Question 1

Adam contacts his account executive and tells him to purchase 500 shares of Intel stock immediately. Adam placed a ____ order with his account executive.

Accepted Answer

A)  limit 
B)  matched 
C)  direct 
D)  market 
E)  stop-loss

Question 2

All of the following would satisfy the safety factor of investing except

Accepted Answer

A)  savings accounts. 
B)  blue-chip stocks. 
C)  a certificate of deposit. 
D)  highly rated municipal bonds. 
E)  antiques and collectibles.

Question 3

Which of the following investments has the highest returns since 1926?

Accepted Answer

A)  Certificates of deposit 
B)  Stocks 
C)  Corporate bonds 
D)  Government bonds 
E)  Commodities

Question 4

Pro-future, Inc.
Sandy is a personal financial planner at Pro-future, Inc. Pro-future is a financial company that focuses on personal and business financing. When potential customers come to Sandy for financial advice, she first determines their investment goals in order to create a financial plan that fits their needs. Once she has created a suitable financial plan for a customer, Sandy gives her clients a pamphlet with suggestions for helping to accumulate the amount of money that they need.
Advice about risk is given to all of Sandy's clients. Sandy also makes strategic financial plans for each of her customers, which helps them to track and achieve their financial goals.
-Refer to Pro-future, Inc. Why would Sandy consider risk to be a good thing?

Accepted Answer

A)  The higher the risk, the larger the possible return. 
B)  The higher the risk, the lower the possible investment. 
C)  The lower the risk, the larger the possible return. 
D)  The higher the risk, the higher the rate of investment. 
E)  The lower the risk, the lower the rate of investment.

Question 5

If Mondell Barnett purchases stock valued at $10,000 and is charged 1 percent commission, what is the total amount he must pay the brokerage firm?

Accepted Answer

A)  $100 
B)  $9,900 
C)  $10,000 
D)  $10,100 
E)  It is impossible to tell given the above information.

Question 6

Fitch Ratings is an example of a(n)

Accepted Answer

A)  stockbroker. 
B)  securities exchange. 
C)  stock regulation. 
D)  professional advisory service. 
E)  stock underwriter.

Question 7

Instead of paying dividends to their stockholders, growing corporations typically

Accepted Answer

A)  pay bonuses to their stockholders. 
B)  sell more stock to the public. 
C)  pay back their bank loans more quickly. 
D)  reinvest profits in the business. 
E)  provide steady income to their investors.

Question 8

Christine wants to start purchasing stock from individual companies, but she wants to maintain a conservative investment strategy with only safe stocks. What type of stocks should Christine invest in?

Accepted Answer

A)  High-tech stocks 
B)  Old stocks 
C)  Blue-chip stocks 
D)  Mutual funds 
E)  IPOs

Question 9

Once all the shares are originally sold, an investor must purchase shares in a(n) ____ fund from some other investor who is willing to sell them.

Accepted Answer

A)  open-end 
B)  no-load 
C)  load 
D)  closed-end 
E)  municipal

Question 10

To make a profit from a short transaction, the investor must do all of the following except

Accepted Answer

A)  borrow a specific number of a company's shares of stock from a broker. 
B)  obtain financing from a bank. 
C)  sell the borrowed stock immediately. 
D)  buy an equal number of shares as soon as the price drops. 
E)  repay the borrowed stock with the newly purchased shares.

Question 11

An account executive who provides research reports and generally charges higher commissions is employed by a(n) ____ brokerage firm.

Accepted Answer

A)  full-service 
B)  discount 
C)  SEC 
D)  Nasdaq 
E)  NYSE

Question 12

Andrew buys 1,000 shares of AT&T stock with a margin requirement of 50 percent. At the time of the original transaction, AT&T stock was $24 per share. When AT&T stock then falls to about $12 per share, Andrew will likely receive a(n) ____ from the brokerage firm.

Accepted Answer

A)  margin cancellation 
B)  short sell 
C)  margin call 
D)  increased margin requirement 
E)  speculative recall

Question 13

What financial risks are associated with selling stock short? What financial risks are associated with a margin transaction?

Accepted Answer

The answer of What financial risks are associated with selling...

Question 14

In bond quotations, prices are quoted as

Accepted Answer

A)  points to be converted to dollars. 
B)  dollars and cents. 
C)  a percentage of face value. 
D)  a percentage of market value. 
E)  None of these answers is correct.

Question 15

What is the general relationship between risk and return?

Accepted Answer

A)  These two factors are not related. 
B)  As risk increases, returns will decrease. 
C)  They are directly related to one another. 
D)  Risk is the chance for loss, whereas return is the chance for speculation. 
E)  As returns increase, the risk involved decreases.

Question 16

Which of the following would most likely be classified as a traditional investment?

Accepted Answer

A)  Common stock issued by new corporations 
B)  Mutual funds 
C)  Corporate bonds 
D)  Market order 
E)  Savings account

Question 17

Which of the following statements is false?

Accepted Answer

A)  Investors can use the Internet to obtain investment information. 
B)  Information obtained on the Internet is too expensive for most investors. 
C)  A web search engine can help you access investment information. 
D)  Most corporations have a home page on the Internet. 
E)  It is possible to get investment information from the federal government by using the Internet.

Question 18

Kenneth is concerned because a dollar does not buy what it used to buy. He decides to invest his money in real estate because he knows it is a good way to protect his money from

Accepted Answer

A)  taxes. 
B)  decreasing in value. 
C)  unscrupulous bankers. 
D)  risk. 
E)  inflation.

Question 19

The purpose of asset allocation is to

Accepted Answer

A)  reduce commission charges. 
B)  increase investment risk. 
C)  reduce government fees associated with investing. 
D)  reduce taxes paid to the IRS. 
E)  reduce investment risk.

Question 20

To determine his net worth, Joe Gillian subtracts ____ from ____.

Accepted Answer

A)  liabilities; assets 
B)  assets; liabilities 
C)  expenses; income 
D)  income; expenses 
E)  assets; budgeted amounts

Exam 20: A: Understanding Personal Finances and Investments