Question 1

A Chartered Financial Analyst designation is a(an):
A) OSC-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.

Accepted Answer

The Chartered Financial Analyst (CFA) designation is a professional certification offered by the CFA Institute to finance and investment professionals who have met certain standards of education, experience, and ethics. It is recognized globally and is not specific to any single industry within finance, nor is it awarded based on investment performance or by the brokerage industry.

Question 2

Gold, gems, art and real estate would be classified as:
A) real assets.
B) indirect assets.
C) personal assets.
D) financial assets.

Accepted Answer

Gold, gems, art, and real estate are considered real assets because they are tangible or physical assets that have intrinsic value due to their substance and properties.

Question 3

Another name for stockbrokers is:
A) specialists.
B) registered representatives.
C) security analysts.
D) portfolio managers.

Accepted Answer

Stockbrokers are often referred to as registered representatives. This title reflects their requirement to be registered with the Securities and Exchange Commission (SEC) and/or FINRA in order to buy and sell securities on behalf of their clients.

Question 4

A portfolio:
A) is made of the asset holdings of an investor.
B) cannot include real assets.
C) is not evaluated after initially purchased.
D) is unimportant in overall financial planning.

Accepted Answer

A portfolio is indeed made up of the asset holdings of an investor, including stocks, bonds, real estate, and more. Choices B, C, and D are incorrect because portfolios can include real assets, they are typically evaluated periodically to ensure they align with the investor's goals, and they are a crucial part of financial planning.

Question 5

Underlying the evaluation of an investment is the trade-off between:
A) expected return and actual return.
B) low risk and high risk.
C) actual return and high risk.
D) expected return and risk.

Accepted Answer

The fundamental trade-off in investment evaluation is between expected return and risk. Investors aim to maximize returns while minimizing risk, making this the primary consideration in investment decisions.

Question 6

Most investors exhibit risk averse behaviour which means:
A) they will not assume more risk only unless they are compensated by higher expected returns.
B) they will always invest in investments providing the lowest possible risk.
C) they actively seek to maximize their risks.
D) they invest only in money market securities to avoid the risk inherent in the stock market.

Accepted Answer

Risk-averse investors require higher expected returns to compensate for taking on additional risk, which aligns with choice A. Choices B, C, and D describe behaviors that are not universally true for all risk-averse investors.

Question 7

The discipline of security analysis concerns as its primary criterion to provide a(n):
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.

Accepted Answer

Security analysis primarily focuses on the valuation and analysis of individual securities to assess their value and investment potential.

Question 8

The ex ante risk-return trade-off as its basic principle suggests:
A) a higher expected return for investors who take on higher expected risk.
B) a lower expected return for investors who take on higher expected risk.
C) the same expected return for investors who take on higher expected risk.
D) the amount of expected return for investors is not directly related to the amount of expected risk.

Accepted Answer

The ex ante risk-return trade-off principle suggests that investors who are willing to take on higher levels of risk are typically rewarded with higher expected returns. This principle is foundational in finance, reflecting the trade-off between risk and potential reward.

Question 9

The expected return from an investment is:
A) contingent upon the historical return from that investment.
B) inversely related to the risk associated with that investment.
C) always equal to required return.
D) the anticipated return for some future period on that investment.

Accepted Answer

The expected return from an investment refers to the anticipated return for some future period based on the investment's performance, risk, and market conditions. It is not necessarily contingent upon historical returns, inversely related to risk, or always equal to the required return.

Question 10

An emerging market is one that is characterized by:
A) the continual introduction of new products and technologies.
B) the issuance of financially engineered securities.
C) a high participation rate in Internet trading.
D) a low per capita economy.

Accepted Answer

Emerging markets are typically characterized by their low per capita income. These markets are in a phase of rapid industrialization and often exhibit higher than average growth rates, distinguishing them from more developed economies. The other options describe activities or characteristics that can occur in any market, developed or emerging, and are not defining features of an emerging market.

Question 11

Global events have a significant impact on the Canadian economy because:
A) Canada derives a small percentage of its economic wealth from international trade.
B) Canada's economy has a relatively large proportion of commodity-based industries.
C) Canada's manufacturing base has increased substantially in the last two decades
D) almost all of the Government of Canada debt is held by domestic investors.

Accepted Answer

Canada's economy is significantly influenced by global events due to its large proportion of commodity-based industries, such as oil, gas, mining, and forestry, which are highly sensitive to global market changes and demand.

Question 12

Which of the following is not an institutional investor?
A) chartered banks
B) insurance companies
C) pension funds
D) high net worth investors

Accepted Answer

Institutional investors are entities that pool money to purchase securities, real property, and other investment assets or originate loans. Chartered banks, insurance companies, and pension funds are all examples of institutional investors because they invest on behalf of their clients or members. High net worth investors, however, are individuals, not institutions, who invest their own funds.

Question 13

Which of the following would be considered a risk-free investment by a Canadian investor?
A) gold
B) equity in a house
C) high-grade corporate bonds
D) Bank of Canada Treasury bills

Accepted Answer

Bank of Canada Treasury bills are considered risk-free investments for Canadian investors because they are backed by the Canadian government, which has a very low risk of default.

Question 14

Which of the following groups of investments is incorrectly ordered from lowest to highest risk?
A) government bonds, preferred stock, warrants
B) T-bills, corporate bonds, options
C) government bonds, financial futures, common stock
D) T-bills, common stock, options.

Accepted Answer

The answer of Which of the following groups of investments...

Question 15

Investors should be concerned with international investing for all of the following reasons except:
A) Large amount of capital flows from abroad into domestic markets.
B) Rates of return on foreign securities have often been larger than on domestic securities.
C) Foreign companies are taking over many domestic industries, such as banking.
D) Canadian companies derive a large percentage of their revenues from abroad.

Accepted Answer

The answer of Investors should be concerned with international investing...

Question 16

The __________ Act was implemented in 2002 in the U.S. in response to the collapse in public confidence surrounding the debacles of Enron and WorldCom.
A) Canadian Business Incorporation
B) Sarbanes-Oxley
C) Sherman
D) Trading with the Enemy

Accepted Answer

The Sarbanes-Oxley Act was enacted in 2002 as a reaction to major corporate and accounting scandals, including those involving Enron and WorldCom, to restore public confidence in the financial markets by improving corporate governance and accountability.

Question 17

Emerging markets are often characterized as:
A) low risk, low return markets.
B) low risk, high return markets.
C) high risk, low return markets.
D) high risk, high return markets.

Accepted Answer

Emerging markets are typically considered high risk due to their political instability, economic volatility, and less mature markets. However, they also offer the potential for high returns, especially for investors willing to take on the associated risks.

Question 18

Markets that have prices adjusting quickly to new information to reflect the impact of that information on the security is known as:
A) risk-free.
B) liquid.
C) self-fulfilling.
D) efficient.

Accepted Answer

Efficient markets are characterized by prices that adjust quickly to new information, reflecting the impact of that information on the security's value. This concept is central to the Efficient Market Hypothesis.

Question 19

Investment professionals whose jobs may depend on their performance relative to the market are the:
A) registered representatives.
B) security analysts.
C) investment bankers.
D) portfolio managers.

Accepted Answer

Portfolio managers are directly responsible for managing investment portfolios and their performance is often measured against market benchmarks, making their job performance sensitive to how well they perform relative to the market.

Question 20

Institutional investors often avoid investing in spinoffs because:
A) they often pay no dividends and may be too small.
B) they tend to be too risky for most institutional investors.
C) they generally have lower than average returns.
D) they require too great a commitment of funds.

Accepted Answer

Spinoffs often pay no dividends and may be too small, making them less attractive to institutional investors who typically seek stable, dividend-paying investments.

Quiz 1: Understanding Investments

A Chartered Financial Analyst designation is a(an) :

Gold, gems, art and real estate would be classified as:

Another name for stockbrokers is:

A portfolio:

Underlying the evaluation of an investment is the trade-off between:

Most investors exhibit risk averse behaviour which means:

The discipline of security analysis concerns as its primary criterion to provide a(n) :

The ex ante risk-return trade-off as its basic principle suggests:

The expected return from an investment is:

An emerging market is one that is characterized by:

Global events have a significant impact on the Canadian economy because:

Which of the following is not an institutional investor?

Which of the following would be considered a risk-free investment by a Canadian investor?

Which of the following groups of investments is incorrectly ordered from lowest to highest risk?

Investors should be concerned with international investing for all of the following reasons except:

The __________ Act was implemented in 2002 in the U.S. in response to the collapse in public confidence surrounding the debacles of Enron and WorldCom.

Emerging markets are often characterized as:

Markets that have prices adjusting quickly to new information to reflect the impact of that information on the security is known as:

Investment professionals whose jobs may depend on their performance relative to the market are the:

Institutional investors often avoid investing in spinoffs because: