Deck 10: Fundamentals of Investing

Question 1

Which of the following statements does not accurately describe a line of credit?

A) A line of credit is already approved before the money is actually needed.
B) A line of credit is a long-term loan.
C) A line of credit can be obtained at a credit union, trust company, or bank.
D) A line of credit provides an alternative source of funds if an emergency does develop.
E) A line of credit is available immediately when needed.

Answer 1

A line of credit is a long-term loan.

Question 2

All of the following statements are considered to be good advice for the potential investor before starting his or her personal investment program except:

A) Learn to live within your means.
B) Increase credit purchases and make installment payments in order to increase cash available for investing.
C) Provide adequate insurance protection.
D) Start an emergency fund.
E) Establish a line of credit.

Answer 2

Increase credit purchases and make installment payments in order to increase cash available for investing.

Question 3

Which of the following investments would rank the highest with regard to safety?

A) real estate
B) common stock
C) preferred stock
D) corporate bonds
E) bank accounts

Answer 3

bank accounts

Question 4

An example of ____________ risk occurs when an investment does not keep up with prices that are increasing in the overall economy.

A) market
B) interest
C) inflation
D) business failure
E) current

Question 5

Chi Min-Ho is 24 and has saved enough money to fund an adequate emergency fund. In addition, he has saved $5,600 that can be used to fund an investment program. He is single, has no dependents, and would like to retire when he is 60. Which of the investment factors listed below would be most important for an investor like Mr. Min-Ho?

A) beta
B) income
C) growth
D) risk
E) liquidity

Question 6

All except which one of the following are good ways to acquire money for starting an investment program?

A) Pay bills first, and then save a reasonable amount of money for investment.
B) Participate in an elective savings program offered by your employer.
C) Make a special savings effort one month per year.
D) Borrow money specifically for investment purposes.
E) Take advantage of gifts, inheritances, and windfalls.

Question 7

Jamie Lynn earns $40,000 a year. Her monthly expenses total $1,700. What is the minimum amount of money that Ms. Lynn should set aside in an emergency fund?

A) $1,700
B) $3,400
C) $5,100
D) $8,400
E) $10,000

Question 8

One dollar placed in a safety deposit box in 1980 is worth

A) less than 50 cents.
B) about 10 cents.
C) zero.
D) between 50 cents and one dollar.
E) more than one dollar.

Question 9

Which of the following investments has the best rate of return when adjusted for inflation?

A) savings accounts
B) corporate bonds
C) Canadian treasury bills
D) common stocks
E) preferred stocks

Question 10

A decrease in the value of stocks, bonds, or other investments may cause investors to experience ____________ risk.

A) market
B) interest rate
C) business failure
D) inflation
E) income

Question 11

Which of the following is not a determinant of investor risk tolerance?

A) goals and time frames
B) economy
C) income and asset base
D) personality
E) income

Question 12

An emergency fund should be deposited in a

A) savings account at the highest available interest rate.
B) six-month certificate of deposit.
C) checking account.
D) safe place at home.
E) safe deposit box in a bank vault.

Question 13

When a bondholder loses money because interest rates in the economy increase, it is an example of ____________ risk.

A) market
B) interest rate
C) inflation
D) business failure
E) current

Question 14

Bad products or poor financial management may result in investors experiencing ____________ risk.

A) business failure
B) interest rate
C) inflation.
D) market
E) income

Question 15

Which of the following statements is not true?

A) An investor seeking global diversification with less than $200,000 to invest should invest in global mutual funds.
B) Changes in currency exchange rate may affect the return on your investment.
C) Today, more and more investors are investing in stocks and bonds issued by foreign firms and global mutual funds.
D) An investor in Canada cannot purchase shares in a foreign company.
E) Because of international accounting rules, evaluating foreign investments is more difficult than evaluating investments in Canada.

Question 16

After the death of her husband, Gina Balmer, 35, received a check for $350,000 from a life insurance company. Ms. Balmer has two small children and wants to make sure that both she and the children are taken care of in the future. Based on this information, which of the investment factors listed below would be the most important to Ms. Balmer in her investment program?

A) beta
B) safety
C) business failure
D) market risk
E) liquidity

Question 17

If interest rates in the overall economy decrease, what will happen to the market value of a corporate bond with a fixed interest rate?

A) The value of the bond will increase.
B) The bond is worthless.
C) The value of the bond will decrease.
D) The value of the bond will not change.
E) It is impossible to determine if the bond's value will increase or decrease.

Question 18

Which of the following is not a true statement?

A) No one is going to make you save the money you need to start an investment program.
B) To be useful, investment objectives must be specific and measurable.
C) Investment goals must be tailored to the particular financial needs of the individual.
D) Because investment objectives deal with the future, it is useless to plan more than five years in the future.
E) A long-term investment objective involves a time period of five years or more.

Question 19

Which of the following is not a true statement?

A) When choosing an investment, it is not necessary to consider the risk factor.
B) During inflationary times, there is a risk that the financial return on an investment will not keep pace with the rate of inflation.
C) The interest rate risk associated with investments in bonds is the result of changes in the interest rates in the economy.
D) The risk of business failure is associated with investments in common stock, preferred stock, and corporate bonds.
E) The price of stocks, bonds, and other investments may fluctuate because of the behavior of investors in the marketplace.

Question 20

A good rule of thumb is to limit installment payments to ____________ percent of your net monthly income.

A) 8
B) 20
C) 25
D) 10
E) 30

Question 21

A type of investment that combines and invests the funds of many investors and manages it with a professional manager is called a(n)

A) chequing account.
B) securities exchange.
C) guaranteed investment certificate.
D) mutual fund.
E) option fund.

Question 22

Which of the following investments offers the least liquidity?

A) bank accounts
B) government bonds
C) real estate
D) common stock
E) preferred stock

Question 23

An investor concerned with a predictable source of income provided by an investment would choose

A) options.
B) commodities.
C) government bonds.
D) common stocks.
E) speculative investments.

Question 24

Matt Jacobs is single and 24. He has just graduated from college and obtained a job making $26,400 a year. He would like to establish a long-term investment program. Which of the following investments would you recommend for his investment program?

A) growth stocks
B) government bonds
C) corporate bonds
D) commodities
E) a money-market fund

Question 25

Earnings that are reinvested in a corporation are called

A) retained earnings.
B) surplus earnings.
C) retention capital.
D) additional capital.
E) collected capital.

Question 26

Which one of the following is not a true statement?

A) Most mutual funds invest in stocks, bonds, and other securities.
B) Diversification provided by a mutual fund reduces risk.
C) The goals of one mutual fund investor may differ from those of another.
D) Since mutual fund managers are professionals, there is no need to evaluate a mutual fund.
E) Mutual fund investments range from very conservative to very speculative investments.

Question 27

Which of the following is not a true statement?

A) Real estate ownership represents one of the best hedges against inflation.
B) Poor location can cause a piece of real estate property to go down in value.
C) There are many factors to consider before investing in real estate.
D) There is no reason to evaluate a real estate investment because real estate always increases in value sooner or later.
E) Finding a buyer for a piece of real estate can be difficult if loan money is scarce.

Question 28

Nationwide real estate values increase by ____________ percent a year.

A) 1
B) 3
C) 7
D) 10
E) 15

Question 29

Which of the following is not a true statement?

A) A corporation generally obtains equity capital from stockholders.
B) A corporation can issue both preferred stock and common stock.
C) When a corporation is experiencing financial problems, an investor should purchase common rather than preferred stock.
D) Most corporations sell common stock to satisfy a large part of their financing needs.
E) The most important priority a preferred stockholder enjoys is receiving cash dividends before common stockholders receive cash dividends.

Question 30

The ease with which an investment can be converted to cash without a substantial loss in dollar value is called the

A) asset value.
B) liquidity factor.
C) immediate quotient.
D) fixed cost factor.
E) variable cost factor.

Question 31

Which of the following is not a true statement?

A) Professional management is an especially important factor for investors purchasing a mutual fund.
B) One of the many reasons why investors purchase mutual funds is diversification.
C) With mutual funds, an occasional loss in one security is often offset by gains in other securities.
D) Mutual funds are designed to appeal to conservative investors with long-term investment goals.
E) The individual investor is responsible for choosing the right mutual fund.

Question 32

An investor can make money on a common stock investment by

A) waiting for the corporation to repurchase the stock.
B) waiting for the stock's value to increase and then selling it.
C) waiting for the stock's value to decrease and then selling it.
D) waiting for the stock to reach the maturity date.
E) converting the common stock to preferred stock.

Question 33

Equity capital is money

A) obtained from the owners of the business.
B) borrowed through banks.
C) obtained by employee benefit programs.
D) that has to be repaid.
E) that has been allocated to a retirement program.

Question 34

Which of the following investments offers the greatest growth potential?

A) bank accounts
B) common stock
C) corporate bonds
D) government bonds
E) option bonds

Question 35

Which of the following investments offers the greatest liquidity?

A) collectibles
B) common stock
C) corporate bonds
D) real estate
E) bank accounts

Question 36

The maturity dates for most bonds range between ____________ years.

A) 0 to 5
B) 5 to 15
C) 10 to 15
D) 1 to 30
E) 1 to 40

Question 37

Normally, corporate bondholders receive interest

A) monthly.
B) every three months.
C) every six months.
D) yearly.
E) when the bond matures.

Question 38

The money obtained from selling corporate bonds

A) is obtained from lenders.
B) is obtained from the owners of the business.
C) is obtained from employee stock option programs.
D) does not have to be repaid.
E) has been allocated to retirement programs.

Question 39

Which of the following would not be considered a safe investment for a conservative investor?

A) corporate bonds
B) guaranteed investment certificates
C) passbook savings accounts
D) blue-chip stocks
E) collectibles

Question 40

A corporation selling stock is obligated to

A) guarantee your investment.
B) repay money obtained from the sale of stock.
C) repurchase shares of stock at a later date.
D) pay dividends to preferred stockholders before dividends are paid to common stockholders.
E) pay dividends.

Question 41

Which of the following investments would rank the highest with regard to safety?

A) real estate
B) common stock
C) preferred stock
D) GICs
E) antiques and collectables

Question 42

You're down $500 in a poker game. How much more would a conservative investor be willing to put up to win the $500 back?

A) More than $500.
B) $500.
C) $250.
D) $100.
E) Nothing-cut your losses now

Question 43

An emergency fund should

A) be able to cover 1 month of living expense.
B) begin after you invest in the stock market.
C) consist of mutual funds primarily
D) be able to cover a minimum of 3 months of living expense
E) not be required if you have unused credit card debt.

Question 44

Anne Marie earns $25,000 a year. Her monthly expenses total $1,200. What is the minimum amount of money that Ms. Lynn should set aside in an emergency fund?

A) $1,200
B) $1,800
C) $2,400
D) $3,600
E) $12,500

Question 45

Which of the following investments would provide the largest amount of income and most predictable source of income?

A) commodities
B) savings accounts
C) derivatives
D) common stock
E) guaranteed investment certificates

Question 46

The fees for investor services and newsletters generally range from ____________ a year.

A) $10 to $20, or free
B) $20 to $30, or free
C) $30 to $750, or free
D) $300 to $1,000, or free
E) over $1,,000, or free

Question 47

If interest rates in the overall economy increase, what will happen to the market value of a corporate bond with a fixed interest rate?

A) The value of the bond will increase.
B) The bond is worthless.
C) The value of the bond will decrease.
D) The value of the bond will not change.
E) It is impossible to determine if the bond's value will increase or decrease.

Question 48

Which of the following is not a true statement?

A) It is estimated that there are over 100 million Internet users worldwide.
B) There is a wealth of investment information available, but most small investors cannot afford to use it.
C) You can obtain current price information for stocks, bonds, and mutual funds by using the Internet.
D) A search engine is a research tool that helps you move through a menu system until you find the information you want.
E) Both government and businesses provide individuals with investment information.

Question 49

Investing in global may result in investors experiencing ____________ risk.

A) currency exchange rate
B) interest rate
C) inflation.
D) market
E) income

Question 50

Which of the following statements is not true?

A) When establishing an investment program, you should begin by establishing your investment goals.
B) When you are choosing an investment, you should examine the risk factor associated with each investment.
C) When establishing an investment program, you should examine the potential return offered by different investment alternatives.
D) Find a professional financial planner and leave the planning to the professional.
E) Continue to evaluate the investments contained in your investment plan.

Question 51

Which of the following was not found to be a critical factor in investing psychology?

A) greed
B) stubbornness
C) loss aversion
D) endowment effect
E) cognitive bias

Question 52

Capital gains and capital losses

A) are not fully taxed.
B) are subject to higher taxes than is income.
C) are assets held for longer than two years.
D) are assets held for longer than five years.
E) are assets held for longer than ten years.

Question 53

Which of the following is/are a desktop information service?

A) Bloomberg Professional
B) 3000 Xtra
C) Reuters
D) Canadian MoneySaver
E) A, B, C

Question 54

Which of the following is not a business periodical?

A) Report on Business
B) Business Week
C) The Economist
D) Canadian Banker
E) Canadian Business

Question 55

The risk factors associated with a specific investment

A) can change over time
B) can include interest rate rick
C) can include inflation risk.
D) can include market risk.
E) can include all of the choices.

Question 56

Which of the following investments would rank the highest with regard to being speculative?

A) savings bonds
B) GICs
C) preferred stock
D) corporate bonds
E) options

Question 57

For an investor who wants to speculate, which of the following investments would be appropriate?

A) red-chip stocks
B) options
C) utility stocks
D) corporate bonds
E) preferred stock issues

Question 58

Under current tax laws, capital losses can be

A) simply lost.
B) used to offset capital gains.
C) used to reduce your last year's tax amount.
D) used to offset dividend income.
E) used to offset interest and rental income.

Question 59

Which of the following is the most readily available source of information for an investor?

A) the daily newspaper
B) government publications
C) corporate reports
D) investor newsletters
E) business periodicals

Question 60

Which of the following is not a true statement?

A) Dividends are a distribution of money, stock, or other property to stockholders.
B) Dividend income must be reported to the CCRA.
C) Dividends are taxed as capital gains.
D) Dividends are not taxed as ordinary income.
E) Generally, the payer will send you or your broker a form that states how much dividend income you have received.

Question 61

The decision to establish an investment plan is an important first step to accomplishing your financial goals.

Question 62

An emergency fund is a certain amount of money that can be obtained quickly in case of immediate need.

Question 63

For an investor who wants to speculate, which of the following investments would be appropriate?

A) red-chip stocks
B) derivatives
C) utility stocks
D) corporate bonds
E) preferred stock issues

Question 64

The potential return of any investment should be directly related to the risk that the investor assumes.

Question 65

During inflationary times, there is a risk that the financial return on an investment will not keep pace with the rate of inflation.

Question 66

The amount put aside as an emergency fund should be equal to 1 to 3 months of living expenses.

Question 67

An elective savings program is when an individual cuts back on spending for one to two months to obtain additional money for investment purposes.

Question 68

A short-term investment objective is defined as one that will be accomplished within a period of less than two years.

Question 69

Which of the following investments has the highest risk?

A) preferred stock
B) common stock
C) corporate bonds
D) options
E) real estate

Question 70

A long-term objective may take up to three years to accomplish.

Question 71

Leveraged investing in common shares is expected to increase your net worth.

Question 72

An investment alternative in the form of an annuity that is similar to a mutual fund but that is less risky as it provides a certain degree of insurance to the investor is a (an) __________

A) segregated fund.
B) government bond.
C) guaranteed investment certificate.
D) government stock.
E) option fund.

Question 73

Which of the following would not be considered a safe investment for a conservative investor?

A) corporate bonds
B) guaranteed investment certificates
C) government bonds
D) gemstones
E) preferred stock

Question 74

An intermediate-term objective is defined as one that will be accomplished within eighteen months.

Question 75

A line of credit is a short-term loan that is approved before the money is actually needed.

Question 76

Your investment suddenly goes down 15 percent one month after you invest. Its fundamentals still look good. What would you do if you were a very risk tolerant investor?

A) Hold on and wait for it to come back.
B) Buy more. If it looked good at the original price, it looks even better now
C) Sell it to avoid losing even more
D) Sell and then buy if it goes down again
E) sell and buy GICs

Question 77

Potential investors should wait until they put their financial affairs in order before starting to invest.

Question 78

Investments in commodities and options are all of the following except

A) are more speculative investments
B) usually stress immediate returns
C) usually stress long-term growth
D) are higher risk than GICs
E) are higher risk than common stocks

Question 79

When starting an investment program, you should participate in an elective savings program.

Question 80

The written pledge of a government or a municipality to repay a specified sum of money along with interest is called a _________

A) mutual fund.
B) government bond.
C) guaranteed investment certificate.
D) government stock.
E) option fund.