Deck 1: Understanding Investments

Question 1

Security analysis is most concerned with:

A) analysis of the overall securities market and its direction.
B) valuation and analysis of individual securities.
C) purchasing securities at the best price.
D) determination of the investor's required return.

Answer 1

B

Question 2

International investing:

A) is only practical for institutional investors.
B) increases the overall risk of a stock portfolio.
C) always leads to higher returns than a domestic portfolio.
D) can reduce risk due to increased diversification.

Answer 2

D

Question 3

Technically, investments include:

A) only financial assets.
B) only marketable assets.
C) financial and real assets that are marketable or non-marketable.
D) only financial and real assets that are marketable.

Answer 3

C

Question 4

Underlying all investments is the tradeoff between:

A) expected return and actual return.
B) low risk and high risk.
C) actual return and high risk.
D) expected return and risk.

Question 5

Which of the following statements concerning global stock market capitalization is true?

A) The United States accounts for roughly 65 percent of stock market capitalization worldwide.
B) The United States accounts for roughly 40 percent of stock market capitalization worldwide.
C) The United States accounts for roughly 25 percent of stock market capitalization.
D) It is expected that the United States will increase its future percentage of global stock market capitalization.

Question 6

In general, the ex ante risk-return tradeoff:

A) slopes upward.
B) slopes downward.
C) is flat.
D) is impossible to determine.

Question 7

Which of the following investment areas relies heavily on mathematical and statistical models?

A) Security analysis
B) Portfolio management
C) Institutional investing
D) Retirement planning

Question 8

Gold coins would be classified as:

A) real assets.
B) indirect assets.
C) personal assets.
D) financial assets.

Question 9

Regulation FD applies to disclosure between:

A) private companies and public officials.
B) public companies and investment professionals.
C) public companies and public officials.
D) private companies and investment professionals.

Question 10

Investment decision making traditionally consists of two steps:

A) investment banking and security analysis.
B) buying and selling.
C) risk and expected return.
D) security analysis and portfolio management.

Question 11

Which of the following is the best definition of wealth?

A) The sum of all current and future income
B) The total of all assets and all income
C) The total of assets and income less any liabilities
D) The sum of current income and the present value of future income

Question 12

Most financial advisors are registered with the Securities and Exchange Commission as:

A) registered representatives.
B) registered investment advisors.
C) registered financial planners.
D) registered securities consultants.

Question 13

Another name for stockbrokers is:

A) specialists.
B) financial advisors.
C) security analysts.
D) portfolio managers.

Question 14

The investment professionals that arrange the sale of new securities are called:

A) arbitragers.
B) traders.
C) investment bankers.
D) specialists.

Question 15

Most investors are risk averse, which means they:

A) will assume more risk only if they are compensated by higher expected return.
B) will always invest in the investment with the lowest possible risk.
C) actively seek to minimize their risks.
D) avoid the stock market due to the high degree of risk.

Question 16

Investment professionals who take companies public, arrange mergers and acquisitions, and participate in municipal bond issues are:

A) registered representatives.
B) security analysts.
C) investment bankers.
D) portfolio managers.

Question 17

A Chartered Financial Analyst designation is a(n)

A) SEC-approved and awarded designation.
B) certification of a successful investing record.
C) professional designation awarded for meeting recognized standards of conduct and competency.
D) professional designation awarded by the brokerage industry.

Question 18

Retirement plans that guarantee a set amount of money each month are known as:

A) 401(k) plans.
B) self-directed plans.
C) defined-benefit plans.
D) defined-contribution plans.

Question 19

Which of the following would be considered a risk-free investment?

A) Gold
B) Equity in a house
C) High-grade corporate bond
D) U.S. Treasury security

Question 20

One reason for the declining importance of pension funds is the:

A) decrease in pension benefits for workers.
B) downsizing of U.S. companies.
C) large number of conversions into self-directed plans.
D) increasing number of federal regulations that restrict pension fund portfolios.

Question 21

Many Wall Street jobs tend to be cyclical in nature.

Question 22

Due to the Internet, institutional investors have gained in importance.

Question 23

Risk is defined as the possibility of loss.

Question 24

Security analysts are typically employed only at brokerage houses.

Question 25

Financial planners must pass a standardized test and possess certain credentials.

Question 26

Martha Stewart was convicted of:

A) insider trading.
B) obstruction of justice.
C) manipulating stock prices.
D) participating in a Ponzi scheme.

Question 27

A 401(k) plan is an example of a defined-benefit retirement plan.

Question 28

Investors always seek to minimize their risk of investing.

Question 29

Both 401(k) plans and IRAs are self-directed retirement plans.

Question 30

The two major considerations in investing are return and timing.

Question 31

Investors unwilling to assume risk should be satisfied with the rate of inflation as their investment return.

Question 32

Which of the following professionals would be considered an institutional investor?

A) Investment banker
B) Security analyst
C) Stockbroker
D) Portfolio manager

Question 33

Which of the following securities should have the highest expected return?

A) Corporate bonds
B) Large firm stocks
C) Small firm stocks
D) Private equity

Question 34

The minimum actual return necessary to induce investors to invest is known as the expected return.

Question 35

Which of the following statements is true regarding multi-national corporations?

A) Exxon Mobil earns the majority of its profits from its overseas operations.
B) Google currently derives the majority of its earnings from outside the U.S.
C) Wal-Mart earns the majority of its profits from outside the U.S.
D) Coca-Cola has no overseas operations and no earnings outside the U.S.

Question 36

In investments, AUM stands for:

A) automatic unit multiplier.
B) annual unit multiplier.
C) assets under management.
D) active united manager.

Question 37

Which of the following is not a benefit of geographic diversification?

A) Gaining exposure to currencies other than the U.S. dollar.
B) Some global markets have growth rates higher than the U.S., offering potentially higher returns.
C) Global markets behave completely independently of U.S. markets.
D) Many global markets are not highly correlated with U.S. markets.

Question 38

The risk-free return (RF) equals:

A) 0.0%.
B) the rate on the bonds of financially sound corporations.
C) the average of the last 3 years' inflation rate.
D) the return on Treasury securities.

Question 39

The rise of the Internet has:

A) greatly increased the cost of security trading.
B) significantly democratized the flow of investment information.
C) led to fewer discount brokers.
D) led to large amounts of security fraud.

Question 40

Most professionally-managed stock portfolios are able to outperform the overall market on a consistent basis.

Question 41

Will risk-averse investors ever include commodity futures or options in their portfolios? Explain.

Question 42

Blockchain technology is the underlying process that enables the existence of cryptocurrencies.

Question 43

What are some of the steps involved in valuing a company's common stock?

Question 44

Define risk in the context of investments.

Question 45

Briefly explain the difference between expected returns and realized returns and between ex ante returns and ex post returns.

Question 46

A 25-year old college graduate is participating in a 401(k) retirement plan and wishes to minimize risk by eliminating stock-based mutual funds and other equities from his investment portfolio. What will this probably do to his ending retirement funds in 40 years?

Question 47

Bond yields in some European countries have been negative in recent years.

Question 48

What are some of the career opportunities in the investment industry?

Question 49

Martha Stewart was banned from serving as an officer of a public corporation, sentenced to 5 months in prison, and fined $30,000. Why?

Question 50

What are some of the reasons driving so many individual investors to manage their own investments today versus the conventional route of investing through a financial advisor or stockbroker?

Question 51

What is the primary advantage of blockchain technology and the cryptocurrencies that are enabled by it? How many different cryptocurrencies exist?