Question 1

As investors age, they tend to invest more in growth-oriented investments.

Accepted Answer

A) True 
 B)False

Question 2

The process of spreading your assets among several different types of investments to lessen risk is called

Accepted Answer

A)   Asset allocation.
B)   Asset combination.
C)   Asset investments.
D)   Asset riskiness.
E)   Asset returns.

Question 3

Why do investors purchase corporate bonds?

Accepted Answer

A)   Interest income
B)   Repayment at maturity
C)   Possible increase in value
D)   All of the above.
E)   None of the above.

Question 4

A bond that is backed only by the reputation of the issuing corporation is called a(n)  ____________ bond.

Accepted Answer

A)   debenture
B)   mortgage
C)   indenture
D)   preemptive
E)   treasury

Question 5

The risk of fluctuations in the market prices of stocks or bonds relates only to fundamental changes in the financial health of corporations that issue these investments.

Accepted Answer

A) True 
 B)False

Question 6

Inflation risk deals with

Accepted Answer

A)   A reduction in purchasing power.
B)   Changes in interest rates.
C)   Bad management and/or unsuccessful products.
D)   Political or social conditions.
E)   Predictable sources of income.

Question 7

Which of the following has returned an average of almost 10% per year since 1926?

Accepted Answer

A)   Bonds
B)   Certificates of deposit
C)   Conservative portfolio
D)   Savings account
E)   Stocks

Question 8

If your primary investment objective is to receive investment income, which of the following would NOT be an appropriate investment for you?

Accepted Answer

A)   Utility stock
B)   Corporate bond
C)   Municipal bond
D)   Preferred stock
E)   Aggressive "Growth" funds

Question 9

Gwendolyn and Jack Francis are investors with no financial training or investment background. Which approach will they likely take?

Accepted Answer

A)   They will choose investments with higher risks.
B)   Their choices of investments will not be affected by risk.
C)   They will choose investments with less risk.
D)   They will choose investments with no risk.
E)   They will move all of their money into a savings account.

Question 10

According to some financial experts like Suze Orman, how much of an investment program should a 30-year-old have in growth investments?

Accepted Answer

A)   30%
B)   65%
C)   70%
D)   80%
E)   100%

Question 11

A corporate bond that is secured by various assets of the issuing firm is called a(n)  ____________ bond.

Accepted Answer

A)   debenture
B)   mortgage
C)   indenture
D)   preemptive
E)   treasury

Question 12

Business failure risk

Accepted Answer

A)   Cannot be diversified.
B)   Causes the business to increase its dividends.
C)   In the worst case, leads to improved earnings.
D)   Is associated with government bonds.
E)   Causes the business to be less profitable than originally anticipated.

Question 13

Which of the following steps should be completed before making your first investment?

Accepted Answer

A)   Pick out at least two stocks or bonds to invest in.
B)   Work to balance your budget.
C)   Save at least $10,000 to invest.
D)   Invest in certificates of deposit.
E)   These all are completed at the same time.

Question 14

Some financial experts, such as Suze Orman, suggest that investors include a percentage of growth investments as part of their investment plan. This percentage can be calculated by subtracting your age from

Accepted Answer

A)   50.
B)   95.
C)   100.
D)   110.
E)   200.

Question 15

A debt security issued by a state or local government is known as a

Accepted Answer

A)   Treasury bond.
B)   Municipal bond.
C)   Corporate bond.
D)   Subordinated bond.
E)   Federal agency bond.

Question 16

Which of the following investors would mostly prefer speculative investments with higher risks over conservative investments with less risk?

Accepted Answer

A)   A 25-year-old single investor who does not have an emergency fund
B)   An unemployed single parent who just received a $300,000 divorce settlement
C)   A 70-year-old who uses his dividends and interest to pay his monthly bills
D)   A dual-career couple (with no children)  in their 30s whose combined income is $95,000
E)   A retired couple with $850,000 in retirement savings

Question 17

You are considering an investment in a municipal bond that has a yield of 5%. Your tax rate is 25%. What is your taxable equivalent yield?

Accepted Answer

A)   0.75%
B)   4.75%
C)   5%
D)   5.25%
E)   6.67%

Question 18

Speculative investments include all of the following except

Accepted Answer

A)   Options.
B)   Commodities.
C)   Precious stones.
D)   Savings accounts.
E)   Precious metals.

Question 19

What is the approximate market value of a bond that pays $60 interest each year if comparable interest rates have dropped to 5%?

Accepted Answer

A)   $100
B)   $300
C)   $500
D)   $1,200
E)   $2,400

Question 20

Patrick Guitman wants to protect himself against losses in his investments after the purchase. To do this, he should monitor the value of his investments to determine if he should hold, sell, or increase his stake in a specific investment.

Accepted Answer

A) True 
 B)False

Exam 11: Investing Fundamentals and Bonds

What is the approximate market value of a bond that pays $60 interest each year if comparable interest rates have dropped to 5%?

Correct AnswerverifiedShow Answer

Which of the following steps should be completed before making your first investment?

Correct AnswerverifiedShow Answer

You are considering an investment in a municipal bond that has a yield of 5%. Your tax rate is 25%. What is your taxable equivalent yield?

Correct AnswerverifiedShow Answer

Which of the following investors would mostly prefer speculative investments with higher risks over conservative investments with less risk?

Correct AnswerverifiedShow Answer

According to some financial experts like Suze Orman, how much of an investment program should a 30-year-old have in growth investments?

Correct AnswerverifiedShow Answer

Inflation risk deals with

Correct AnswerverifiedShow Answer

The risk of fluctuations in the market prices of stocks or bonds relates only to fundamental changes in the financial health of corporations that issue these investments.

Correct AnswerverifiedShow Answer

If your primary investment objective is to receive investment income, which of the following would NOT be an appropriate investment for you?

Correct AnswerverifiedShow Answer

A corporate bond that is secured by various assets of the issuing firm is called a(n) ____________ bond.

Correct AnswerverifiedShow Answer

Gwendolyn and Jack Francis are investors with no financial training or investment background. Which approach will they likely take?

Correct AnswerverifiedShow Answer

A bond that is backed only by the reputation of the issuing corporation is called a(n) ____________ bond.

Correct AnswerverifiedShow Answer

Business failure risk

Correct AnswerverifiedShow Answer

As investors age, they tend to invest more in growth-oriented investments.

Correct AnswerverifiedShow Answer

The process of spreading your assets among several different types of investments to lessen risk is called

Correct AnswerverifiedShow Answer

Why do investors purchase corporate bonds?

Correct AnswerverifiedShow Answer

Some financial experts, such as Suze Orman, suggest that investors include a percentage of growth investments as part of their investment plan. This percentage can be calculated by subtracting your age from

Correct AnswerverifiedShow Answer

A debt security issued by a state or local government is known as a

Correct AnswerverifiedShow Answer

Patrick Guitman wants to protect himself against losses in his investments after the purchase. To do this, he should monitor the value of his investments to determine if he should hold, sell, or increase his stake in a specific investment.

Correct AnswerverifiedShow Answer

Which of the following has returned an average of almost 10% per year since 1926?

Correct AnswerverifiedShow Answer

Speculative investments include all of the following except

Correct AnswerverifiedShow Answer

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