U.E.T Taxila

COURSE TITLE : FREE 101

True/False QUESTIONS

Chapter 11

1)Investment goals are always oriented to the future.

2. Short term goals should be completed in 30 days or less.

3. Intermediate goals should be accomplished in two to five years.

4. Long term goals should be completed in two to five years.

5. It isn't important to know how much you owe in order to survive a financial crisis.

6. To help survive a financial crisis, it is important to establish a larger than usual emergency fund.

7. If you are unable to make your credit card payments, you should not contact your credit card company.

8. To survive a financial crisis, one should track the value of his/her stock, mutual fund and retirement accounts.

9. A bankruptcy can stay on your credit report for up to 12 years.

10. For many people, the easiest way to begin an investment program is to participate in an employersponsored 401(k) or 403(b) retirement account.

11. Investments that earn a lower rate of interest will have a higher total dollar return than those that earn a high rate of interest.

12. An example of an investment with high risk is a government bond.

13. The potential return of any investment should be directly related to the risk that the investor assumes.

14. Investors choose safe investments because they know there is a moderate chance that these investments will become worthless.

15/The prices of some investments may fluctuate because of periods of economic expansion followed by periods of recession.                                                

16/Patrick Guitman wants to protect himself against losses in his investments. To do this, he should evaluate the companies he wants to purchase and continue to evaluate his investments after his purchase.

17/Diversifying your investments can reduce your inflation risk.

18/Fluctuations in market prices of stocks or bonds directly relate to fundamental changes in the financial health of corporations.

19/The price of oil stock may change due to political unrest in the Middle East.

20/To investors, liquidity means their investments will increase in value.

21/To investors, liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment's value.

22/Since 1926, stocks have earned an average annual return of just over 10 percent.                                          

23/Asset allocation is the process of spreading your assets among several different types of investments to increase risk.                

24/The purpose of diversification is to spread your assets among several different types of investments to decrease risk.                      

25/An unemployed, single parent who just received a $300,000 divorce settlement would likely prefer income investments over growth investments.

26/A 25-year old single investor with a secure, full-time job that pays $60,000 would likely prefer income investments over growth investments.

27/The potential return on any investment should be indirectly related to the risk the investor assumes.

28/Government bonds have a higher potential investment return than stocks.  29/As investors age, their investments typically become more aggressive.

30/Younger investors tend to invest in more aggressive portfolios than older investors.

31/Younger investors tend to invest in more aggressive portfolios because they are more concerned about safety than older investors. 

32/An easy way to determine what percentage of your assets should be invested in growth investments is to take your age and subtract it from 80.

33/After you invest, it is important to let the investments manage themselves.

34/At the most, you should only keep purchase records of the actual dollar cost of your investments.

35/At the least, you should keep purchase records of the actual dollar cost of your investments including commissions or fees paid.

36/Whether you are makng your own decisions or have professional help, you must consider the tax consequences of selling your investments.

37/A corporate bond is a written pledge of a government or municipality to repay a specified sum of money, along with interest.

38/Municipal bonds generally are only tax exempt at the state level.

39/The taxable equivalent yield for a municipal bond will be lower than the tax-exempt yield for that

bond.

40/The usual face value of a corporate bond is $100.

41/In the event of bankruptcy, stockholders have a claim to assets of the corporation before bondholders.

42/As the market value of common stock increases, the market value of a convertible bond decreases.

43/The value of a bond is not tied to the corporation's ability to repay its bond.

44/An investor can typically find more information about stocks and mutual funds online than they can find for bonds.

45/In general, bond rating categories are similar to school grading scales with A being better than C.

46/Which of the following is NOT a  statement?

47/A valid short-term investment goal is:

48/A valid long-term investment goal is:

49/steps should be completed before starting an investment program?

50/Which of the following steps is NOT a factor to be considered before making your first investment?

51/All of the following statements are considered to be good advice for the potential investor before starting his or her personal investment program except:

52/A good rule of thumb is to limit installment payments to                                                                     percent of your net (nafter-tax) income.

53/How long will a bankruptcy stay on your credit report?

54/A                                              is an employer-sponsored retirement account.

55/If you invest $4,000 per year over the next 40 years for retirement, which of the following is correct?

56/Safe investments include all except:

57/Which of the following would be considered speculative investments?

58/Speculative investments include all except:

59/Which of the following would be considered a safe investment?

60/As people approach retirement, which of the following holds  for most?

61/Gwendolyn and Jack Francis are typical investors. As they approach retirement, which approach will they likely take?

62/ The potential return on any investment should

63/Which of the following is NOT one of the four components of risk to be considered when evaluating investments?

64/When choosing an investment, one should consider risk. The four primary risk components are:

Inflation, interest rate, business failure, market 65/risks reduces your buying power?

66/Which of the following risks associated with preferred stocks or government or corporate bonds is a result of changes in rates in the economy?

67/Which of the following risks deals with the possibility that bad management, unsuccessful products, or other factors will cause the firm to be less profitable than originally anticipated?

68/Which of the following risks deals with fluctuations due to political or social conditions?

69/Inflation risk deals with

70/Business failure risk can be due to:

71/Market risk is associated with fluctuations in the market due to

72/All of the following can be factors that influence business failure risk except:

73/Business failure risk:

74/Timothy Calibe owns common stock in XYZWidgets.com. To reduce his business failure risk, he should

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

76/Which of the following describes a growth company?

77/Which of the following does NOT describe a growth company?

78/If your main focus is to have your investments increase in value, you are most concerned with

79/ If your main focus is to be able to buy or sell an investment quickly without substantially affecting the investment's value, you are most concerned with

80/Which of the following investments is the most liquid?

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

82/A proverb that we can associate with diversifying our investments is:

83/Which of the following investors would mostly prefer income investments over growth investments?

84/Which of the following investors would mostly prefer growth investments over income investments?

85/Which of the following investments typically has the largest potential investment return?

86/Which of the following investments typically has the most risk?

87/A portfolio that is 100 percent invested in stock would be indicative of a(n)                                                                                                                                                                                                                      portfolio.

88/A portfolio that has 15 - 20 percent invested in stock would be indicative of a(n)                                                                                                                                                                                                                             

portfolio.

89/Which of the following would you expect to earn just over 10 percent per year over the long term?

90/ If you need access to your funds in less than one year, which of the following investments would be least appropriate?

91/If you can leave your funds alone for 5 - 10 years or more, which of the following investments would be most appropriate?

92. As investors approach retirement age, they are often more interested in                                            portfolios.

93. Young investors are often more interested in                                  portfolios than older investors.

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

95. When investing, an investor should NOT

96. After you purchase an investment, you should

97. When considering the value of your stock investments, it is important to

98. To maximize profit or reduce dollar losses when you sell your investments, it is important to do all of the following except:

99. When should you consider the tax consequences of selling your investments?

100. Which of the following is NOT a U.S. Treasury security?

1. 1. discounted security means that the current price is trading at

102.Which of the following statements is ?

1. 1. government security issued in minimum units of $100 with 4, 13, 26, or 52-week maturities is called a

104.When comparing the interest rates for government securities, which of the following is correct?

105.A government security issued in $100 units with maturities of more than one year but not more than ten years is called a

106.A government security issued in minimum units of $100 with a 30-year maturity is called a

107.A security issued by the U.S. Treasury that protects the investor from inflation is called a

1. 1. bond backed by the full faith, credit, and unlimited taxing power of the government that issued it is called a                                                                    bond.

1. 1. bond that is repaid from the income generated by the project it is designed to finance is called a(n)

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

111. Which of the following features is a benefit for investors of municipal bonds?

112. The taxable equivalent yield for a municipal bond is calculated using

113. Which of the following is NOT correct?

114.Generally, interest on corporate bonds is paid every

115. Gwendolyn Francis is interested in buying a bond that pays $80 annually. The current price of the bond is $600. What is her current yield?

116.Interest paid to corporate bond holders is

117. The financially independent firm or individual that acts as the bondholders' representative is the

118. Which of the following statements is correct?

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

                         bond.

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

                          bond.

121.A bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's stock is called a(n)                                                        bond.

122.Which of the following statements is ?

1. 1. call feature

1. 1. fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue is

called a(n)                                              fund.

125. Bonds of a single issue that mature on different dates are called                                                                    

bonds.

126. Which of the following is NOT a rating agency for bonds?

127. Bond funds

128. Why do investors purchase corporate bonds?

129. The type of bond that is tracked electronically by the issuing company is a

130. John Peterson purchased a bond at a price far below its face value, which makes no interest payments, and will be redeemed at its face value at maturity. In all likelihood, he purchased a(n) bond.

131. If overall interest rates in the economy rise, a corporate bond with a fixed interest rate will generally

132. Which of the following securities are rated at various agencies?

133. If your monthly expenses total $2,200, you should save at least                                                       in an emergency fund before focusing completely on your investment portfolio.

134. If your monthly expenses total $2,600 you should save at least                                                      in an emergency fund before focusing completely on your investment portfolio.

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

136. According to some financial experts like Suze Orman, how much of an investment portfolio should a 30year old have in safe (non-growth) investments?

137. According to some financial experts like Suze Orman, how much of an investment portfolio should a 50year old have in growth investments?

138. According to some financial experts like Suze Orman, how much of an investment portfolio should a 50year old invest in safe (non-growth) investments?

139. You are considering an investment in a municipal bond that has a yield of 4.5 percent. Your tax rate is 25 percent. What is your taxable equivalent yield?

140. You are considering an investment in a municipal bond that has a yield of 5.2 percent. Your tax rate is 25  percent. What is your taxable equivalent yield?

141. Assume that you purchase a $1,000 bond issued by GE that pays 6 ¼ percent interest each year. What is the annual interest amount?

142. Assume that you purchase a $1,000 bond issued by Harley-Davidson that pays 7 percent interest each year, paid semiannually. What is the amount of each interest payment?

143. Assume that you purchase a $1,000 bond issued by Kohls that pays 9 percent interest each year, paid semiannually. What is the amount of each interest payment?

144. What is the approximate market value of a bond that pays $60 interest each year if interest rates have dropped to 4 percent?

145. If a bond is quoted in the newspaper at 92, what is its price?

146. If a bond is quoted in the newspaper at 102, what is its price?