Question 1

You can reduce your investment risk most effectively through

Accepted Answer

Asset allocation is the process of dividing your investment portfolio among different asset classes like stocks, bonds, and cash. By allocating your assets, you reduce the risk of losing all your money in one investment. This strategy helps you manage risk by diversifying your investments. Limiting the time horizon may not be an effective strategy for all investors, as some may need long-term investments to achieve their financial goals. Diversifying stocks is also a good strategy, but asset allocation takes into account other asset classes as well. Maximizing the beta is not a recommended strategy as it involves taking on more risk for potentially higher returns.

Question 2

If you wish to have a direct voice in the running of a company,you should purchase

Accepted Answer

Common stock provides ownership in a company and gives the shareholder the right to vote on key issues in the company, such as electing the board of directors and approving mergers or acquisitions. Therefore, purchasing common stock is the best choice if you wish to have a direct voice in the running of a company. Directorships are positions on the board of directors, which are typically elected by common stock shareholders, so purchasing common stock would also give you the opportunity to potentially become a director. Debentures and preferred stock do not provide the same level of ownership or voting rights in a company.

Question 3

If you have $3000 to invest,but could need the money at any time in the next year,you should

Accepted Answer

Since there is a possibility that the money may be needed in the near future, it is important to invest in a liquid short-term interest-bearing investment. This will allow for easy access to the funds if needed while still earning some interest. Investing in options like mutual funds or GICs may lock the money away for a fixed period or come with redemption penalties, making it harder to access the funds in case of an emergency.

Question 4

To measure an investment's risk,which of the following would you use?

Accepted Answer

The standard deviation of returns is the most commonly used measure of risk in finance. It measures the amount of variance or deviation from the average return of an investment, indicating the degree of uncertainty or risk associated with it. Time value of money measures the value of cash flows over time. The range of returns on the entire market and the standard deviation of prices are not specific measures of risk for an investment.

Question 5

You have $10 000 to invest now and can add $550 a month,have a moderate risk profile,and would like to set these funds aside for retirement in 20 years.Your most appropriate option would be to

Accepted Answer

Investing in mutual funds managed by the asset allocation method is the most appropriate option for someone with a moderate risk profile who is looking to set funds aside for retirement in 20 years. This approach involves diversifying your investments across a mix of asset classes (e.g. stocks, bonds, and cash) based on your risk tolerance and investment goals. By doing so, you can help manage risk while potentially earning higher returns over the long term. Monthly contributions of $550 will also help to gradually build your retirement savings over time. Money market savings accounts and one-year GICs may offer lower returns and do not provide the same level of diversification as a well-constructed asset allocation strategy. Small cap mutual funds may be too risky for someone with a moderate risk profile.

Question 6

Amalgamated Monkey Nuts Inc.has a range of returns between 4 percent and 7 percent while Moose Pasture Minerals Ltd.has a range of returns between 3 percent and 10 percent.This means

Accepted Answer

The range of returns is an indicator of volatility or risk. A smaller range (4% to 7%) indicates less volatility and therefore less risk compared to a wider range (3% to 10%).

Question 7

For someone whose salary is $120 000,what type of investment income receives the lowest tax consequences?

Accepted Answer

Capital gains receive lower tax consequences compared to dividends and interest income. For an individual with a salary of $120,000, dividends and interest income may result in a higher tax rate due to the progressive tax system. Capital gains, on the other hand, are taxed at a lower rate if held for more than one year, making them the better choice for investment income with lower tax consequences. Trust income may also have a lower tax rate, but it depends on the type of trust, so it cannot be determined as the best choice without further information. Therefore, the best choice for someone earning $120,000 is capital gains.

Question 8

One advantage of investing in your home compared to stocks,bonds,and mutual funds is

Accepted Answer

The capital gains on your primary residence are usually exempt from taxes up to a certain limit, making this a unique advantage over other investment types like stocks, bonds, and mutual funds, where capital gains are typically subject to taxation.

Question 9

If you invest $1000 in stock that pays no dividends and sell the stock exactly one year later for $1100,what will be your return? (Ignore commissions and trading fees. )

Accepted Answer

To calculate the return, we need to use the following formula:
Return = (Ending Value - Beginning Value) / Beginning Value
In this case, the beginning value (or investment) is $1000 and the ending value (or selling price) is $1100. Plugging those values into the formula:
Return = (1100 - 1000) / 1000 = 0.1 or 10%
Therefore, the answer is C, which represents a return of 10%.

Question 10

The difference between common and preferred stock is that preferred stock

Accepted Answer

Preferred stock has predictable income and more safety compared to common stock. It typically pays fixed dividends and has priority over common stock when it comes to receiving dividends and assets in the event of liquidation. Common stock, on the other hand, may or may not pay dividends and has a greater potential for capital appreciation. Therefore, option B is the correct answer.

Question 11

Real estate returns can be in the form of

Accepted Answer

Real estate returns can come in the form of capital gains (profit made from selling the property for more than it was purchased for), losses (losses incurred by selling the property for less than it was purchased for), and rental income (income made from renting out the property). Therefore, the best choice is D which includes all three types of returns. While interest can be earned on real estate investments, it is not typically a primary source of investment return. Dividends are also not typically associated with real estate investments.

Question 12

Of the following,which is not used in measuring a stock's return?

Accepted Answer

The average price of the stock during the period owned is not typically used in measuring a stock's return. The return is calculated based on the purchase price, sale price, and dividends earned, not the average price during the holding period.

Question 13

Which of the following is True about mutual funds?

Accepted Answer

Dividends, interest, and capital gains earned from the mutual fund's investments are distributed to the unit holders. A mutual fund is a type of investment that pools money from various investors to invest in a diverse portfolio of stocks, bonds, or other securities to achieve a specific investment goal. The dividends received from the fund's investments are reinvested, and the expenses incurred are deducted from the fund's net asset value (NAV). Therefore, D is the correct choice. A is not true for all mutual funds, B is false, and C is incorrect, as the expenses are deducted from the NAV of the fund, and not from the dividends.

Question 14

Which of the following is a good example of systematic risk?

Accepted Answer

The decline in the stock price of Canadian banks during the 2008-2009 credit crisis is an example of systematic risk. This risk affects the entire market or a broad segment of it, making it difficult to diversify away. The credit crisis had a widespread impact on the economy and financial markets, causing many banks to struggle and their stock prices to decline.

Question 15

Investment risk refers to

Accepted Answer

The answer of Investment risk refers to
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Question 16

The return-risk relationship means

Accepted Answer

The return-risk relationship means that as the return expectation of an investment increases, the uncertainty or risk associated with that investment also increases. Therefore, choice C is the best answer as it accurately reflects this relationship. Choice A is not necessarily true for all investors, as some may prioritize risk over return. Choice B is an oversimplification of investor concerns, as both upside potential and downside risk are relevant. Choice D is not necessarily true for all mutual funds.

Question 17

If you purchase 100 shares of Ajax Corporation for $15 a share and one year later sell it for $20 a share,what was your return if the stock paid $2 per share dividends? (Ignore commissions and trading fees.Round to the nearest whole percent. )

Accepted Answer

The answer of If you purchase 100 shares of Ajax...

Question 18

Corporate bonds

Accepted Answer

Corporate bonds offer a return to investors in the form of interest payments. This interest is paid until the bond's maturity date, at which point the investor receives the original amount of money invested. The value of corporate bonds can fluctuate with changes in interest rates and other market conditions.

Question 19

If you predicted that a stock would be worth $40 in five years and that you wanted to get a nine percent average annual return,what price should you be willing to pay for it now? (Assume no fees or taxes. )

Accepted Answer

The answer of If you predicted that a stock would...

Question 20

A stock was purchased at $23,sold exactly two years later at $25.50,and paid a $0.70 dividend per year.What was the annual return on investment?

Accepted Answer

The answer of A stock was purchased at $23,sold exactly...

Quiz 10: Personal Investing - Investing Fundamentals