Question 1

A fairly long-term loan commitment by the investor would accompany the purchase of
A) corporate bonds
B) Treasury bills
C) Common stocks
D) Certificates of deposit

Accepted Answer

Corporate bonds typically have longer maturity periods than Treasury bills and certificates of deposit, and they also carry a higher level of risk. Therefore, investors who purchase corporate bonds typically have a longer-term investment horizon and are committing their funds for a longer period. Common stocks do not involve a loan commitment and can be sold at any time.

Question 2

Security analysis may fall into two categories:
A) micro- and macro-economic policy
B) real and monetary investment
C) fundamental and technical
D) volatile and nonvolatile

Accepted Answer

Fundamental analysis focuses on analyzing a company's financial statements, management team, industry trends, and overall market conditions to determine if a security is undervalued or overvalued. Technical analysis, on the other hand, is more focused on analyzing price charts and identifying patterns and trends in order to predict future price movements. Therefore, the two distinct categories of security analysis are fundamental and technical. The other options are not relevant to security analysis.

Question 3

The fundamental principle in the investment environment, which states that securities with various degrees of risk combined into a portfolio result in portfolios with lower levels of total risk, is known as
A) fragmentation
B) the efficient frontier
C) the investor's paradox
D) diversification

Accepted Answer

The principle referred to in the question is diversification, which helps reduce the overall risk in a portfolio by investing in a mix of assets that have varying levels of risk. The other options mentioned (fragmentation, efficient frontier, and investor's paradox) are not directly related to this principle.

Question 4

Securities markets that can be distinguished by the life span of financial assets are most often known as the
A) money and capital markets
B) New York Stock and the American Stock Exchanges
C) short and long term markets
D) bond and stock markets

Accepted Answer

The money market deals with short-term financial assets, while the capital market handles long-term financial assets, distinguishing them by the life span of the assets involved.

Question 5

An investment
A) must have risk.
B) has an expected return at the forecasted inflation rate.
C) involves the sacrifice of present dollars for future dollars.
D) must involve the purchase of a real asset.

Accepted Answer

An investment involves sacrificing present dollars for future dollars, which means investors are delaying consumption for the possibility of greater future rewards. Risk may or may not be present in an investment, and it is not necessary for an investment to involve the purchase of a real asset. The expected return may or may not match the forecasted inflation rate.

Question 6

Within the investment environment the term security means
A) a legal representation of the right to receive future payments under stated conditions.
B) an interest in an asset held by a trustee for the benefit of another person.
C) the value of a portfolio.
D) the return to an investment manager.

Accepted Answer

A security is a financial instrument that represents an ownership interest, debt, or the right to receive future payments under stated conditions. Examples include stocks, bonds, and options.

(B) describes a trust, not a security. 
(C) describes the value of a portfolio, not a security. 
(D) describes the return to an investment manager, not a security.

Question 7

An indirect method for corporations to acquire funds is through
A) issuing bonds.
B) buying options.
C) issuing common stock.
D) a loan from a bank.

Accepted Answer

A loan from a bank is an indirect method of acquiring funds as it involves borrowing money from a financial institution rather than directly from investors.

Question 8

The first step of the investment process is to
A) set investment policy
B) perform security analysis.
C) evaluate portfolio performance.
D) construct a portfolio.

Accepted Answer

Setting investment policy is the first step because it determines the investor's objectives, risk tolerance, and constraints, which guide all subsequent decisions in the investment process.

Question 9

Macroforecasting is also referred to as
A) diversification.
B) risk minimization.
C) timing.
D) return maximization.

Accepted Answer

Macroforecasting is the process of predicting future economic trends and conditions, such as interest rates, inflation rates, and overall market performance. This information can be used to make investment decisions, and it is an important part of timing strategies. Therefore, the correct answer is C, timing. The other choices (diversification, risk minimization, and return maximization) are all important investment strategies, but they are not directly related to macroforecasting.

Question 10

Treasury bills are traded in the
A) capital market.
B) New York Stock Exchange.
C) primary market.
D) money market.

Accepted Answer

Treasury bills are short-term debt securities issued by the government that are traded in the money market, which is known for dealing with financial instruments that have maturities of up to one year. The money market is distinct from the capital market, which deals with long-term securities such as stocks and bonds. The New York Stock Exchange is also not involved in the trading of Treasury bills, as it is primarily focused on the trading of stocks and other equity securities. The primary market refers to the market in which new securities are issued, such as through an initial public offering (IPO), and is also not directly related to the trading of Treasury bills.

Question 11

The calculation of intrinsic values is done during the investment process stage of
A) security analysis.
B) portfolio revision.
C) portfolio construction.
D) portfolio performance evaluation.

Accepted Answer

The calculation of intrinsic values is a key step in security analysis, as it involves assessing the fundamental value of a security and comparing it to its market price. This information is crucial for making informed investment decisions. Portfolio revision, construction, and performance evaluation involve different aspects of managing an investment portfolio, but do not necessarily require the calculation of intrinsic values.

Question 12

Setting the investment policy involves determining the investor's objectives and
A) risk tolerance
B) investable wealth
C) the ability to make "a lot of money"
D) setting the risk of the potential reduction in household income

Accepted Answer

The answer of Setting the investment policy involves determining the...

Question 13

Among the securities analyzed, the type with the largest annual variability in return was
A) treasury bills.
B) preferred stock.
C) corporate bonds.
D) common stock.

Accepted Answer

Common stock is generally considered the most volatile type of security, with the potential for high returns but also high variability in returns over time. Treasury bills, preferred stock, and corporate bonds are all generally considered to have lower levels of variability in returns.

Question 14

Investors who wish to lend money to the U.S. Treasury on a short-term basis would purchase
A) Treasury bonds
B) municipal bonds
C) government-agency bonds
D) Treasury bills

Accepted Answer

Investors who wish to lend money to the US government on a short-term basis would purchase Treasury bills. Treasury bills are short-term debt securities issued by the US government and are typically sold with maturities of 4, 13, or 26 weeks. They are considered one of the safest investments because they are backed by the full faith and credit of the US government. Treasury bonds, municipal bonds, and government-agency bonds all have longer maturities than Treasury bills and are not typically used for short-term lending.

Question 15

Investors have available a 65 year history of risk and return from investing due to the research of
A) Dun and Bradstreet.
B) Ibbotson and Sinquefield.
C) Wall Street Journal.
D) Masters and Johnson.

Accepted Answer

Ibbotson and Sinquefield conducted the research and published the results in the Stocks, Bonds, Bills, and Inflation Yearbook, providing investors with a comprehensive historical analysis of risk and return for various asset classes. Dun and Bradstreet provide credit reporting services, the Wall Street Journal is a financial news publication, and Masters and Johnson are known for their research in human sexuality, not investing.

Question 16

New common stock is sold
A) at the American Stock Exchange.
B) in the secondary market.
C) at the New York Stock Exchange.
D) in the primary market.

Accepted Answer

New common stock is initially sold in the primary market through an initial public offering (IPO) or a direct listing. Options A, B, and C refer to the secondary market where already issued stocks are traded.

Question 17

A real investment would be the purchase of a
A) common stock.
B) treasury bill.
C) piece of production equipment.
D) call option.

Accepted Answer

The purchase of production equipment is a real investment as it represents a tangible asset that can generate future cash flows through its use in the production process. Common stock and call options represent ownership in a company, but do not necessarily result in the acquisition of a physical asset. Treasury bills are a form of short-term debt and do not represent an actual investment in productive assets.

Question 18

A characteristic of an efficient market is
A) significant trends in security returns
B) prices which are slow to adjust to new information
C) randomness in security returns
D) the past pattern predicts the future pattern of prices

Accepted Answer

Randomness in security returns is a characteristic of an efficient market, meaning that prices are unpredictable and reflect all available information. The other choices suggest inefficiency in the market, such as significant trends in security returns, slow price adjustments, and a predictable past pattern.

Question 19

The percentage change in the investor's wealth from the beginning to the end of the year is known as the

A) retention ratio
B) payout ratio
C) rate of return
D) discount rate

Accepted Answer

The percentage change in the investor's wealth from the beginning to the end of the year is known as the rate of return. This measures the profitability of an investment and is typically expressed as a percentage of the initial investment. The retention ratio refers to the proportion of earnings that a company retains rather than paying out as dividends, while the payout ratio is the percentage of a company's earnings that are paid out as dividends to shareholders. The discount rate is the rate of return used to determine the present value of future cash flows.

Question 20

Another type of security available in the investment environment which represents a commitment by a corporation to pay periodic and variable cash dividends is known as a
A) corporate T-bill
B) common stock
C) preferred stock
D) corporate bond

Accepted Answer

Common stock represents ownership in a corporation and entitles the shareholder to a share of the company's profits through dividends, which can be variable and are not guaranteed.

Quiz 1: Introduction

A fairly long-term loan commitment by the investor would accompany the purchase of

Security analysis may fall into two categories:

The fundamental principle in the investment environment, which states that securities with various degrees of risk combined into a portfolio result in portfolios with lower levels of total risk, is known as

Securities markets that can be distinguished by the life span of financial assets are most often known as the

An investment

Within the investment environment the term security means

An indirect method for corporations to acquire funds is through

The first step of the investment process is to

Macroforecasting is also referred to as

Treasury bills are traded in the

The calculation of intrinsic values is done during the investment process stage of

Setting the investment policy involves determining the investor's objectives and

Among the securities analyzed, the type with the largest annual variability in return was

Investors who wish to lend money to the U.S. Treasury on a short-term basis would purchase

Investors have available a 65 year history of risk and return from investing due to the research of

New common stock is sold

A real investment would be the purchase of a

A characteristic of an efficient market is

The percentage change in the investor's wealth from the beginning to the end of the year is known as the

Another type of security available in the investment environment which represents a commitment by a corporation to pay periodic and variable cash dividends is known as a