Question 1

Which of the following statements is most in keeping with investment counselors' suggestions for investment goals?

Accepted Answer

Setting specific, measurable, achievable, relevant, and time-bound (SMART) goals is a common suggestion from investment counselors. Option A is the most specific and time-bound goal, making it most in keeping with their suggestions.

Question 2

To get the proper financial counseling, Marquis and Marta Jacobs made an appointment with Harry Hanstein. Harry has had two years of training in securities, insurance, taxation, retirement planning, and estate planning and has passed a rigorous qualifying examination given by the Certified Financial Planner Board of Standards in Denver. Harry is a

Accepted Answer

Harry Hanstein is a Certified Financial Planner. He has had training and passed an exam in various areas of personal finance, including securities, insurance, taxation, retirement planning, and estate planning. This makes him qualified to provide financial counseling to individuals like Marquis and Marta Jacobs.

Question 3

The total return you receive on an investment over a specific period of time divided by the amount invested is referred to as the

Accepted Answer

The term "rate of return" refers to the total return achieved on an investment, divided by the initial amount invested. This is often expressed as a percentage or a decimal. It is a measure of the profitability of an investment and is commonly used to compare different investment opportunities.

Question 4

All of the following would satisfy the safety factor of investing except

Accepted Answer

Antiques and collectibles do not satisfy the safety factor of investing as their values can be highly volatile and subjective, unlike savings accounts, blue-chip stocks, certificates of deposit, and highly rated municipal bonds, which are generally considered safer investments.

Question 5

Most investment counselors recommend that an individual establish an emergency fund equal to at least

Accepted Answer

Most investment counselors recommend that an individual establish an emergency fund equal to three months' living expenses. This provides enough cushion to cover unexpected expenses or a loss of income without having to dip into other savings or go into debt.

Question 6

Christine wants to start purchasing stock from individual companies, but she wants to maintain a conservative investment strategy with only safe stocks. What type of stocks should Christine invest in?

Accepted Answer

Blue-chip stocks are stocks of well-established companies with a history of steady earnings and reliable dividends. These companies tend to have a strong market presence, a proven business model, and a solid track record, making them a safer investment option compared to newer or riskier companies. By investing in blue-chip stocks, Christine can maintain a conservative investment strategy while still being invested in individual companies.

Question 7

Instead of paying dividends to their stockholders, growing corporations typically

Accepted Answer

Growing corporations typically reinvest profits in the business instead of paying dividends to their stockholders. This allows the company to use the profits to expand operations, invest in research and development, purchase new equipment, or acquire other companies. By doing so, the company is able to create more value for their stockholders in the long run, which can lead to higher stock prices and potential capital gains for investors.

Question 8

The stock market reached an all-time high at ___ in the fall of 2007.

Accepted Answer

The stock market reached an all-time high of 14,000 in the fall of 2007.

Question 9

Jan Murphy would like some help choosing an investment that will grow over the next ten years. Which of the following investments would you recommend for growth?

Accepted Answer

Common stock has the potential for significant growth over a ten-year time horizon, with the possibility of increased dividends and share prices. While there is also the possibility of losses, a diversified portfolio of stocks can help mitigate risk. The other options, such as savings accounts and bonds, may offer more stability but generally do not have the potential for significant growth over a ten-year period. Commodities can be volatile and may not be suitable for all investors.

Question 10

Martie Brown is now retired and asks for your help choosing an investment that will provide a steady source of income. In this situation, you recommend

Accepted Answer

Certificates of deposit (CDs) are a low-risk investment option that pay a fixed interest rate over a set period of time. They provide a steady source of income and are insured by the FDIC, making them a safe choice for retirees like Martie Brown. Growth stocks, commodities, margin investments, and high-risk corporate bonds all carry higher levels of risk and volatility, making them less suitable for an investor seeking steady income.

Question 11

On January 1, 2012, Brad came up with an investment goal of having $50,000 in assets by March 31, 2012. What fault would financial planners find with Brad's goal?

Accepted Answer

The answer of On January 1, 2012, Brad came up...

Question 12

The ease with which an investment can be converted into cash is called

Accepted Answer

The term used for the ease of converting an investment into cash is liquidity. Therefore, option E is the correct answer. Profitability refers to the rate of return on investment, convertibility refers to the ability to change one form of currency into another or convert preferred stock into common stock, cashibility is not a financial term, and redemption value refers to the value paid upon redemption of a debt or bond instrument.

Question 13

Since Mike and Carol are nearing retirement age, they are concerned with the need for their investments to provide income. If you were a financial planner, which of the following would you not recommend to Mike and Carol as an investment?

Accepted Answer

Stocks of high-growth companies are generally not recommended for investors who are nearing retirement age and seeking stable income from their investments since they are typically more volatile and risky. A better option for income-seeking investors would be blue-chip stocks known for paying dividends, corporate bonds, government bonds, or certificates of deposit.

Question 14

In order to reach goals of high dollar returns on your investments, what must you generally give up?

Accepted Answer

Generally, the higher the potential return on an investment, the higher the level of risk involved. This means that in order to achieve high dollar returns, you must often give up safety and stability. It is important to consider your risk tolerance and investment goals before making any high-risk investments.

Question 15

Barry Ferrell has monthly income of $2,500. His monthly expenses are $2,000. Based on this information, Barry should establish an emergency fund of at least

Accepted Answer

Barry's monthly expenses are $2,000, which means he should aim to have at least 3-6 months' worth of expenses in his emergency fund. 3 months of expenses would be $6,000, so the best choice is D) $6,000.

Question 16

At the beginning of the year, John Stewart invested $10,000. Twelve months later, John sold his investment for $11,000. Assuming he received no dividends or interest during this time, what is his rate of return?

Accepted Answer

The rate of return is the percentage increase in the value of the investment over a period of time. In this case, John invested $10,000 and sold it for $11,000. The increase in value is $11,000 - $10,000 = $1,000. To calculate the rate of return, divide the increase in value by the original investment and multiply by 100 to get a percentage: 
($1,000 / $10,000) x 100 = 10 percent. Therefore, the correct answer is C) 10 percent.

Question 17

Which of the following would most likely be considered the safest investment?

Accepted Answer

Certificate of deposit is considered the safest investment as it is insured by the FDIC (Federal Deposit Insurance Corporation) and the investment is guaranteed to be returned with interest. Corporate bonds, common stock, and preferred stock come with varying levels of risk and do not have the same guaranteed return as a certificate of deposit. Cumulative preferred stock may be considered less risky than common stock or preferred stock, but it still carries more risk than a certificate of deposit.

Question 18

Haverting, Inc., is a fast-growing biotech company. What is Haverting likely to do with any profits it generates?

Accepted Answer

As a fast-growing biotech company, Haverting is likely to reinvest any profits it generates in the company to finance its growth. This will allow it to continue developing new products, expanding its operations, and increasing its market share, which will ultimately benefit both the company and its shareholders in the long run. Paying dividends, investing in other companies, or reducing corporate debt may not be as effective in achieving these goals.

Question 19

What is the general relationship between risk and return?

Accepted Answer

The general relationship between risk and return is directly related, meaning that as risk increases, returns also increase. This is because riskier investments typically have the potential to produce higher returns to compensate for the additional risk. However, this does not mean that all high-return investments are necessarily high-risk, or vice versa. It is important to consider both factors when making investment decisions.

Question 20

Which of the following statements is true about retirement plans?

Accepted Answer

Roth IRA contributions are made with after-tax dollars, meaning you pay taxes on the money before you contribute it.

Quiz 20: A: Understanding Personal Finances and Investments