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

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

A)The United States accounts for roughly 65 percent of stock market capitalization worldwide.
B)The United States accounts for roughly 40 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 future percentage of global stock market capitalization.

Answer 2

B

Question 3

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.

Answer 3

D

Question 4

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 5

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 6

A Chartered Financial Analyst designation is a(n)

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 7

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 8

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 9

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 10

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.

Question 11

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 12

The investment professionals that arrange the sale of new securities are called:

A)arbitragers.
B)traders.
C)investment bankers.
D)specialists.

Question 13

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 14

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 15

In general,the ex ante risk-return tradeoff:

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

Question 16

Which of the following investment areas relies heavily on mathematical and statistical models?

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

Question 17

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.

Question 18

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 19

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 20

Another name for stockbrokers is:

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

Question 21

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

Question 22

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

Question 23

The two major considerations in investing are return and timing.

Question 24

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

Question 25

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

Question 26

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

Question 27

Investors always seek to minimize their risk of investing.

Question 28

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

A)Investment banker
B)Security analyst
C)Stockbroker
D)Portfolio manager

Question 29

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

Question 30

Risk is defined as the possibility of loss.

Question 31

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

A)0.0%.
B)the rate on the bonds of financially sound corporations.
C)the average of the last 3 years' inflation rate.
D)the return on Treasury securities.

Question 32

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

Question 33

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

Question 34

Which of the following is not a benefit of geographic diversification?

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 35

Many Wall Street jobs tend to be cyclical in nature.

Question 36

Security analysts are typically employed only at brokerage houses.

Question 37

Define risk in the context of investments.

Question 38

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

Question 39

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

Question 40

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

A)Exxon Mobil earns the majority of its profits from its overseas operations.
B)Google currently derives the majority of its earnings from outside the U.S.
C)Wal-Mart earns the majority of its profits from outside the U.S.
D)Coca-Cola has no overseas operations and no earnings outside the U.S.

Question 41

Martha Stewart was banned from serving as an officer of a public corporation,sentenced to 5 months in prison,and fined $30,000.Why?

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

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

Question 44

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?