Deck 1: Understanding Investments

Question 1

Gold coins would be classified as:

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

Answer 1

A

Question 2

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

Answer 2

C

Question 3

Most investors are risk averse which means:

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

Answer 3

A

Question 4

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

A)gold
B)equity in a house
C)high-grade corporate bonds
D)U.S.Treasury bills

Question 5

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.

Question 6

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 7

A Chartered Financial Analyst designation is a (an)

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 8

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 9

Which of the following investment areas is heavily tied to work using mathematical and statistical models?

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

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

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 12

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 13

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

A)The United States accounts for roughly 85 percent of stock market capitalization worldwide.
B)The United States accounts for roughly 50 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 percentage of stock market capitalization in the world over time.

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

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 16

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.

Question 17

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.

Question 18

The retirement plans that guarantee retirees 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

In general,the ex ante risk-return tradeoff

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

Question 20

Another name for stockbrokers is:

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

Question 21

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

A)Investment Banker
B)Security Analyst
C)Stockbroker
D)Portfolio Manager

Question 22

All of the following are benefits of geographic diversification in investment portfolios EXCEPT:

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 23

Many Wall Street jobs tend to be cyclical in nature..

Question 24

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

Question 25

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

A)Both Exxon Mobil and Hewlett Packard earn roughly 70% of their profits from their overseas operations.
B)Google currently derives about 95% of its earnings from the U.S.
C)Wal-Mart earns nearly 50% of its profits outside the U.S.
D)Coca-Cola has no overseas operations and no earnings outside the U.S.at all

Question 26

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

Question 27

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

Question 28

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

Question 29

Risk is defined as the possibility of loss.

Question 30

Investors always seek to minimize their risk of investing.

Question 31

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

Question 32

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 number of discount brokers
D)led to large amounts of security fraud.

Question 33

Investors enjoyed the best 5 consecutive years in the stock market history over the period 1996-2000.

Question 34

The risk-free rate of return (RFR)equals:

A)3.5%
B)the return on long-term Treasury bonds
C)the average of the last 3 years' inflation rate
D)the return on short-term Treasury bills

Question 35

Security analysts are typically employed only at brokerage houses.

Question 36

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

Question 37

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

Question 38

Define risk in the context of investments?

Question 39

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

Question 40

The two major considerations in investing are return and timing.

Question 41

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

Question 42

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 43

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 44

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