Question 1

The nominal return on an investment is an illusion. Explain.

Accepted Answer

An illusion is something that is differe

Question 2

Market risk is the risk of fluctuations in security prices due to changes in the market interest rate.

Accepted Answer

A) True 
 B)False

Question 3

If you purchase some shares of stock

Accepted Answer

A)  you may earn dividends. 
B)  you will definitely earn dividends. 
C)  you may earn coupon interest. 
D)  you will definitely earn coupon interest. 
A)  you may earn dividends. 
B)  you will definitely earn dividends. 
C)  you may earn coupon interest. 
D)  you will definitely earn coupon interest.

Question 4

Principle 8, Risk and Return go hand in hand, tells us that you ________ as the length of the investment horizon ________.

Accepted Answer

A)  can afford to take on additional risk; increases 
B)  can afford to take on additional risk; decreases 
C)  cannot afford not to take on additional risk; shortens 
D)  cannot afford to take on additional risk; increases 
A)  can afford to take on additional risk; increases 
B)  can afford to take on additional risk; decreases 
C)  cannot afford not to take on additional risk; shortens 
D)  cannot afford to take on additional risk; increases

Question 5

An investor owns stock from seven different companies, two rental houses, and three government bonds. Together these assets are considered to be the investor's ________ .

Accepted Answer

A)  collection 
B)  derivative holding 
C)  asset class 
D)  portfolio 
E)  none of the above 
A)  collection 
B)  derivative holding 
C)  asset class 
D)  portfolio 
E)  none of the above

Question 6

You own a bond issued by BMW, a German company. What kind of risk are you exposed to?

Accepted Answer

A)  inflation risk 
B)  interest rate risk 
C)  exchange rate risk 
D)  all of the above are correct 
A)  inflation risk 
B)  interest rate risk 
C)  exchange rate risk 
D)  all of the above are correct

Question 7

Which of the following is not risk that can be diversified out of a portfolio of stocks?

Accepted Answer

A)  unsystematic 
B)  systematic 
C)  firm specific 
D)  company-unique 
A)  unsystematic 
B)  systematic 
C)  firm specific 
D)  company-unique

Question 8

Interest rates are closely tied to the rate of inflation.

Accepted Answer

A) True 
 B)False

Question 9

Hern MacTavish only invests in lending investments. If his financial advisor gave him the list below, which might Hern invest in?

Accepted Answer

A)  saving accounts 
B)  stocks 
C)  income-producing real estate 
D)  bonds 
E)  both A and D 
A)  saving accounts 
B)  stocks 
C)  income-producing real estate 
D)  bonds 
E)  both A and D

Question 10

A 60-year-old investor should not be too concerned about liquidity and market risk in their retirement portfolio.

Accepted Answer

A) True 
 B)False

Question 11

Diversification eliminates all the risk from your portfolio.

Accepted Answer

A) True 
 B)False

Question 12

If the corporation that issued a bond goes bankrupt, the bondholders are paid before stock holders are paid from any remaining assets of the corporation.

Accepted Answer

A) True 
 B)False

Question 13

Alice learned that the difference between the real rate of return and the nominal or quoted rate of return is that

Accepted Answer

A)  the real rate is adjusted for inflation. 
B)  the real rate is not adjusted for inflation. 
C)  the nominal rate is adjusted for inflation 
D)  none of the above 
A)  the real rate is adjusted for inflation. 
B)  the real rate is not adjusted for inflation. 
C)  the nominal rate is adjusted for inflation 
D)  none of the above

Question 14

Provide an explanation of the four points of making a comparison of investing returns on an after-tax basis.

Accepted Answer

The tax rate we should be concerned with

Question 15

The disposition effect involves

Accepted Answer

A)  holding onto winners too long. 
B)  selling losers too soon. 
C)  Both A and B. 
D)  Neither A nor B. 
A)  holding onto winners too long. 
B)  selling losers too soon. 
C)  Both A and B. 
D)  Neither A nor B.

Question 16

Suppose that you are beginning an investment plan. You have decided that you want to retire in 30 years with $1,000,000 in your bank account at that time. How much would you need to invest at the end each of the next 30 years if you could earn 8%?

Accepted Answer

A)  $11,924,613.33 
B)  $83,860.16 
C)  $46,030.93 
D)  $22,045.16 
E)  $8,827.43 
A)  $11,924,613.33 
B)  $83,860.16 
C)  $46,030.93 
D)  $22,045.16 
E)  $8,827.43

Question 17

The concept of asset allocation has nothing to do with the time dimension of investing.

Accepted Answer

A) True 
 B)False

Question 18

Is it possible to both accumulate wealth and preserve wealth with the same asset allocation strategy?

Accepted Answer

A)  Yes, a well-constructed portfolio can achieve both goals effectively. 
B)  No, there are conflicting risks that are contrary to achieving both goals with the same asset classes. 
C)  Yes, a diversified bond portfolio is appropriate for all investors. 
D)  No, a diversified stock portfolio is too risky for the typical young investor. 
A)  Yes, a well-constructed portfolio can achieve both goals effectively. 
B)  No, there are conflicting risks that are contrary to achieving both goals with the same asset classes. 
C)  Yes, a diversified bond portfolio is appropriate for all investors. 
D)  No, a diversified stock portfolio is too risky for the typical young investor.

Question 19

Which of the following would have liquidity risk associated with it?

Accepted Answer

A)  a rare comic book 
B)  a house 
C)  a stamp collection 
D)  all of the above are correct 
E)  all but A are correct 
A)  a rare comic book 
B)  a house 
C)  a stamp collection 
D)  all of the above are correct 
E)  all but A are correct

Question 20

What are the benefits of a well-diversified portfolio?

Accepted Answer

A)  It protects you from systematic risk. 
B)  It protects you from firm specific risk. 
C)  It protects you from company-unique risk. 
D)  All of the above are correct. 
E)  All but A are correct. 
A)  It protects you from systematic risk. 
B)  It protects you from firm specific risk. 
C)  It protects you from company-unique risk. 
D)  All of the above are correct. 
E)  All but A are correct.

The nominal return on an investment is an illusion. Explain.

Market risk is the risk of fluctuations in security prices due to changes in the market interest rate.

If you purchase some shares of stock

Principle 8, Risk and Return go hand in hand, tells us that you as the length of the investment horizon .

An investor owns stock from seven different companies, two rental houses, and three government bonds. Together these assets are considered to be the investor's ________ .

You own a bond issued by BMW, a German company. What kind of risk are you exposed to?

Which of the following is not risk that can be diversified out of a portfolio of stocks?

Interest rates are closely tied to the rate of inflation.

Hern MacTavish only invests in lending investments. If his financial advisor gave him the list below, which might Hern invest in?

A 60-year-old investor should not be too concerned about liquidity and market risk in their retirement portfolio.

Diversification eliminates all the risk from your portfolio.

If the corporation that issued a bond goes bankrupt, the bondholders are paid before stock holders are paid from any remaining assets of the corporation.

Alice learned that the difference between the real rate of return and the nominal or quoted rate of return is that

Provide an explanation of the four points of making a comparison of investing returns on an after-tax basis.

The disposition effect involves

Suppose that you are beginning an investment plan. You have decided that you want to retire in 30 years with $1,000,000 in your bank account at that time. How much would you need to invest at the end each of the next 30 years if you could earn 8%?

The concept of asset allocation has nothing to do with the time dimension of investing.

Is it possible to both accumulate wealth and preserve wealth with the same asset allocation strategy?

Which of the following would have liquidity risk associated with it?

What are the benefits of a well-diversified portfolio?

The Financial Planning Process

Measuring Your Financial Health and Making a Plan

Understanding and Appreciating the Time Value of Money

Tax Planning and Strategies

Cash or Liquid Asset Management

Using Credit Cards: The Role of Open Credit

Using Consumer Loans: The Role of Planned Borrowing

The Home and Automobile Decision

Life and Health Insurance

Property and Liability Insurance

Securities Markets

Investing in Stocks

Investing in Bonds and Other Alternatives

Mutual Funds: An Easy Way to Diversify

Retirement Planning

Estate Planning: Saving Your Heirs Money and Headaches

Financial Life Events Fitting the Pieces Together

Filters

Exam 11: Investment Basics

The nominal return on an investment is an illusion. Explain.

Market risk is the risk of fluctuations in security prices due to changes in the market interest rate.

If you purchase some shares of stock

Principle 8, Risk and Return go hand in hand, tells us that you ________ as the length of the investment horizon ________.

An investor owns stock from seven different companies, two rental houses, and three government bonds. Together these assets are considered to be the investor's ________ .

You own a bond issued by BMW, a German company. What kind of risk are you exposed to?

Which of the following is not risk that can be diversified out of a portfolio of stocks?

Interest rates are closely tied to the rate of inflation.

Hern MacTavish only invests in lending investments. If his financial advisor gave him the list below, which might Hern invest in?

A 60-year-old investor should not be too concerned about liquidity and market risk in their retirement portfolio.

Diversification eliminates all the risk from your portfolio.

If the corporation that issued a bond goes bankrupt, the bondholders are paid before stock holders are paid from any remaining assets of the corporation.

Alice learned that the difference between the real rate of return and the nominal or quoted rate of return is that

Provide an explanation of the four points of making a comparison of investing returns on an after-tax basis.

The disposition effect involves

Suppose that you are beginning an investment plan. You have decided that you want to retire in 30 years with $1,000,000 in your bank account at that time. How much would you need to invest at the end each of the next 30 years if you could earn 8%?

The concept of asset allocation has nothing to do with the time dimension of investing.

Is it possible to both accumulate wealth and preserve wealth with the same asset allocation strategy?

Which of the following would have liquidity risk associated with it?

What are the benefits of a well-diversified portfolio?

The Financial Planning Process

Measuring Your Financial Health and Making a Plan

Understanding and Appreciating the Time Value of Money

Tax Planning and Strategies

Cash or Liquid Asset Management

Using Credit Cards: The Role of Open Credit

Using Consumer Loans: The Role of Planned Borrowing

The Home and Automobile Decision

Life and Health Insurance

Property and Liability Insurance

Securities Markets

Investing in Stocks

Investing in Bonds and Other Alternatives

Mutual Funds: An Easy Way to Diversify

Retirement Planning

Estate Planning: Saving Your Heirs Money and Headaches

Financial Life Events Fitting the Pieces Together

Filters

Principle 8, Risk and Return go hand in hand, tells us that you as the length of the investment horizon .