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

Diversification of investment securities increases risk.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

Security selection to satisfy an asset allocation plan is final.

Question 6

The over-the-counter market is a primary market.

Question 7

Reallocation of the assets in a portfolio is called rebalancing.

Question 8

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 9

Online trading is financially safer than trading with a human broker.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

Common stocks are liabilities.

Question 17

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 will be adequate to meet your needs.

Question 18

Online calculators and worksheets can help you find answers to financial planning and investing questions.

Question 19

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

Question 20

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

Question 21

The most important investment prerequisites are:

A)ample income and debt.
B)ample income and confidential information.
C)ample insurance and liquidity.
D)an investment plan and a nonmonetary goal.
E)inconsistency and risk awareness.

Question 22

Which of the following statements regarding bonds is true?

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 23

Megan invested in 10 bonds with a total face value of $5,000, issued by Zen Corporation. The bonds paid 10% 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)$250
E)$75

Question 24

_____ is a risky short-term investment activity.

A)Purchasing life insurance
B)Buying real estate
C)Speculating in securities
D)Investing in mutual funds
E)Systematically saving for retirement

Question 25

James purchased five bonds with a face value of $1,000 that paid 5% 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

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 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 nonconvertible security.
E)An ETF is a hybrid security, whereas a mutual fund is not a hybrid security.

Question 28

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

A)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 29

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

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

Question 30

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)A 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 known as a broker market.

Question 31

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 32

A bull market is characterized by:

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

Question 33

Stockbrokers are also known as:

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

Question 34

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 35

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

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

Question 36

_____ 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 37

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

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

Question 38

When a trade occurs in a securities exchange:

A)the buyer purchases directly from the seller.
B)the dealer executes the trade.
C)an investment banker arranges the trade.
D)the Securities Exchange Commission executes the trade.
E)the central bank guarantees the sale.

Question 39

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 40

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 41

_____ 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 42

The _____ reflects the total market value of over 98 to 99% 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 43

Discount brokers will:

A)charge low commissions.
B)give a commission to the investment bankers.
C)issue a prospectus of the new issue in the primary market.
D)provide finances to underwrite the shares issued for the first time.
E)maintain a minimum balance of unsold shares of loss-making corporations.

Question 44

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 45

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

A)Level of professional investment knowledge
B)Interest in specific activities
C)Level and stability of income
D)Level of Internet skills
E)Judgment skills to buy and sell securities

Question 46

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 aggressive when investing.
E)more skillful in tax preparation.

Question 47

A collection of securities assembled to meet common investment goals is called a(n):

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

Question 48

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 49

Ownership in a corporation would be represented by :

A)bonds.
B)stocks.
C)real estate.
D)current accounts.
E)prospectuses.

Question 50

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.
E)variable income at variable risk.

Question 51

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 52

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.
E)rate of interest.

Question 53

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 the 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 54

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 55

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 56

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 57

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 58

A portfolio manager created a portfolio containing 80% common stocks, which would be appropriate for:

A)John and Vanessa, a retired couple who need a stable return.
B)Michelle, a divorced middle-aged mother who needs a high current income.
C)Meredith and Joe, a blue-collar, two-income family with five children.
D)Ramone, a young worker with a secure job putting money aside for retirement.
E)Antonio and Lora, a couple in their mid-50s with dependent parents.

Question 59

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 the market price drops below a specified price.
E)The stop-loss order is used to buy stocks at a 10% margin.

Question 60

Mathew 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 in one share?

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

Question 61

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
E)NASDAQ

Question 62

The _____ of securities in a worksheet of investments will be the most helpful in calculating the cumulative return on investments.

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

Question 63

The Securities and Exchange Commission was established as a result of the:

A)Investment Company Act of 1940.
B)Securities Exchange Act of 1934.
C)Securities Exchange Commission Act of 1940.
D)Sarbanes-Oxley Act of 2002.
E)Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Question 64

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% on this fund, how much would he need to deposit in the account today to meet his goal?  If Monte has $5,000 set aside now and  can earn an average of 8.5% on this fund, how much would he need to add to the account each month? (Round to the nearest whole number.)

Question 65

_____  contains the Volcker Rule, which prohibits depository banks from proprietary trading.

A)The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
B)The Sarbanes-Oxley 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
E)The Maloney Act of 1938

Question 66

_____  have no maturity date.

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

Question 67

_____  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
E)Investor management

Question 68

The Dow Jones Industrial Average is based on:

A)50 stocks.
B)30 stocks.
C)500 stocks.
D)200 stocks.
E)100 stocks.

Question 69

A convertible bond would let the investor exchange it for:

A)common stock.
B)preferred stock.
C)a mutual fund.
D)an exchange traded fund.
E)an exchange traded note.

Question 70

A fixed dividend would be received with :

A)common stocks.
B)preferred stocks.
C)bonds.
D)insurance policies.
E)real estate investments.

Question 71

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

A)an increasing
B)a steady
C)a decreasing
D)an erratic
E)no

Question 72

_____  is one of the most frequent investment objectives of an individual.

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

Question 73

_____  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
E)Value reporting

Question 74

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% in short-term securities, 75% in equities, and 15% in bond funds. How much money would you put in each category? (Show all work.)