question 62

The __________ is based on 500 different stocks. ​

A)Standard & Poor's index
B)Dow Jones Industrial Average
C)New York Stock Exchange index
D)Wall Street Commercial Average

Question 63

Clara's portfolio is worth $200,000 and her portfolio consists of common stocks worth $56,000.Therefore,equity constitutes _____ of Clara's portfolio.

A)10%
B)33%
C)28%
D)56%
E)61%

Question 64

Retired people prefer an investment offering __________. ​

A)high current income at low risk
B)low current income at low risk
C)high current income at high risk
D)low current income at high risk

Question 65

__________ is one of the most frequent investment objectives of an individual. ​

A)Exceeding credit limit
B)Obtaining a loan
C)Paying more taxes
D)Enhancing current income

Question 66

Monte wants to save for his daughter's college education.He would like to have $85,000 in 15 years.If Monte can earn an average of 8.5 percent on this fund,how much would he need to deposit in the account today to meet his goal?
If Monte has no money to set aside now but wants to save at the end of each month for this goal,how much would he need to add to the account each month? (Round the answer to the nearest whole number.)

Question 67

Mike is in his late 60's and retired.He wants to maintain a portfolio of investments that will provide him a stable income.Which of the following financial instruments is the most suitable option for Mike?

A)Loans
B)Mortgages
C)Money market securities
D)Bonds
E)Stocks

Question 68

A fixed dividend would be received with __________. ​

A)common stocks
B)preferred stocks
C)bonds
D)insurance policies

Question 69

__________ have no maturity date. ​

A)Common stocks
B)Bonds
C)Corporate deposits
D)Insurance policies

Question 70

__________ is the process of analyzing the performance of the securities held by an investor. ​

A)Portfolio tracking
B)Investor trading
C)Index pegging
D)Securities building

Question 71

__________ involves dividing a portfolio among different classes of securities in order to preserve the capital by protecting the portfolio against negative market developments. ​

A)Arbitration
B)Asset allocation
C)Portfolio tracking
D)Estate planning

Question 72

__________ was designed to improve the transparency and accountability of the financial system in the U.S.The legislation contains the Volcker rule,which prohibits depository banks from proprietary trading. ​

A)The Dodd-Frank Wall Street and Consumer Protection Act of 2010
B)The Sarbanes-Oxley and Investment Company Regulation Act of 2002
C)The Investment and Exchanges Regulation and Protection Act of 2005
D)The Patrick-Miller Exchange Regulation and Protection Act of 2011

Question 73

The first thing you need to determine in order to reach an investment goal after accumulating the capital is the __________. ​

A)rate of return
B)rate of savings
C)rate of inflation
D)rate of consumption

Question 74

Ownership in a corporation would be represented by __________. ​

A)bonds
B)stocks
C)real estate
D)current accounts

Question 75

The Securities and Exchange Commission was established as a result of the __________. ​

A)Securities Exchange Act of 1933
B)Securities Exchange Act of 1934
C)Securities Exchange Commission Act of 1940
D)Securities Exchange Investment Act of 1945

Question 76

The owner of a bond would expect to receive __________ annual income. ​

A)an increasing
B)a steady
C)a decreasing
D)an erratic

Question 77

A convertible bond would let the investor exchange it for __________. ​

A)common stock
B)preferred stock
C)mutual fund
D)exchange traded fund

Question 78

The __________ of securities in a worksheet of investments will help in calculating the cumulative return on investments. ​

A)type
B)market value
C)description
D)date of purchase

Question 79

You have inherited $250,000.You have decided that since you don't need the money currently,you should invest the money in order to meet future expenses.After seeking advice,you decide on an asset allocation plan that puts 10 percent in short-term securities,75 percent in equities,and 15 percent in bond funds.How much money would you put in each category? (Show all work)