Deck 1: Understanding Investments

Question 1

A Chartered Financial Analyst designation is a(an):

A) OSC-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.

Answer 1

professional designation awarded for meeting recognized standards of conduct and competency.

Question 2

Gold, gems, art and real estate would be classified as:

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

Answer 2

real assets.

Question 3

Another name for stockbrokers is:

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

Answer 3

registered representatives.

Question 4

A portfolio:

A) is made of the asset holdings of an investor.
B) cannot include real assets.
C) is not evaluated after initially purchased.
D) is unimportant in overall financial planning.

Question 5

Underlying the evaluation of an investment is the trade-off 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 6

Most investors exhibit risk averse behaviour which means:

A) they will not assume more risk only unless they are compensated by higher expected returns.
B) they will always invest in investments providing the lowest possible risk.
C) they actively seek to maximize their risks.
D) they invest only in money market securities to avoid the risk inherent in the stock market.

Question 7

The discipline of security analysis concerns as its primary criterion to provide a(n):

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.

Question 8

The ex ante risk-return trade-off as its basic principle suggests:

A) a higher expected return for investors who take on higher expected risk.
B) a lower expected return for investors who take on higher expected risk.
C) the same expected return for investors who take on higher expected risk.
D) the amount of expected return for investors is not directly related to the amount of expected risk.

Question 9

The expected return from an investment is:

A) contingent upon the historical return from that investment.
B) inversely related to the risk associated with that investment.
C) always equal to required return.
D) the anticipated return for some future period on that investment.

Question 10

An emerging market is one that is characterized by:

A) the continual introduction of new products and technologies.
B) the issuance of financially engineered securities.
C) a high participation rate in Internet trading.
D) a low per capita economy.

Question 11

Global events have a significant impact on the Canadian economy because:

A) Canada derives a small percentage of its economic wealth from international trade.
B) Canada's economy has a relatively large proportion of commodity-based industries.
C) Canada's manufacturing base has increased substantially in the last two decades
D) almost all of the Government of Canada debt is held by domestic investors.

Question 12

Which of the following is not an institutional investor?

A) chartered banks
B) insurance companies
C) pension funds
D) high net worth investors

Question 13

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

A) gold
B) equity in a house
C) high-grade corporate bonds
D) Bank of Canada Treasury bills

Question 14

Which of the following groups of investments is incorrectly ordered from lowest to highest risk?

A) government bonds, preferred stock, warrants
B) T-bills, corporate bonds, options
C) government bonds, financial futures, common stock
D) T-bills, common stock, options.

Question 15

Investors should be concerned with international investing for all of the following reasons except:

A) Large amount of capital flows from abroad into domestic markets.
B) Rates of return on foreign securities have often been larger than on domestic securities.
C) Foreign companies are taking over many domestic industries, such as banking.
D) Canadian companies derive a large percentage of their revenues from abroad.

Question 16

The __________ Act was implemented in 2002 in the U.S. in response to the collapse in public confidence surrounding the debacles of Enron and WorldCom.

A) Canadian Business Incorporation
B) Sarbanes-Oxley
C) Sherman
D) Trading with the Enemy

Question 17

Emerging markets are often characterized as:

A) low risk, low return markets.
B) low risk, high return markets.
C) high risk, low return markets.
D) high risk, high return markets.

Question 18

Markets that have prices adjusting quickly to new information to reflect the impact of that information on the security is known as:

A) risk-free.
B) liquid.
C) self-fulfilling.
D) efficient.

Question 19

Investment professionals whose jobs may depend on their performance relative to the market are the:

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

Question 20

Institutional investors often avoid investing in spinoffs because:

A) they often pay no dividends and may be too small.
B) they tend to be too risky for most institutional investors.
C) they generally have lower than average returns.
D) they require too great a commitment of funds.

Question 21

Portfolio management is most concerned with:

A) generating the highest expected return regardless of risk.
B) the income tax planning for security returns.
C) the retirement planning process.
D) the selection, revision, and evaluation of a group of assets.

Question 22

In order to become licensed to sell securities in Canada, individuals must pass the following courses:
1) CSC $\quad$$\quad$ 3. IFIC
2) CPH $\quad$$\quad$ 4. CFA

A) 1 and 2
B) 1, 2, and 3
C) 1 only
D) 1 and 4

Question 23

A risk-averse investor will avoid all risk when investing.

Question 24

Investors always seek to maximize the return from their investments regardless of the risk of investing.

Question 25

All investors should allocate the majority of their portfolio in T-bills to minimize the risk of the portfolio.

Question 26

The two major considerations in investing are timing and risk.

Question 27

Common stock analysis is a two-step process of analyzing the industry and analyzing the individual company.

Question 28

Investors that do not strongly believe in the Efficient Market Hypothesis tend to follow a passive investment strategy.

Question 29

Risk is defined as the chance that the actual return on an investment will outperform the stock market in a given year.

Question 30

Institutional investors have gained in importance at the expense of individual investors.

Question 31

Financial planners, on average, earn much more than security analysts.

Question 32

According to the Efficient Market Hypothesis, prices of securities reflect their underlying economic value.

Question 33

Real assets include stocks, bonds and financial futures.

Question 34

The CSI has the exclusive right to grant the Certified Financial Planner (CFP) designation in Canada.

Question 35

The CFA program is offered by the CFA Institute.

Question 36

What is the major difference separating the Chartered Financial Analyst from the other financial planners?

Question 37

Explain why T-bills are not totally risk-free.

Question 38

What are the components of security analysis and why does it take place before portfolio construction?

Question 39

A 25-year old college graduate is participating in an RRSP. His primary investment criterion is to minimize risk. What will this decision probably do to his ending retirement funds in 40 years? What types of investments would be in that RRSP that the graduate has chosen to provide minimum risk?

Question 40

Considering the Efficient Market Hypothesis, how does new economic information affect securities' prices?

Question 41

What are the steps required to value common stock?

Question 42

According to the Efficient Market Hypothesis, stocks in the market are assumed to be fairly priced. Does this mean that security analysis is a waste of time?

Question 43

When it comes to decisions about the amount of trades taken by an investor explain why some investors and their brokers may want to take different approaches to trading decisions?