Question 1

Real estate is a good investment option for individuals and it offers the same liquidity as stocks or bonds.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following ranges of returns would indicate a less risky, more stable investment?

Accepted Answer

A)  -3.0% to 4.0% 
B)  1.5% to 5.75% 
C)  .4% to 1.4% 
D)  -1.7% to 3.75%

Question 3

Use the following two columns of items to answer the matching questions below:
-secondary market
A)first offering of a firm's stock to the public
B)facilities that allow investors to purchase or sell existing stocks
C)investors owning this type of stock have priority over common stockholders in receiving dividends
D)market where existing securities are sold
E)individual investors who buy and sell stocks within a day
F)financial instruments that represent partial ownership of a firm
G)debt instruments issued by the government or corporations to borrow money from investors
H)professionals responsible for clients' funds

Accepted Answer

The answer of Use the following two columns of items...

Question 4

The timing on the sale of a stock could make a big difference in the amount of taxes that are due on the profits.

Accepted Answer

A) True 
 B)False

Question 5

It would be very difficult and expensive for an individual investor to benefit from holding all 500 stocks of the Standard and Poor's 500 Index.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is an accurate statement?

Accepted Answer

A)  Owning common stock is less risky than owning real estate. 
B)  In times of rising inflation, it is safer to own bonds than common stock. 
C)  Owning common stock provides the investor with a share of the firm's earnings and potential dividends. 
D)  Owning preferred stock is more risky than owning common stock since the investor has voting rights with common stock and it stands before preferred stock in the event of bankruptcy.

Question 7

It is December 30th and you have stock in Zero Corporation that you bought on March 1st that has increased $2,000 in value. You are thinking of selling the stock. From a tax standpoint, what should you do with the Zero stock?

Accepted Answer

A)  Sell it today. 
B)  Sell it on January 2nd of next year. 
C)  Wait until after March 1st of next year and sell it then. 
D)  Sell half the stock today and the rest on January 2.

Question 8

If you invest $1,000 in stock that pays no dividends and sell the stock one year later for $1,100, what will be your return? (Ignore commissions and trading fees.)

Accepted Answer

A)  1% 
B)  5% 
C)  10% 
D)  100%

Question 9

If you bought stock for $3,000 a year ago, received no dividends, and sold it for $1,000, what is the return on your investment?

Accepted Answer

A)  -67% 
B)  0% 
C)  67% 
D)  -33%

Question 10

Which of the following statements is true with regard to the risk of investments?

Accepted Answer

A)  There is very little risk in an IPO since returns often exceed 20% in the first day. 
B)  Mutual funds containing mostly large stocks are more risky than mutual funds containing smaller stocks. 
C)  If you prefer less risk, purchase a bond issued by a successful and established firm. 
D)  There is little risk in purchasing land as an investment since the value of land always appreciates over time.

Question 11

The best way to ensure that you will receive dividends is to

Accepted Answer

A)  day trade. 
B)  purchase bonds. 
C)  purchase common stock. 
D)  purchase preferred stock.

Question 12

Mutual fund gains can be in the form of dividends or capital gains, which are passed on to the individual investors.

Accepted Answer

A) True 
 B)False

Question 13

Most individual investors who buy and sell stock do so on the secondary market through brokers or investment companies.

Accepted Answer

A) True 
 B)False

Question 14

In the secondary market, stock prices are

Accepted Answer

A)  determined by supply and demand. 
B)  stable. 
C)  easy to predict. 
D)  less expensive than on the primary market.

Question 15

Which of the following investments would you not consider if you have adequate liquidity and additional funds to invest?

Accepted Answer

A)  Real estate 
B)  Preferred stock 
C)  Mutual funds 
D)  Money market securities

Question 16

Use the following two columns of items to answer the matching questions below:
-IPO
A)first offering of a firm's stock to the public
B)facilities that allow investors to purchase or sell existing stocks
C)investors owning this type of stock have priority over common stockholders in receiving dividends
D)market where existing securities are sold
E)individual investors who buy and sell stocks within a day
F)financial instruments that represent partial ownership of a firm
G)debt instruments issued by the government or corporations to borrow money from investors
H)professionals responsible for clients' funds

Accepted Answer

The answer of Use the following two columns of items...

Question 17

Because dividends are fixed, the prices of preferred stock are not as volatile as those of common stock.

Accepted Answer

A) True 
 B)False

Question 18

Growth stocks are likely to pay high dividends.

Accepted Answer

A) True 
 B)False

Question 19

You have $3,000 to invest, but will need the funds in a year to make a tuition payment. You should

Accepted Answer

A)  put the money in a corporate bond. 
B)  buy a one-year CD. 
C)  buy stocks of relatively stable firms that have low risk. 
D)  invest in a diversified stock mutual fund.

Question 20

What would be the market price of a stock that paid a constant $2.00 per year in dividends in perpetuity, if the expected market return for a risk of this type was 7.5%?

Accepted Answer

A)  $25 
B)  $100 
C)  $26.67 
D)  $27.50

Exam 14: Investing Fundamentals

Real estate is a good investment option for individuals and it offers the same liquidity as stocks or bonds.

Which of the following ranges of returns would indicate a less risky, more stable investment?

The timing on the sale of a stock could make a big difference in the amount of taxes that are due on the profits.

It would be very difficult and expensive for an individual investor to benefit from holding all 500 stocks of the Standard and Poor's 500 Index.

Which of the following is an accurate statement?

It is December 30th and you have stock in Zero Corporation that you bought on March 1st that has increased $2,000 in value. You are thinking of selling the stock. From a tax standpoint, what should you do with the Zero stock?

If you invest $1,000 in stock that pays no dividends and sell the stock one year later for $1,100, what will be your return? (Ignore commissions and trading fees.)

If you bought stock for $3,000 a year ago, received no dividends, and sold it for $1,000, what is the return on your investment?

Which of the following statements is true with regard to the risk of investments?

The best way to ensure that you will receive dividends is to

Mutual fund gains can be in the form of dividends or capital gains, which are passed on to the individual investors.

Most individual investors who buy and sell stock do so on the secondary market through brokers or investment companies.

In the secondary market, stock prices are

Which of the following investments would you not consider if you have adequate liquidity and additional funds to invest?

Because dividends are fixed, the prices of preferred stock are not as volatile as those of common stock.

Growth stocks are likely to pay high dividends.

You have $3,000 to invest, but will need the funds in a year to make a tuition payment. You should

What would be the market price of a stock that paid a constant $2.00 per year in dividends in perpetuity, if the expected market return for a risk of this type was 7.5%?