Question 1

Which of the following is not a consideration for investing in real estate investment trusts (REITs)?

Accepted Answer

The federal tax rate paid by the trust is not a consideration for investing in REITs because they are required by law to distribute at least 90% of their taxable income to shareholders, which means they don't pay federal income tax at the corporate level. This is why REITs are considered tax-efficient investments. However, fluctuations in dividend payments, excessive use of debt financing by some REITs, and fluctuating interest rates affecting securities valuations are all important considerations when investing in REITs.

Question 2

Sources of risk to investors purchasing collectibles include 1.fraud
2)theft
3)market fluctuations
4)Interest in collectibles as an investment increases during periods of

Accepted Answer

Investors in collectibles face risks such as fraud, theft, and market fluctuations, making all the choices applicable.

Question 3

Collectibles offer

Accepted Answer

Collectibles offer potential price appreciation, meaning their value has the potential to increase over time. However, they do not offer monetary income, liquidity or safety of principal.

Question 4

If an investor expected the price of gold to fall,that individual should consider which of the following strategies? 1.sell a gold call
2)buy a gold call
3)sell a gold put
4)buy a gold put

Accepted Answer

To profit from an expected fall in gold prices, an investor should sell a gold put option (choice 3) or buy a gold put option (choice 4). Selling a gold call option (choice 1) would actually result in losses if the price of gold fell, while buying a gold call option (choice 2) would only be profitable if the price of gold increased. Therefore, the best choices would be 1 and 4, which involve selling a gold call and buying a gold put.

Question 5

A hedge fund

Accepted Answer

A hedge fund is a private investment fund that is typically open to a limited number of accredited or high net worth investors, rather than the general public. Therefore, choice C is correct. Choices A and B are incorrect as hedge funds are private, not public institutions, and do not have registered shares with the Federal Reserve. Choice D is also incorrect as hedge funds are typically not traded on public exchanges.

Question 6

The cost of investing in collectibles may include 1.insurance
2)the spread between the bid and ask
3)commissions

Accepted Answer

Investing in collectibles can incur costs such as insurance to protect the items, the spread between the bid and ask prices when buying or selling, and commissions paid to brokers or auction houses.

Question 7

If the supply of timber is inelastic that means

Accepted Answer

Inelastic supply means that the quantity supplied does not change significantly when the price changes.

Question 8

The true (effective)cost of a mortgage loan depends on the

Accepted Answer

The true cost of a mortgage loan is affected by an individual's marginal tax rate because mortgage interest payments are tax-deductible. Therefore, a higher marginal tax rate reduces the effective cost of the mortgage loan. The capital gains tax rate, individual's need to borrow, and cost of the home do not directly affect the true cost of a mortgage loan.

Question 9

Hedge funds follow investment strategies such as

Accepted Answer

Hedge funds are known for their active trading strategies and often engage in short selling of stocks they believe to be overvalued while buying those they consider undervalued. They typically do not limit their portfolios to money market instruments or underwrite new issues, and while they may acquire shares in mutual funds, it is not a primary investment strategy.

Question 10

Risks associated with home ownership may include 1.excessive use of financial leverage
2)fluctuations in home values
3)possible theft and fire

Accepted Answer

All of the choices are potential risks associated with home ownership. Using excessive financial leverage means taking on more debt than one can comfortably handle, putting the homeowner at risk for financial hardship or even foreclosure if they are unable to make the mortgage payments. Fluctuations in home values can also be a risk, as homeowners may owe more than their home is worth during market downturns. Possible theft and fire pose a risk to both the physical property and the contents inside the home. Therefore, all of these choices should be considered when weighing the risks associated with home ownership.

Question 11

Sources of risk to investments in rental properties include
1)increased vacancy rates
2)fluctuations in depreciation expenses
3)excessive use of debt financing

Accepted Answer

Increased vacancy rates and excessive use of debt financing can both lead to reduced cash flow and financial strain for rental property investments. Fluctuations in depreciation expenses may have a lesser impact on overall risk. Therefore, options A and D can be eliminated. Option C may also have some impact on risk, but it is not as significant as the other two factors listed in option B.

Question 12

Hedge funds are primarily open to high net worth investors and financial institutions such as pension plans.

Accepted Answer

Hedge funds typically have high minimum investment requirements and are only open to accredited investors with high net worths or financial institutions such as pension plans.

Question 13

Purchasers of gold futures contracts

Accepted Answer

Purchasers of gold futures contracts run the risk of government intervention altering the supply and demand for gold, as government policies can impact the availability and demand for the commodity. A and C are incorrect, as meeting margin requirements and being considered unleveraged positions are both relevant to futures trading and not specifically related to gold futures contracts. D is also incorrect, as the level of speculation involved in a futures contract depends on the individual trader's strategy and risk tolerance.

Question 14

Hedge fund strategies may include buying one stock while shorting another.

Accepted Answer

Hedge funds often use a variety of strategies to try and generate profits, and one common strategy is to buy one stock while simultaneously shorting another. This is known as a paired trade or a long-short equity strategy. The idea is to find two related companies (such as competitors in the same industry) and take a long position in the one that is expected to outperform while simultaneously shorting the one that is expected to underperform. This can help hedge against market risk and potentially generate positive returns even in a down market.

Question 15

Condominiums may be preferred to homes because they

Accepted Answer

Condominiums offer the convenience of renting, in that owners are not responsible for exterior maintenance, but also provide the tax advantages of homeownership, such as the ability to deduct mortgage interest on taxes. Additionally, condominiums can be financed through the use of debt, just like traditional homes. However, they do not receive special tax treatment and may still have maintenance costs through monthly homeowner fees.

Question 16

Deductible homeowner expenses include

Accepted Answer

Property taxes are deductible homeowner expenses, while improvements, fire insurance, and sales tax on purchases for the home are not deductible.

Question 17

Depreciation of real estate

Accepted Answer

Depreciation of real estate allocates the cost of the property over its useful life, allowing for a portion of the cost to be deducted each year on tax returns. It does not cover required maintenance, reduce profits, or increase the property's value.

Question 18

A real estate investment trust

Accepted Answer

A real estate investment trust invests in mortgages or rental properties. They are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends, which allows them to avoid paying federal income taxes. However, they can still be subject to state and local taxes. Additionally, REITs can use debt financing and other forms of capital to acquire and operate their properties.

Question 19

The value of a gold coin depends on its 1.rarity
2)gold content
3)tax advantages

Accepted Answer

The value of a gold coin is mainly determined by its rarity and gold content. Tax advantages may be a factor in the decision to purchase a gold coin, but they do not directly affect its value. Therefore, the best choice is A (1 and 2).

Question 20

Interest in collectibles as an investment increases during periods of

Accepted Answer

Interest in collectibles as an investment typically increases during periods of inflation because during these times, traditional investments such as stocks and bonds may not provide a high enough return to keep pace with rising prices. Collectibles, on the other hand, may increase in value due to their rarity and uniqueness, and can therefore serve as a hedge against inflation.

Quiz 23: Investing in Nonfinancial Assets: Collectibles, resources, and Real Estate

Which of the following is not a consideration for investing in real estate investment trusts (REITs) ?

Sources of risk to investors purchasing collectibles include 1.fraud 2) theft 3) market fluctuations 4) Interest in collectibles as an investment increases during periods of

Collectibles offer

If an investor expected the price of gold to fall,that individual should consider which of the following strategies? 1.sell a gold call 2) buy a gold call 3) sell a gold put 4) buy a gold put

A hedge fund

The cost of investing in collectibles may include 1.insurance 2) the spread between the bid and ask 3) commissions