Question 1

Which of the following is correct regarding commercial paper?
I. Maximum maturity date 180 days
II. Maximum maturity date 270 days
III. Short-term debt
IV. Unsecured

A) I, IV.
B) II, III, IV.
C) I, III, IV.
D) I, III.

II, III, IV.

Accepted Answer

Commercial paper typically has a maximum maturity date of 270 days, is considered short-term debt, and is unsecured, making options II, III, and IV correct.

Question 2

The _____ states that an investor needs to be compensated for the time value of capital (money) invested and the additional risk for making the investment.&#10;A) Arbitrage Pricing Theory.&#10;B) Capital Asset Pricing Model.&#10;C) Fundamental Analysis.&#10;D) Technical Analysis.

Accepted Answer

The Capital Asset Pricing Model (CAPM) states that an investor should be compensated for both the time value of money and the additional risk of the investment. The model measures the expected return of an investment based on its risk level compared to the market as a whole.

Question 3

Which of the following is a tangible investment?&#10;A) Antique automobile.&#10;B) Bond.&#10;C) REIT.&#10;D) Stock.

Accepted Answer

An antique automobile is a physical asset that can be touched and seen, making it a tangible investment. Bonds, REITs, and stocks are intangible investments as they represent ownership or a claim on assets, but do not have a physical presence.

Question 4

Which of the following is a passive management approach to investing?&#10;A) All-in Allocation.&#10;B) Margin Account.&#10;C) Short Selling.&#10;D) Systematic Withdrawal Plan.

Accepted Answer

A passive management approach to investing involves strategies that aim to match or track the performance of a market index or benchmark, rather than trying to outperform it through active trading. A Systematic Withdrawal Plan (SWP) is a type of investment strategy where an investor withdraws a specific amount of money at regular intervals from an investment account. This approach is considered passive because it does not involve frequent buying and selling of assets to beat the market.

Question 5

Which of the following is a hybrid security?&#10;A) Arbitrage fund.&#10;B) Convertible bond.&#10;C) Exchange traded fund.&#10;D) Mutual fund.

Accepted Answer

A convertible bond is a hybrid security because it combines features of both a bond and a stock. It is a bond that can be converted into a predetermined number of the issuing company's common stock at a certain price. This makes it a hybrid security because it has both fixed income and equity components. The other choices (arbitrage fund, exchange traded fund, mutual fund) are not considered hybrid securities.

Question 6

Which of the following is purchased at par value, and interest is accrued and paid at redemption. Interest stops accruing after 30 years. Interest earnings are subject to federal income tax but are exempt from state and local income tax.

A) Series BB savings bond.
B) Series EE savings bond.
C) Series H savings bond.
D) Series I treasury bond.

Accepted Answer

Series EE savings bonds are purchased at half their face value, and interest accrues monthly and is paid when the bond is cashed in. Interest stops accruing after 30 years, and while the interest earnings are subject to federal income tax, they are exempt from state and local income taxes.

Question 7

Which of the following are correct regarding Mortgage-backed securities?
I. Interest only passes through to the investor.
II. Invest in a pool of mortgage loans.
III. Principal only passes through to the investor.
IV. Referred to as a pass-through security.

A) I, II.
B) II, III,
C) II, IV.
D) III, IV

Accepted Answer

Mortgage-backed securities invest in a pool of mortgage loans and are referred to as pass-through securities because regular payments of principal and interest pass through to the investor. Therefore, statements II and IV are correct. Interest and principal both pass through to the investor, so statement I and III are incorrect.

Question 8

A(n) _____ allows for diversification by pooling the capital of many investors in order to purchase more securities and reduce the risk of the investment portfolio&#10;A) Exchange traded security.&#10;B) Mutual fund.&#10;C) Margin Account.&#10;D) myIRA.

Accepted Answer

A mutual fund allows for diversification by pooling the capital of many investors in order to purchase more securities and reduce the risk of the investment portfolio. The other options either do not involve pooling capital with other investors (myIRA, margin account) or do not necessarily involve diversification (exchange traded security).

Deck 11: Investment Planning