Question 1

What are some of the steps involved in valuing a company's common stock?

Accepted Answer

The investor must evaluate the overall economy,industry and individual company,since all have an impact on the value of the stock.In addition,the expected return and appropriate risk must be estimated,based upon the expected future cash flows of the company.And lastly,the efficiency of stock markets must be consideredand whether the current market value of the stock is greater or less than its perceived economic value.

Question 2

The retirement plans that guarantee retirees a set amount of money each month are known as:

Accepted Answer

A) 401(k)plans. 
B) self-directed plans. 
C) defined-benefit plans. 
D) defined-contribution plans. 
A) 401(k)plans. 
B) self-directed plans. 
C) defined-benefit plans. 
D) defined-contribution plans. C

Question 3

Define risk in the context of investments.

Accepted Answer

Risk is the chance that the actual return on an investment will differ from its expected return.

Question 4

Which of the following statements is true regarding multi-national corporations?

Accepted Answer

A) Exxon Mobil earns the majority of its profits from its overseas operations. 
B) Google currently derives the majority of its earnings from outside the U.S. 
C) Wal-Mart earns the majority of its profits from outside the U.S. 
D) Coca-Cola has no overseas operations and no earnings outside the U.S. 
A) Exxon Mobil earns the majority of its profits from its overseas operations. 
B) Google currently derives the majority of its earnings from outside the U.S. 
C) Wal-Mart earns the majority of its profits from outside the U.S. 
D) Coca-Cola has no overseas operations and no earnings outside the U.S.

Question 5

The risk-free rate of return (RF)equals:

Accepted Answer

A) 0.0%. 
B) the rate on the bonds of financially sound corporations. 
C) the average of the last 3 years' inflation rate. 
D) the return on Treasury securities. 
A) 0.0%. 
B) the rate on the bonds of financially sound corporations. 
C) the average of the last 3 years' inflation rate. 
D) the return on Treasury securities.

Question 6

Security analysts are typically employed only at brokerage houses.

Accepted Answer

A) True 
 B)False

Question 7

Briefly explain the difference between expected returns and realized returns and between ex ante returns and ex post returns.

Accepted Answer

Expected returns are mean returns based

Question 8

Most investors are risk averse,which means:

Accepted Answer

A) they will assume more risk only if they are compensated by higher expected return. 
B) they will always invest in the investment with the lowest possible risk. 
C) they actively seek to minimize their risks. 
D) they avoid the stock market due to the high degree of risk. 
A) they will assume more risk only if they are compensated by higher expected return. 
B) they will always invest in the investment with the lowest possible risk. 
C) they actively seek to minimize their risks. 
D) they avoid the stock market due to the high degree of risk.

Question 9

Martha Stewart was banned from serving as an officer of a public corporation,sentenced to 5 months in prison,and fined $30,000.Why?

Accepted Answer

Contrary to popular belief,she

Question 10

Technically,investments include:

Accepted Answer

A) only financial assets. 
B) only marketable assets. 
C) financial and real assets that are marketable or non-marketable. 
D) only financial and real assets that are marketable. 
A) only financial assets. 
B) only marketable assets. 
C) financial and real assets that are marketable or non-marketable. 
D) only financial and real assets that are marketable.

Question 11

Due to the Internet,institutional investors have gained in importance.

Accepted Answer

A) True 
 B)False

Question 12

A 401(k)plan is an example of a defined-benefit retirement plan.

Accepted Answer

A) True 
 B)False

Question 13

The minimum actual return necessary to induce investors to invest is known as the expected return.

Accepted Answer

A) True 
 B)False

Question 14

The investment professionals that arrange the sale of new securities are called:

Accepted Answer

A) arbitragers. 
B) traders. 
C) investment bankers. 
D) specialists. 
A) arbitragers. 
B) traders. 
C) investment bankers. 
D) specialists.

Question 15

Underlying all investments is the tradeoff between:

Accepted Answer

A) expected return and actual return. 
B) low risk and high risk. 
C) actual return and high risk. 
D) expected return and risk. 
A) expected return and actual return. 
B) low risk and high risk. 
C) actual return and high risk. 
D) expected return and risk.

Question 16

Investors always seek to minimize their risk of investing.

Accepted Answer

A) True 
 B)False

Question 17

One reason for the declining importance of pension funds is the:

Accepted Answer

A) decrease in pension benefits for workers. 
B) downsizing of U.S.companies. 
C) large number of conversions into self-directed plans. 
D) increasing number of federal regulations that restrict pension fund portfolios. 
A) decrease in pension benefits for workers. 
B) downsizing of U.S.companies. 
C) large number of conversions into self-directed plans. 
D) increasing number of federal regulations that restrict pension fund portfolios.

Question 18

International investing:

Accepted Answer

A) is only practical for institutional investors. 
B) increases the overall risk of a stock portfolio. 
C) always leads to higher returns than a domestic portfolio. 
D) can reduce risk due to increased diversification. 
A) is only practical for institutional investors. 
B) increases the overall risk of a stock portfolio. 
C) always leads to higher returns than a domestic portfolio. 
D) can reduce risk due to increased diversification.

Question 19

Which of the following professionals would be considered an institutional investor?

Accepted Answer

A) Investment banker 
B) Security analyst 
C) Stockbroker 
D) Portfolio manager 
A) Investment banker 
B) Security analyst 
C) Stockbroker 
D) Portfolio manager

Question 20

Which of the following is not a benefit of geographic diversification?

Accepted Answer

A) Gaining exposure to currencies other than the U.S.dollar. 
B) Some global markets have growth rates higher than the U.S. ,offering potentially higher returns. 
C) Global markets behave completely independently of U.S.markets. 
D) Many global markets are not highly correlated with U.S.markets. 
A) Gaining exposure to currencies other than the U.S.dollar. 
B) Some global markets have growth rates higher than the U.S. ,offering potentially higher returns. 
C) Global markets behave completely independently of U.S.markets. 
D) Many global markets are not highly correlated with U.S.markets.

Exam 1: Understanding Investments

What are some of the steps involved in valuing a company's common stock?

The retirement plans that guarantee retirees a set amount of money each month are known as:

Define risk in the context of investments.

Which of the following statements is true regarding multi-national corporations?

The risk-free rate of return (RF)equals:

Security analysts are typically employed only at brokerage houses.

Briefly explain the difference between expected returns and realized returns and between ex ante returns and ex post returns.

Most investors are risk averse,which means:

Martha Stewart was banned from serving as an officer of a public corporation,sentenced to 5 months in prison,and fined $30,000.Why?

Technically,investments include:

Due to the Internet,institutional investors have gained in importance.

A 401(k)plan is an example of a defined-benefit retirement plan.

The minimum actual return necessary to induce investors to invest is known as the expected return.

The investment professionals that arrange the sale of new securities are called:

Underlying all investments is the tradeoff between:

Investors always seek to minimize their risk of investing.

One reason for the declining importance of pension funds is the:

International investing:

Which of the following professionals would be considered an institutional investor?

Which of the following is not a benefit of geographic diversification?

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risks and Returns From Investing

Portfolio Theory

Portfolio Selection

Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economy Market Analysis

Industry Analysis

Company Analysis

Technical Analysis

Bond Yields

Bonds: Analysis and Strategy

Options

Futures

Portfolio Management

Evaluation of Investment Performance

Filters