Question 1

All of the following are ways to invest in real estate except

Accepted Answer

All of the options listed (REITs, raw land, land development, and rental properties) are ways to invest in real estate. However, the best choice depends on the individual's financial goals, risk tolerance, and investment strategy. REITs may offer a more passive approach to real estate investing with potentially higher liquidity, while raw land and land development can offer higher potential returns but may also involve more risk and effort. Rental properties can provide steady income but require active management. It is recommended to thoroughly research and consult with a financial advisor before investing in any real estate option.

Question 2

A statistic that measures how two variables tend to move together is the

Accepted Answer

The statistic that measures how two variables tend to move together is the correlation coefficient.

Question 3

A Eurobond is an international bond

Accepted Answer

A Eurobond is denominated in a currency not native to where it is issued, making it an international bond.

Question 4

Which of the following are reasons that U.S. investors should consider foreign markets when constructing global portfolios.

Accepted Answer

Ignoring foreign markets limits the diversification of a portfolio and reduces the range of investment opportunities available. Foreign markets tend to have low correlations with U.S. markets, which can help to reduce overall portfolio risk. Additionally, international stocks can provide higher returns than U.S. securities, particularly in emerging markets. Therefore, it is advisable for U.S. investors to include foreign markets in their global portfolio construction.

Question 5

Foreign equities can be acquired by purchasing all of the following except

Accepted Answer

All of the given options (A, B, C, D) are valid ways to acquire foreign equities. ADRs are certificates issued by U.S. banks that represent ownership in foreign stocks, American shares are stocks of U.S. companies that have operations abroad, foreign shares listed on a U.S. or foreign stock exchange are directly purchased stocks of foreign companies, and GETFs are exchange-traded funds that invest in a basket of foreign stocks.

Question 6

Certificates of ownership issued by a U.S. bank that represent indirect ownership of a certain number of shares of a specific foreign firm on deposit in a bank in the firm's home country are known as:

Accepted Answer

The description provided in the question is that of American Depository Receipts (ADRs), which are issued by U.S. banks and represent indirect ownership of foreign shares on deposit in a bank in the foreign company's home country. ETFs, warrants, options, and futures are all different financial instruments with different characteristics and do not fit the description provided in the question.

Question 7

Antiques, art, coins, stamps, jewelry, etc., are not included in the investment portfolios of financial institutions because

Accepted Answer

All the options (A, B, and C) contribute to antiques, art, coins, stamps, jewelry, etc., being excluded from the investment portfolios of financial institutions. The prices of these collectibles may vary greatly, making it challenging to determine their value accurately. Because of their uniqueness, transaction costs are higher, and they are not readily traded like ordinary securities. As a result, they are considered illiquid and are not often utilized in financial institutions' portfolios.

Question 8

Which of the following is not a type of investment company?

Accepted Answer

All of the listed options (A, B, C, D) are types of investment companies. Therefore, none of them can be considered as the answer to the question "Which of the following is not a type of investment company?"

Question 9

A bond provision that specifies payments the issuer must make to redeem a given percentage of the outstanding issue prior to maturity is known as

Accepted Answer

A sinking fund is a provision in a bond agreement that requires the issuer to make payments into a separate account that will be used to retire a portion of the outstanding bonds prior to their maturity. This allows the issuer to reduce its outstanding debt over time and also reduces the risk to bondholders that the issuer will default on the bonds. This provision specifies payments that the issuer must make to redeem a given percentage of the outstanding issue prior to maturity.

Question 10

Correlations between bond markets in different countries have been changing over time because

Accepted Answer

As countries develop closer trade and economic links, their bond markets become more interconnected, leading to changes in correlations between bond markets in different countries.

Question 11

Convertible bonds are bonds

Accepted Answer

Convertible bonds are bonds that can be converted into a specific number of the company's common shares at the option of the holder. This feature provides the holder with potential downside protection, as the bond will have a higher value if the company's stock price rises.

Question 12

A mutual fund:

Accepted Answer

Mutual funds are priced once a day at the close of trading, usually at 4:00 PM Eastern Time. This is known as the net asset value (NAV) and represents the value per share of the fund at the end of the trading day.

Question 13

Which of the following statements concerning historical investment risk and return is false?

Accepted Answer

Real estate investments do not consistently provide higher rates of return than those provided by common stock. The returns on real estate investments can vary widely depending on factors such as location, market conditions, and management. Common stocks have historically provided higher average returns than real estate investments. The other statements are all true.

Question 14

Which of the following statements regarding real estate investments is false?

Accepted Answer

The large number of transactions and national data sources do not necessarily provide accurate readily available estimates of historical returns. Real estate transactions can vary greatly in terms of quality, location, and other factors that can impact investment returns. Therefore, it can be difficult to obtain accurate and representative historical data.

Question 15

Adding international investments to an all U.S. portfolio will most likely:

Accepted Answer

Adding international investments can help to diversify the portfolio and reduce overall risk since it introduces different asset classes and economic conditions. This can potentially increase the expected return of the portfolio as well, as international investments may achieve higher returns than the U.S. market. Therefore, adding international investments will more likely decrease the overall risk of the portfolio.

Question 16

An ETF (exchange traded fund):

Accepted Answer

ETFs are priced continuously during the trading day, just like stocks. They can be bought and sold throughout the day at market prices that fluctuate based on supply and demand.

Question 17

For a U.S. based investor, a weaker dollar means that overall dollar based returns on overseas security investment will be higher because

Accepted Answer

When the dollar weakens, it takes more dollars to buy the same amount of foreign currency. Therefore, when an investor converts their foreign investment back into dollars, they will receive more dollars than when they initially invested. This results in overall dollar-based returns on overseas security investment being higher. Choices A, B, and D are not necessarily true and not directly related to the impact of a weaker dollar on overseas security investment returns.

Question 18

Rank the following four investments in increasing order of historical risk.

Accepted Answer

The correct ranking from least to most risky is T-bills, corporate bonds, common stock, and art. Therefore, option E correctly ranks the investments in increasing order of historical risk. As for the best choice, it depends on the investment goals and risk tolerance of the individual. If the goal is to minimize risk, then T-bills and corporate bonds would be the best choices. If the goal is to achieve higher returns and willing to take on more risk, then common stock may be a better option. However, art is generally considered a highly risky investment due to its subjective nature, lack of liquidity, and high transaction costs.

Question 19

Which of the following is not a characteristic of a warrant?

Accepted Answer

The answer of Which of the following is not a...

Question 20

In order to diversify risk an investor must have investments that have correlations with other investments in the portfolio that are

Accepted Answer

The answer of In order to diversify risk an investor...

Quiz 3: Selecting Investments in a Global Market