Question 1

Stocks of large publicly traded companies are
A) rarely traded.
B) illiquid.
C) rarely decline in value.
D) highly liquid.

Accepted Answer

Stocks of large publicly traded companies are highly liquid, meaning they can be easily bought or sold in the market without significantly affecting the stock's price.

Question 2

Since 1900, the average return on stocks has exceeded the average return on savings accounts by more than 6 percentage points.

Accepted Answer

Historically, stocks have offered higher returns compared to savings accounts, often exceeding the average return on savings accounts by more than 6 percentage points due to the higher risk associated with stock investments.

Question 3

Which of the following are true concerning institutional investors?
I. Institutional investors are professionals who manage money for other people.
II. Banks, insurance companies and mutual funds are all institutional investors.
III. Institutional investors are individuals who invest indirectly through financial institutions.
IV. Institutional investors invest large sums of money.
A) I and II only
B) I, II and IV only
C) II, III and IV only
D) I, II, III and IV

Accepted Answer

I, II, and IV are correct. Institutional investors are entities like banks, insurance companies, and mutual funds that manage large sums of money on behalf of others, not individuals investing through institutions (III is incorrect).

Question 4

Which of the following is NOT traded in the securities markets?
A) stocks
B) bonds
C) derivatives
D) real estate

Accepted Answer

Real estate is not typically traded in the securities markets. Instead, it is bought and sold through real estate transactions. Stocks, bonds, and derivatives are all examples of securities that are traded in these markets.

Question 5

A United States Savings Bond is an example of an investment as defined in the text.

Accepted Answer

A United States Savings Bond is considered an investment because it represents a loan to the government in exchange for future repayment with interest, fitting the definition of investing money for profit or material result.

Question 6

Stocks are a(n)_______ investment representing_____ of a business.
A) direct; ownership
B) direct; debt
C) indirect; ownership
D) indirect; debt

Accepted Answer

Stocks are a direct investment because when you buy stocks, you are directly investing in a company. They represent ownership because owning stock means you own a portion of the company.

Question 7

The government is generally
A) not involved in the financial markets.
B) the owner of the financial market.
C) a supplier of funds to the financial market.
D) a demander of funds in the financial market.

Accepted Answer

The government is typically a demander of funds in the financial market, often issuing bonds to finance its expenditures.

Question 8

An exchange traded fund that invests in the stocks of large corporations is an example of
A) direct investment.
B) indirect investment.
C) derivative investment.
D) tangible investment.

Accepted Answer

An exchange traded fund (ETF) that invests in stocks of large corporations is an example of an indirect investment because the investor owns shares of the ETF itself rather than directly owning the stocks of the corporations in which the ETF invests.

Question 9

Banks and insurance companies are examples of institutional investors.

Accepted Answer

Banks and insurance companies invest large amounts of money on behalf of their clients or to meet their financial goals, making them institutional investors.

Question 10

Most sources of investment information are in print format, expensive, and difficult to access.

Accepted Answer

Many sources of investment information are available online for free or at a low cost, and they are easily accessible to the general public.

Question 11

In the financial markets, individuals are net suppliers of funds.

Accepted Answer

Individuals typically save more than they borrow, making them net suppliers of funds to the financial markets.

Question 12

Institutional investors are individuals who invest indirectly through financial institutions.

Accepted Answer

Institutional investors are entities such as pension funds, mutual funds, insurance companies, and endowments that invest large sums of money on behalf of individuals.

Question 13

Which of the following is NOT an investment as defined in the text?
A) a certificate of deposit issued by a bank
B) a new automobile
C) a United States Saving Bond
D) a mutual fund held in a retirement account

Accepted Answer

Investments, as defined in financial contexts, typically refer to assets purchased with the expectation that they will generate income or appreciate in value over time. A new automobile is generally not considered an investment in this sense because it depreciates in value quickly after purchase, unlike certificates of deposit, savings bonds, or mutual funds, which are intended to grow in value or generate income.

Question 14

Land and buildings are examples of real property investments.

Accepted Answer

Land and buildings are considered real property, and investing in them is a form of real property investment.

Question 15

On a net basis, funds in the financial markets are generally supplied by
A) individuals.
B) both individuals and business firms.
C) business firms.
D) the government.

Accepted Answer

Individuals typically supply funds to the financial markets through savings and investments, while businesses and governments are generally net borrowers.

Question 16

Which of the following has declined in recent years?
A) direct ownership of stock by individual investors
B) the percentage of foreign stocks held in typical portfolios
C) institutional ownership of common stocks
D) the timeliness of information available to investors

Accepted Answer

Direct ownership of stock by individual investors has declined in recent years, largely due to the rise of mutual funds, exchange-traded funds (ETFs), and other investment vehicles that allow individuals to invest in a diversified portfolio without having to buy individual stocks directly. This shift has made it easier for individuals to invest in the stock market, but it has also led to a decrease in the direct ownership of stocks.

Question 17

A non-interest bearing checking account is still considered an investment.

Accepted Answer

A non-interest bearing checking account is primarily used for day-to-day transactions and does not earn interest, thus it is not considered an investment.

Question 18

Which of the following has increased in recent years?
A) direct ownership of stock by individual investors
B) the percentage of domestic stocks held in typical portfolios
C) institutional ownership of common stocks
D) indirect ownership of stocks through mutual funds and ETFs.

Accepted Answer

Institutional ownership of common stocks has increased in recent years.

Question 19

Institutional investors manage money for businesses and nonprofit organizations, but not for individuals.

Accepted Answer

Institutional investors manage money not only for businesses and nonprofit organizations but also for individuals, especially when individuals invest through pension funds, mutual funds, and other collective investment vehicles.

Question 20

Debt represents funds loaned in exchange for
A) dividend income and the repayment of the loan principal.
B) dividend income and an ownership interest in the firm.
C) interest income and a partial ownership interest in the firm.
D) interest income and the repayment of the loan principal.

Accepted Answer

Debt involves borrowing money that must be repaid along with interest, without providing the lender any ownership interest in the company.

Quiz 1: The Investment Environment

Stocks of large publicly traded companies are

Since 1900, the average return on stocks has exceeded the average return on savings accounts by more than 6 percentage points.

Which of the following is NOT traded in the securities markets?

A United States Savings Bond is an example of an investment as defined in the text.

Stocks are a(n) ___ investment representing_ of a business.

The government is generally

An exchange traded fund that invests in the stocks of large corporations is an example of

Banks and insurance companies are examples of institutional investors.

Most sources of investment information are in print format, expensive, and difficult to access.

In the financial markets, individuals are net suppliers of funds.

Institutional investors are individuals who invest indirectly through financial institutions.

Which of the following is NOT an investment as defined in the text?

Land and buildings are examples of real property investments.

On a net basis, funds in the financial markets are generally supplied by

Which of the following has declined in recent years?

A non-interest bearing checking account is still considered an investment.

Which of the following has increased in recent years?

Institutional investors manage money for businesses and nonprofit organizations, but not for individuals.

Debt represents funds loaned in exchange for

Quiz 1: The Investment Environment

Stocks of large publicly traded companies are

Since 1900, the average return on stocks has exceeded the average return on savings accounts by more than 6 percentage points.

Which of the following is NOT traded in the securities markets?

A United States Savings Bond is an example of an investment as defined in the text.

Stocks are a(n) _______ investment representing_____ of a business.

The government is generally

An exchange traded fund that invests in the stocks of large corporations is an example of

Banks and insurance companies are examples of institutional investors.

Most sources of investment information are in print format, expensive, and difficult to access.

In the financial markets, individuals are net suppliers of funds.

Institutional investors are individuals who invest indirectly through financial institutions.

Which of the following is NOT an investment as defined in the text?

Land and buildings are examples of real property investments.

On a net basis, funds in the financial markets are generally supplied by

Which of the following has declined in recent years?

A non-interest bearing checking account is still considered an investment.

Which of the following has increased in recent years?

Institutional investors manage money for businesses and nonprofit organizations, but not for individuals.

Debt represents funds loaned in exchange for

Stocks are a(n) ___ investment representing_ of a business.