Deck 1: Introduction

Question 1

A fairly long-term loan commitment by the investor would accompany the purchase of

A) corporate bonds
B) Treasury bills
C) Common stocks
D) Certificates of deposit

Answer 1

A

Question 2

Security analysis may fall into two categories:

A) micro- and macro-economic policy
B) real and monetary investment
C) fundamental and technical
D) volatile and nonvolatile

Answer 2

C

Question 3

The fundamental principle in the investment environment, which states that securities with various degrees of risk combined into a portfolio result in portfolios with lower levels of total risk, is known as

A) fragmentation
B) the efficient frontier
C) the investor's paradox
D) diversification

Answer 3

D

Question 4

Securities markets that can be distinguished by the life span of financial assets are most often known as the

A) money and capital markets
B) New York Stock and the American Stock Exchanges
C) short and long term markets
D) bond and stock markets

Question 5

An investment

A) must have risk.
B) has an expected return at the forecasted inflation rate.
C) involves the sacrifice of present dollars for future dollars.
D) must involve the purchase of a real asset.

Question 6

Within the investment environment the term security means

A) a legal representation of the right to receive future payments under stated conditions.
B) an interest in an asset held by a trustee for the benefit of another person.
C) the value of a portfolio.
D) the return to an investment manager.

Question 7

An indirect method for corporations to acquire funds is through

A) issuing bonds.
B) buying options.
C) issuing common stock.
D) a loan from a bank.

Question 8

The first step of the investment process is to

A) set investment policy
B) perform security analysis.
C) evaluate portfolio performance.
D) construct a portfolio.

Question 9

Macroforecasting is also referred to as

A) diversification.
B) risk minimization.
C) timing.
D) return maximization.

Question 10

Treasury bills are traded in the

A) capital market.
B) New York Stock Exchange.
C) primary market.
D) money market.

Question 11

The calculation of intrinsic values is done during the investment process stage of

A) security analysis.
B) portfolio revision.
C) portfolio construction.
D) portfolio performance evaluation.

Question 12

Setting the investment policy involves determining the investor's objectives and

A) risk tolerance
B) investable wealth
C) the ability to make "a lot of money"
D) setting the risk of the potential reduction in household income

Question 13

Among the securities analyzed, the type with the largest annual variability in return was

A) treasury bills.
B) preferred stock.
C) corporate bonds.
D) common stock.

Question 14

Investors who wish to lend money to the U.S. Treasury on a short-term basis would purchase

A) Treasury bonds
B) municipal bonds
C) government-agency bonds
D) Treasury bills

Question 15

Investors have available a 65 year history of risk and return from investing due to the research of

A) Dun and Bradstreet.
B) Ibbotson and Sinquefield.
C) Wall Street Journal.
D) Masters and Johnson.

Question 16

New common stock is sold

A) at the American Stock Exchange.
B) in the secondary market.
C) at the New York Stock Exchange.
D) in the primary market.

Question 17

A real investment would be the purchase of a

A) common stock.
B) treasury bill.
C) piece of production equipment.
D) call option.

Question 18

A characteristic of an efficient market is

A) significant trends in security returns
B) prices which are slow to adjust to new information
C) randomness in security returns
D) the past pattern predicts the future pattern of prices

Question 19

The percentage change in the investor's wealth from the beginning to the end of the year is known as the
A) rate of return

A) retention ratio
B) discount rate
B) payout ratio

Question 20

Another type of security available in the investment environment which represents a commitment by a corporation to pay periodic and variable cash dividends is known as a

A) corporate T-bill
B) common stock
C) preferred stock
D) corporate bond

Question 21

The stock of USATalks went from $20 to $28 last year. The rate of return for USATalks is:

A) 40%
B) 30%
C) 33.6%
D) 29%

Question 22

The Investment Policy Statement is a critical part of any investment policy because it

A) focuses on the overall economic environment facing the investor.
B) identifies the specific brokerage firm the investor will use.
C) enforces logical, disciplined investment decision making.
D) outlines the tax-exempt securities to purchase.

Question 23

If microforecasting is also known as selectivity, macroforecasting is also known as

A) diversification
B) intermediation
C) globalization
D) timing

Question 24

You purchase a share of stock for $50 and sell it in one year for $48. Over the year you received $4 in dividends. Your annual return was

A) 3.8%.
B) 4%.
C) -4.2%.
D) -4%.

Question 25

The stock of ABC Corporation went from $22 to $26 last year. The stock paid dividends of $1. The rate of return of ABC is:

A) 19.2%
B) 22.7%
C) 15.4%
D) 18.2%

Question 26

Although the brokerage sector is the most lucrative in the investment industry, the tradeoff is the ___ nature of the business.

A) volatile
B) cyclical
C) corrupt
D) risky

Question 27

The difference between a financial and a real investment is that real investment involves some kind of ____ asset purchase, while financial investment involves ___ which represent(s) the purchase of an asset.

A) tangible, contracts
B) liquid, lending
C) current, arbitrage
D) fixed, proxies

Question 28

Real investment relies most heavily on the _____ markets.

A) secondary
B) municipal
C) primary
D) securities

Question 29

Institutional investors collectively own a controlling interest in virtually every large publicly traded U.S. corporation

A) as a consequence of favorable federal legislation.
B) due to anti-trust court cases.
C) because they practice cross-listing on regional exchanges.
D) as a consequence of the size of their investment funds pool.

Question 30

Benchmarking is used for the investment process stage of

A) portfolio construction.
B) evaluate portfolio performance.
C) security analysis.
D) set investment policy.

Question 31

In the portfolio revision step, it is assumed that, over time, the investor may change his or her

A) investment objectives.
B) benchmark portfolio.
C) brokerage firm.
D) pension fund.

Question 32

The difference between money and capital markets is that the former involves financial assets with a life span of ____ than a year and the latter involves those with a life span of ____ than a year.

A) less, greater
B) greater, less
C) slightly less, slightly more
D) greater, much greater

Question 33

One reason “globalization” has attracted U.S. investors in recent years is due to the fact that although U.S. stock market growth has expanded, non-U.S. stock markets have

A) provided subsidies for foreign investors.
B) allowed preferential tax treatment for American investors.
C) waived all requirements for U.S. investors that still applied to local investors.
D) expanded even faster.

Question 34

Which of the following is the first step in the investment process?

A) perform security analyses
B) revise the portfolio
C) set the investment policy
D) construct the portfolio

Question 35

You purchase a share of stock for $50 and sell it in one year for $60. Over the year you received a dividend of $4. Your annual return was

A) 18.6%.
B) 23.3%.
C) 25.2%.
D) 28%.

Question 36

Although the secondary market does not generate funds for the original issuer of securities, the existence of the secondary market makes

A) common stock overvalued.
B) common stock more attractive
C) real investment more liquid.
D) tax liability for the issuer less burdensome.