Deck 11: Investment Planning

Question 1

Convertible securities provide the fixed income features of bonds while offering the price appreciation potential of common stock.

Answer 1

True

Question 2

Investing is considered a short-term activity that involves the buying and selling of securities.

Answer 2

False

Question 3

The term "investment' refers to money placed in some medium where value and level of return are totally unpredictable.

Answer 3

False

Question 4

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 5

A systematic investment routine involves investing similar sums in regular intervals.

Question 6

Once you meet the conditions of ample insurance and liquidity,you're ready to start investing.

Question 7

Investing and speculating are two entirely different activities.

Question 8

Owning common stock represents a debt investment.

Question 9

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

Question 10

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

Question 11

Mutual funds often sell directly to investors.

Question 12

A prospectus describes the firm and the issue of a new security.

Question 13

A statement specifying how investment capital will be invested in order to reach targeted goals is called a marketing plan.

Question 14

Securities may be traded in the primary market only once.

Question 15

The New York Stock Exchange is a dealer market.

Question 16

Preferred stocks are the common stocks of ultra blue-chip companies.

Question 17

Common stock pays interest payments on a quarterly basis.

Question 18

Newly issued securities are sold to the public in the secondary market.

Question 19

The major reason most people invest is to shelter current income from taxes.

Question 20

Common stock generally allows the stockholder an equal vote in electing the management of the corporation.

Question 21

There are 50 shares in a round lot.

Question 22

A stockbroker buys and sells securities on behalf of clients.

Question 23

The bid price is the price paid by an investor for a stock.

Question 24

The federal government regulates securities markets through the Securities and Exchange Commission.

Question 25

When a brokerage house gives a margin call,you need to provide more collateral or your investment will be liquidated.

Question 26

The NASDAQ is now the second-largest broker market in the United States.

Question 27

The Securities Investor Protection Corporation insurance guarantees the dollar value of your securities will not dip below a certain level.

Question 28

The SEC has the power to raise and lower the margin requirements for stock purchases.

Question 29

A sale of 450 shares of stock would involve the trade of an odd lot.

Question 30

Brokers charge a commission on security purchases as well as on security sales.

Question 31

A limit order may be used either to buy or to sell.

Question 32

You are covered through the SIPC for losses you incur due to the inept advice you receive from a brokerage firm.

Question 33

The Federal Reserve Board sets the margin requirements on security purchases.

Question 34

According to recent legislation,under the FDIC each brokerage account is insured up to $250,000.

Question 35

All OTC stocks are listed on the NASDAQ.

Question 36

A round lot consists of multiples of 100 shares of stock.

Question 37

Prices are rising in bear markets,indicating economic optimism.

Question 38

Buying on margin allows you to purchase securities using 100 percent borrowed funds.

Question 39

An odd lot transaction is generally more expensive than a round lot transaction.

Question 40

Discount brokers discount the price of securities to below the prevailing market price.

Question 41

Accumulating funds for the purchase of a home is the single most important reason for investing.

Question 42

The NYSE index includes all stocks listed on the "big board."

Question 43

Once one's asset allocation plan is developed and securities are selected,these decisions do not have to be made again until there is a major life change.

Question 44

Portfolio rebalancing refers to buying and selling activities intended to return a portfolio to its target allocation levels.

Question 45

The total return of a portfolio is influenced far more by specific security selection than asset allocation.

Question 46

The Standard and Poor's Index is based on 30 industrial stocks.

Question 47

A portfolio is a collection of investment vehicles assembled to meet an investment goal.

Question 48

A corporation's annual stockholders' report provides financial data and other information related to both past and planned activities.

Question 49

The Maloney Act contains the so-called Volcker Rule,which prohibits depository banks from proprietary trading.

Question 50

A short sale transaction will be profitable when prices are falling.

Question 51

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

Question 52

Diversification increases risk.

Question 53

A diversified portfolio is less risky than putting your money into a single security.

Question 54

The most widely followed measure of stock market performance is the New York Stock Exchange Index.

Question 55

The margin requirement for common stock is 50%.

Question 56

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

Question 57

Trading on margin can magnify both losses and profits.

Question 58

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is designed to improve accountability and transparency in the U.S.financial system.

Question 59

The first step in asset allocation is selecting the specific securities that should go into your portfolio.

Question 60

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is the most significant change in financial regulation since the Great Depression.

Question 61

The most important investment prerequisites are

A)adequate income and savings.
B)adequate income and insurance.
C)adequate insurance and liquidity.
D)an investment plan and professional advice.
E)consistency and risk awareness.

Question 62

The most common reason given for investing is

A)enhancing current income.
B)saving for retirement.
C)sheltering earnings from taxes.
D)paying for an expensive vacation.
E)saving for college education.

Question 63

Which of the following is a true statement about the Dow Jones Industrial Average?

A)It is based on 30 industrial stocks.
B)It is based on 50 transportation stocks.
C)It is a composite index for the 500 largest industrial publicly traded companies.
D)It is based on 100 utilities stocks.
E)It contains 50 blue chip stocks.

Question 64

During a bear market,security prices generally

A)hold value
B)rapidly increase in value
C)remain neutral
D)decline in value
E)consolidate in value

Question 65

Which of the following is least likely to be an investment objective?

A)enhance current income
B)save for a major purchase
C)pay monthly bills
D)accumulate funds for retirement
E)seek shelter from taxes

Question 66

____ is a short-term investment activity.

A)Buying life insurance
B)Buying bonds
C)Investing in common stock
D)Speculating in common stock
E)Saving

Question 67

In terms of market capitalization,Apple is the largest company in the world.

Question 68

Exchange-traded notes (ETNs)face both market risk and the risk of the issuing bank defaulting.

Question 69

The SEC requires corporations to issue ____ describing the firm and the security issue it wishes to sell.

A)an advertisement
B)a prospectus
C)an underwriting journal
D)a dealer newsletter
E)none of these

Question 70

The Securities Investor Protection Corporation insures brokerage firm accounts up to

A)$500,000 per account and $250,000 in cash
B)$250,000 per account and $100,000 in cash
C)$1,000,000 per account and $500,000 in cash
D)$500,000 per account and $250,000 in cash
E)$500,000 per account and $100,000 in cash

Question 71

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

A)bonds.
B)common stock.
C)mutual funds.
D)real estate.
E)stock opt ions.

Question 72

Securities sold in the primary markets are usually handled by a(n)

A)commercial bank.
B)brokerage.
C)investment banking firm.
D)dealer.
E)none of these.

Question 73

During a bull market

A)prices go up.
B)prices go down.
C)prices remain stable.
D)investors are pessimistic.
E)cattle futures perform well.

Question 74

If a company's common stock is traded on an exchange,the company is said to be

A)an exchange member.
B)seated on the exchange.
C)marketed on the exchange.
D)listed on the exchange.
E)licensed by the exchange.

Question 75

Based on a retired person's needs,one should choose investments offering high current income with high risk.

Question 76

Securities markets include

A)capital and money markets.
B)primary and secondary markets.
C)stock exchanges.
D)all of these.
E)none of these.

Question 77

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

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

Question 78

Investment vehicles include

A)common stock.
B)bonds.
C)preferred and convertible securities.
D)real estate.
E)all of these.

Question 79

Which of the following is an order to sell a stock when the market price drops to or below a specified level?

A)Market order
B)Limit order
C)Stop-loss order
D)Fill or kill order
E)Day order

Question 80

Which of the following is not a securities market?

A)capital market
B)money market
C)primary market
D)secondary market
E)Dow Jones market