Name: __________________________ Date: _____________
Multiple choice 2pts each = 80%
1.
Market risk, inflation, and taxes are major factors that affect an investments rate of return.
A)
True
B)
False
2.
Capital gains (losses) are not realized until one actually sells the investment.
A)
True
B)
False
3.
Generally investments with high capital gains potential also pay high current income (think growth stock).
A)
True
B)
False
4.
Historically, both common stock and corporate bonds have performed well in times of inflation.
A)
True
B)
False
5.
XYZ Corporation has suffered a major downturn in business and will not be able to pay interest on its bonds. This is an example of _____ risk.
A)
financial
B)
interest rate
C)
market volatility
D)
marketability
6.
_____ investors primarily seek capital gains.
A)
Ultraconservative
B)
Conservative
C)
Moderate
D)
Aggressive
7.
You put your money into a 3½ percent savings account. After two years you take your money out of the account, only to find that your purchasing power has decreased. This is an example of _____ risk.
A)
inflation
B)
deflation
C)
interest rate
D)
marketability
8.
If one is in the 25 percent marginal tax bracket, he or she will have an after-tax income of _____ from an investment that pays $1,500 in taxable income.
A)
$1,500
B)
$1,125
C)
$960
D)
$420
9.
Portfolio diversification _____ volatility while _____ return.
A)
reduces; averaging out
B)
increases; averaging out
C)
reduces; increases
D)
increases; reduces
10.
Successful use of dollar-cost averaging requires investor
A)
discipline.
B)
knowledge.
C)
luck.
D)
timing.
11.
If your time horizon is six to ten years and your portfolio consists of 10 percent cash, 30 percent bonds, and 60 percent stocks, you would be considered to have a(n) ________ investment philosophy.
A)
aggressive
B)
moderate
C)
conservative
D)
ultraconservative
12.
The returns on common stocks have historically been half as high as the returns on cash savings.
A)
True
B)
False
13.
The book value is the net worth of a company, which is determined by subtracting the company’s total liabilities from its assets.
A)
True
B)
False
14.
Earnings per share (EPS) indicate the income a company has available to pay as dividends and reinvest as retained earnings.
A)
True
B)
False
15.
Beta is a ratio measure of an investment’s price volatility or risk compared with a specific market index, usually for similar investments.
A)
True
B)
False
16.
Growth companies typically pay little or no cash dividends.
A)
True
B)
False
17.
The fundamental approach presumes that current and future earnings, trends, industry outlook, and management’s expertise determine a stock’s price movement.
A)
True
B)
False
18.
Most bonds are callable.
A)
True
B)
False
19.
A corporate bond rated AAA would pay a higher rate of interest than a corporate bond rated BBB.
A)
True
B)
False
20.
The yield to maturity is a more accurate measure of effective return on a bond investment than current yield.
A)
True
B)
False
21.
A company’s net worth is known as its _____ value.
A)
book
B)
market
C)
par
D)
intrinsic
22.
Which is nota characteristic of bonds?
A)
Par value
B)
Dividend yield
C)
Coupon
D)
Maturity date
23.
If Moody’s downgrades a bond, which of the following would fall?
A)
Face value
B)
Market price
C)
Coupon rate
D)
Current yield
24.
Speculative stocks typically pay little or no cash dividends.
A)
True
B)
False
25.
Income stocks are typically more volatile than the market as a whole.
A)
True
B)
False
26.
More than 90 percent of all mutual funds are open-end funds.
A)
True
B)
False
27.
A mutual fund whose objective focuses on growth in the value of the securities invests in companies expected to show average or better growth with steady or rising dividends.
A)
True
B)
False
28.
International funds are the only funds that can invest in foreign securities.
A)
True
B)
False
29.
Front-end loads typically amount to 3 to 8.5 percent of the amount invested.
A)
True
B)
False
30.
A single mutual fund company offers only one class of load shares to investors, such as A, B, or C.
A)
True
B)
False
31.
Mutual fund quotations normally include the NAV, YTD Percentage Return, and the fund’s expense ratio.
A)
True
B)
False
32.
Taxes on annual earnings from mutual funds can be avoided
A)
while those amounts are kept in an IRS-qualified retirement account.
B)
if those earnings are interest from municipal bonds.
C)
as long as the mutual shares are not sold.
D)
while those amounts are kept in an IRS-qualified retirement account and if those earnings are interest from municipal bonds.
33.
Mutual funds that invest in lesser-known companies with a market capitalization of less than $500 million that offer strong potential for growth are called _____ funds.
A)
balanced
B)
sector
C)
microcap
D)
small company growth
34.
Laura Larkin invested $4,000 in a mutual fund with a stated load of 6 percent. How much of her money was actually invested in shares of the mutual fund?
A)
$4,000
B)
$3,940
C)
$3,670
D)
$3,760
35.
Redemption fees typically
A)
are assessed on shares sold back within the first five years.
B)
represent 3 percent of the shares redeemed.
C)
are designed to discourage frequent trading.
D)
are particularly troublesome for long-term investors.
36.
Periodic, systematic investment in mutual funds is an example of
A)
switching privileges.
B)
systematic withdrawal.
C)
dollar-cost averaging.
D)
exchange trading.
37.
The size of a mutual fund, in terms of its total assets, is a factor to consider when selecting a fund.
A)
True
B)
False
38.
The best way to ensure that you “beat the market” is to invest in “hot” mutual funds.
A)
True
B)
False
39.
Closed-end investment companies
A)
are the most common type of investment companies.
B)
issue a limited and fixed number of shares.
C)
redeem their shares directly from investors.
D)
buy and sell shares at net asset value.
40.
A small percentage of mutual fund investors have their income reinvested.
A)
True
B)
False
Short Essay 5 pts each
1) ABC Inc. has earnings of $1,000,000, 2 million shares of common stock outstanding and a closing price of $50. Showing all work answer the following
a. What is ABCs earning per share?
b. What is ABCs price to earnings ratio?
2) I own XYZ non- cumulative preferred stock that pays a yearly dividend of $4. The stock paid a dividend in the 1st quarter, but did not pay in the 2nd and 3rd quarters. In the 4th quarter they made record earnings and were able to pay a dividend. Showing all work;
a. How much did they pay me in the 4th Quarter?
b. If this was a cumulative preferred stock, how much would they pay me in the 4th quarter?
3) I sold 1000 shares of ABC Company short at $15. Showing all work:
a. The stock went up to $20 a share and I closed my position. How much did I make or lose?
b. The stock went down to $10 a share and I closed my position. How much did I make or lose?
4) Verizon pays a 5% dividend per year. The stock I bought is up 20% in the year. I sell it after 1 year(showing all work)
a. My total return for 1 year is
b. What if the stock is up 7% in 7 months and I sell it. What is my total return?