Deck 17: Understanding Personal Finances and Investments

Question 1

How much money do most investment counselors recommend that an individual save for an emergency fund?

A) One month's living expenses
B) One month's gross salary
C) Two times the take-home salary
D) Three months' living expenses
E) Nine months' living expenses

Answer 1

D

Question 2

What would cause a corporate bond with a $1,000 face value and a fixed interest rate of 7 percent to increase in value?

A) The bond receives a lower rating by Moody's or Standard & Poor's.
B) Overall interest rates in the economy increase.
C) The government places an interest ceiling on corporate bonds.
D) Overall interest rates in the economy decrease.
E) The corporation files for protection under the bankruptcy laws.

Answer 2

D

Question 3

Which of the following best explains the purpose of asset allocation?

A) Reduce commission charges
B) Increase investment risk
C) Reduce government fees associated with investing
D) Reduce taxes paid to the IRS
E) Reduce investment risk

Answer 3

E

Question 4

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

A) Risk
B) Safety
C) Stocks
D) Money
E) Return

Question 5

Since Mike and Carol 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 not recommend to Mike and Carol as an investment?

A) Blue-chip stocks known for paying dividends
B) Stocks of high-growth companies
C) Corporate bonds
D) Government bonds
E) Certificates of deposit

Question 6

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

A) By January 20XX,I will have total assets of $180,000.
B) I want to invest to earn money with money.
C) In 20 years or so,I want to have $10,000 in a bank account.
D) I want to invest in stock that is growing.
E) By December 20XX or 20XX,I want to hold stocks in a Fortune 500 company.

Question 7

Jan Murphy is in her early 30s and 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) Corporate bonds
C) Municipal bonds
D) Common stock
E) Government bonds

Question 8

Barry Ferrell has a monthly income of $2,500.His monthly expenses are $2,000.What amount is recommended for someone in Barry's situation to set aside to establish an emergency fund?

A) $2,000
B) $2,500
C) $7,500
D) $6,000
E) $1,500

Question 9

What is the name of a government security that is sold in minimum units of $100 and has maturities that may be as long as one year?

A) Series EE savings bond
B) U.S.savings bond
C) Treasury bond
D) Treasury note
E) Treasury bill

Question 10

If Martie Brown,a retiree asked for your help choosing an investment that will provide a steady source of income,which of the following would be the best for you recommend?

A) Growth stocks
B) Certificates of deposit
C) Margin investments
D) Low-rated muni bonds
E) High-risk corporate bonds

Question 11

Dillon owns a $1,000 corporate bond.He receives semiannual payments of $35 for his bond.What is the bond's stated interest rate?

A) 3.5 percent
B) 5 percent
C) 7 percent
D) 8 percent
E) 10 percent

Question 12

What is the name given to a bond issued by a state or local government?

A) State treasury note
B) State treasury bond
C) Corporate bond
D) Municipal bond

Question 13

Which of the following would not satisfy the safety factor of investing?

A) Savings accounts
B) Blue-chip stocks
C) Certificates of deposit
D) Highly rated municipal bonds
E) Antiques and collectibles

Question 14

Which of the following is not a suggested tip for making investment decisions?

A) Do your homework about potential investments.
B) Keep copies of materials used to make investment decisions.
C) Monitor the value of your investments.
D) Keep accurate records.
E) Choose the least expensive online broker for stock purchases.

Question 15

To get the proper financial counseling,Marquis and Marta Jacobs made an appointment with Harry Hanstein.Harry has had two years of training in securities,insurance,taxation,retirement planning,and estate planning and has passed a rigorous qualifying examination given by the Certified Financial Planner Board of Standards in Denver.Which of the following most narrowly describes Harry's occupation?

A) Real estate broker
B) Stockbroker
C) Certified public accountant
D) Tax consultant
E) Certified financial planner

Question 16

Kaitlyn purchases a $1,000 corporate bond with a fixed interest rate of 5 percent for $900.What is the most likely explanation for this apparent bargain?

A) Overall interest rates in the economy increase.
B) Someone just wanted to get rid of the bond quickly.
C) The bond receives a better rating by Standard & Poor's or Moody's.
D) Overall interest rates in the economy decrease.
E) The company just introduced a new product.

Question 17

Which of the following best describes corporate bonds?

A) Short-term debt financing
B) Bank account
C) Long-term equity financing
D) Long-term debt financing
E) Short-term equity financing

Question 18

Which of the following is not one of the types of bonds issued by the U.S.federal government?

A) Treasury notes
B) Savings bonds
C) Treasury municipals
D) Treasury bills

Question 19

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

A) Common stock issued by new corporations
B) Mutual funds
C) Corporate bonds
D) Market order
E) Savings account

Question 20

What are the most conservative of all investments?

A) Municipal bonds
B) Bank accounts
C) Common stocks
D) Corporate bonds
E) Mutual funds

Question 21

Which of the following is not a characteristic of common stock?

A) Shares can be sold for a capital gain if the price of the stock increases.
B) The firm has no legal obligation to pay dividends to stockholders.
C) An increase or decrease in the market value of the stock will have a corresponding effect on the value of the investment.
D) Each share of stock represents debt for the corporation.
E) Cash dividends are generally paid on a quarterly basis.