Exam 11: Investment Basics

Louis purchased $5,000 worth of stock three years ago and sold it today for $7,000. He received no dividends from this investment. Inflation averaged 4% during the three years he owned the stock. What was his annualized real rate of return on this investment?

As the owner of a corporate bond this means I hold an ownership position within that corporation.

Principle #4, taxes affect personal finance decisions, tells us that several points hold true regardless of what we invest in. Jason found a point that was included on the list in error. Which of the following is it?

Just as valuable as the tax break on capital gains income is the fact that you don't have to claim it--and, therefore, you don't pay taxes on the asset until you ________.

The ________ rate of return earned on an investment is unadjusted for lost purchasing power.

You recently purchased a stock for $30. It is now worth $40, and it paid a $5 dividend during the time you held it. Your rate of return on this stock is closest to which of the following?

The nominal rate of interest that investors demand will increase with an increase in the expected rate of inflation.

You are considered to be engaging in ________ when you purchase an asset whose value depends solely on supply and demand.

Because it's difficult to beat the market, make sure you don't give away too much of your return in the way of commissions.

What does an effective asset allocation strategy provide to an investor?

It is very tough to consistently beat the market.

The real rate of return is the rate of return earned on an investment without any adjustment for inflation.

The risk that you will not be able to find a buyer at a fair market price, and will wind up having to sell for less than an asset's worth is called ________ risk.

How do interest rates affect returns on other investments?

Diversification lowers risk, but it also lowers the expected return.

Juan purchased shares in ABC company for $5,000 three years ago. During these three years he received $600 in dividends. He just sold the stock for $4,300. What was his total return on this investment?

What is an efficient market and can you beat the market?

Which of the following statements is not true of asset allocation?

An investor with a low propensity for risk would avoid investments with high risk premiums.

Paula bought a stock for $200 last year and sold it today for $150. If she earned a dividend of $100 while she held the stock her rate of return was