Question 1

The Tax Relief Act of 2003 has made stocks that pay high dividends more attractive than they previously were.

Accepted Answer

A) True 
 B)False

Question 2

Investment is the commitment of current funds in anticipation of receiving a larger flow of funds in the future.

Accepted Answer

A) True 
 B)False

Question 3

The Ibbotson study showed that high-risk investments generate high returns.

Accepted Answer

A) True 
 B)False

Question 4

Real assets tend to be more liquid than financial assets.

Accepted Answer

A) True 
 B)False

Question 5

Common stock is a good example of an investment that lacks liquidity.

Accepted Answer

A) True 
 B)False

Question 6

Research has shown that it is not that difficult to beat the market on a risk-adjusted basis.

Accepted Answer

A) True 
 B)False

Question 7

Mutual funds are a form of direct equity claims.

Accepted Answer

A) True 
 B)False

Question 8

An investor in Duke Energy can expect:

Accepted Answer

A) low dividends. 
B) high dividends. 
C) low inflation. 
D) fast stock price growth. 
E) None of the above 
A) low dividends. 
B) high dividends. 
C) low inflation. 
D) fast stock price growth. 
E) None of the above

Question 9

The two types of investments that provide the highest and lowest yields in the Ibbotson study of Stocks, Bonds, Bills and Inflation are:

Accepted Answer

A) large company stocks and U.S. treasury bills. 
B) large company stocks and long-term government bonds. 
C) small company stocks and U.S. treasury bills. 
D) small company stocks and preferred stock. 
E) U.S. treasury bills and small company stocks. 
A) large company stocks and U.S. treasury bills. 
B) large company stocks and long-term government bonds. 
C) small company stocks and U.S. treasury bills. 
D) small company stocks and preferred stock. 
E) U.S. treasury bills and small company stocks.

Question 10

Most financial assets provide a high degree of liquidity.

Accepted Answer

A) True 
 B)False

Question 11

A lack of immediate liquidity cannot be justified even if there is an opportunity for large gains.

Accepted Answer

A) True 
 B)False

Question 12

Wealthy investors may prefer the favorable tax treatment of investments such as:

Accepted Answer

A) corporate bonds. 
B) municipal bonds. 
C) common stock. 
D) preferred stock. 
A) corporate bonds. 
B) municipal bonds. 
C) common stock. 
D) preferred stock.

Question 13

(a) The stock of Furniture Unlimited went from $90 to $99 last year. The firm also paid 80 cents in dividends. Compute the rate of return.
(b) During the next year, the dividend paid was $1.60 per share and the stock closed at $93 per share, down from $99 per share at the beginning of the year. Compute the annual gain or loss for the second year holding period.

Accepted Answer

(a) 10.9%

Question 14

The Tax Act of 2001 lowered the capital gains tax rate.

Accepted Answer

A) True 
 B)False

Question 15

In an efficient and informed capital market environment, those investments with the greatest return tend to have the greatest risk.

Accepted Answer

A) True 
 B)False

Question 16

Warrants are a form of direct equity claims.

Accepted Answer

A) True 
 B)False

Question 17

Real estate is a good example of an investment that lacks liquidity.

Accepted Answer

A) True 
 B)False

Question 18

The commitment of current funds in anticipation of receiving a larger future flow of funds is called:

Accepted Answer

A) a financial asset. 
B) a real asset. 
C) an investment. 
D) gambling. 
E) None of the above 
A) a financial asset. 
B) a real asset. 
C) an investment. 
D) gambling. 
E) None of the above

Question 19

Investment in a mutual fund results in:

Accepted Answer

A) an indirect equity claim. 
B) a direct equity claim. 
C) a creditor claim. 
D) None of the above 
A) an indirect equity claim. 
B) a direct equity claim. 
C) a creditor claim. 
D) None of the above

Question 20

Which of the following is not one of the considerations in setting investment objectives?

Accepted Answer

A) Risk versus safety of principal 
B) Maximize wealth versus minimize expenses 
C) Current income versus capital appreciation 
D) Short-term versus long-term orientation 
E) Taxes 
A) Risk versus safety of principal 
B) Maximize wealth versus minimize expenses 
C) Current income versus capital appreciation 
D) Short-term versus long-term orientation 
E) Taxes

Exam 1: The Investment Setting

The Tax Relief Act of 2003 has made stocks that pay high dividends more attractive than they previously were.

Investment is the commitment of current funds in anticipation of receiving a larger flow of funds in the future.

The Ibbotson study showed that high-risk investments generate high returns.

Real assets tend to be more liquid than financial assets.

Common stock is a good example of an investment that lacks liquidity.

Research has shown that it is not that difficult to beat the market on a risk-adjusted basis.

Mutual funds are a form of direct equity claims.

An investor in Duke Energy can expect:

The two types of investments that provide the highest and lowest yields in the Ibbotson study of Stocks, Bonds, Bills and Inflation are:

Most financial assets provide a high degree of liquidity.

A lack of immediate liquidity cannot be justified even if there is an opportunity for large gains.

Wealthy investors may prefer the favorable tax treatment of investments such as:

The Tax Act of 2001 lowered the capital gains tax rate.

In an efficient and informed capital market environment, those investments with the greatest return tend to have the greatest risk.

Warrants are a form of direct equity claims.

Real estate is a good example of an investment that lacks liquidity.

The commitment of current funds in anticipation of receiving a larger future flow of funds is called:

Investment in a mutual fund results in:

Which of the following is not one of the considerations in setting investment objectives?

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, Exchange-Traded Funds, Closed-End Funds, and Unit Investment Trusts

Economic Activity

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

Efficient Markets and Anomalies

Behavioral Finance and Technical Analysis

Bond and Fixed-Income Fundamentals

Principles of Bond Valuation and Investment

Convertible Securities and Warrants

Put and Call Options

Commodities and Financial Futures

Stock Index Futures and Options

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Alternative Investments: Private Equity and Hedge Funds

Measuring Risks and Returns of Portfolio Managers

A Comprehensive Analysis for Real Estate Investment Decisions

The Makeup of Institutional Investors

Filters