12
Student:
1.Manypeopledonotknowwheretogettheinformationtheyneedtoevaluatepotentialinvestments.True False
2.Stocksareguaranteedtohavelargereturns.TrueFalse
3.Since1926,theaverageannualreturnforstocksisjustover12%asmeasuredbytheStandardPoor500stockindex.
TrueFalse
4.Stocksareequityfinancing.TrueFalse
5.Companiesneedtorepaymoneyfromequityfinancing.TrueFalse
6.Sandyhasinvestedinastock.Sheisassuredofreceivingadividend.TrueFalse
7.Whencompaniesexperiencelowearnings,theymaychoosetoreduceoromittheirdividends.TrueFalse
8.Preferredstockholderselecttheboardofdirectors.TrueFalse
9.Dividendsforcommonstockmustbeincash.TrueFalse
10.IftherecorddateisFriday,April7,theex-dividenddateisTuesday,April11.TrueFalse
11.IfJodiowns200sharesofstock,a2-for-1stocksplitwilldoublethevalueofherholdings.TrueFalse
12.Manypeoplepurchaseinvestmentswithoutdoinganyresearch.TrueFalse
13.Beforeinvestinginacompany'sstock,aninvestorshouldanalyzetheindustryinwhichthecompanyoperates.
TrueFalse
14.Amicrocapstockisoneissuedbyacompanythathasacapitalizationof$500millionorless.TrueFalse
15.Amidcapstockisoneissuedbyacompanythathasacapitalizationofupto$300million.TrueFalse
16.TheInternetprovidesmanyvalidsourcesofstockinformation.TrueFalse
17.TheYahoo!Financewebsiteprovidescompany-specificnews,quotes,andcharts.TrueFalse
18.DetailedresearchforstockinvestorscanbefoundontheYahoo!FinancewebsiteinsteadofatastockadvisoryservicesuchasValueLine.
TrueFalse
19.Aninvestorcanrelycompletelyonthefindingsofastockadvisoryserviceinordertomakedecisionsaboutbuyingorsellingstocks.
TrueFalse
20.Aprospectusissentannuallytostockholdersofpubliclyownedcorporations.TrueFalse
21.Manyanalystsbelievethatacorporation'sabilityorinabilitytogeneratedividendsinthefuturemaybeoneofthemostsignificantfactorsthataccountsforanincreaseordecreaseinthevalueofastock. True False
22.Corporateearningsarereportedinthefirm'sannualreport.TrueFalse
23.Earningspershareequalsthecorporation'safter-taxearningsdividedbythenumberofoutstandingsharesofafirm'scommonstock.
TrueFalse
24.TheEPSofacompanycanbecomparedtotheindustry'saverageEPS.TrueFalse
25.Thetotalreturncanbecalculatedonlyifacompanypaysdividends.TrueFalse
26.Thebookvalueofastockisequaltotheresultoftotalassetslesstotalliabilitiesdividedbythenumberofoutstandingsharesofcommonstock.
TrueFalse
27.Themarketvaluemustbehigherthanthebookvalue.TrueFalse
28.IfyoupurchasestockfromyourcousinSam,youarebuyingstockontheprimarymarket.TrueFalse
29.Buying100sharesofstockinanIPOisaprimarymarkettransaction.TrueFalse
30.Anycompany'sstockcanbelistedontheNYSE.TrueFalse
31.Mostsecuritiesthatareconsidered"over-the-counter"aretradedthroughtheNYSE.TrueFalse
32.JosephhasbeenLeon'saccountexecutiveforseveralyears.LeonhasbeenquestioningJoseph'sintegritybecauseitappearsasthoughJosephmightbechurning.IfLeonwantstotakeformalactionabouthisconcern,helikelywillberequiredtouseanarbitrationboard.
TrueFalse
33.A.J.wantstobuyastockatitscurrentmarketprice.Heshoulduseamarketorder.TrueFalse
34.Kennywantstosellhisstockataspecifiedpriceorhigher.Heshoulduseastoporder.TrueFalse
35.Theexecutionofalimitorderwillbethehighestpriorityabovepreviouslyreceivedordersifandwhenthespecifiedpriceisreached.
TrueFalse
36.Ifyouwanttoguaranteethatyourordertosellastockwillbeexecuted,youshouldplaceastoporderinsteadofalimitorder.
TrueFalse
37.Typicallythecommissionpaidforastocksalewillbelowerwithafull-servicebrokerthanforanonlinebrokeragefirm.
TrueFalse
38.GlenboughtXYZstockon November8,2009,atapriceof$39.20andthensolditonMarch19,2011,at
$11.20.Glencanbeclassifiedasaspeculator.TrueFalse
39.GloriaboughtGEstock onMarch4,2009,atapriceof$5.87andthenquickly solditonMarch 19,2009,at$11.20.Gloriaisclassifiedasaspeculator.
TrueFalse
40.Aninvestormustbeclassifiedasusingthelong-termbuy-and-holdtechniqueinordertoreceivedividends.
TrueFalse
41.Anexampleofdollarcostaveragingisanemployeepurchasingsharesofhisorhercompany'sstockthroughpayrolldeductionaspartofaretirementplan.
TrueFalse
42.Themaingoalofdollarcostaveragingisbuyinghighandsellinglow.TrueFalse
43.Eitheryoucantakeadvantageofdollarcostaveraging,oryoucanuseadirectinvestmentplan.TrueFalse
44.Long-terminvestingtechniquesaregenerallymoreriskythanshort-terminvestingtechniques.TrueFalse
45.Aninvestormayreceiveamargincallwhensellingstockshort.TrueFalse
46.Aputoptionistherighttobuy100sharesofstockataguaranteedpricebeforeaspecifiedexpirationdate.
TrueFalse
47.Whichofthefollowingisincorrect?
A.Thereisnosubstituteforresearchingapotentialinvestment.
B.Beginninginvestorssometimesworrythattheywon'tknowwhattheinformationtheyfindaboutstocksreallymeans.
C.Someinvestorsdonotknowwheretogettheinformationtheyneedtoevaluatepotentialinvestments.
D.Theamountofinformationavailableaboutstocksislimited.
E.Allofthesestatementsarecorrect.
48.Since1926,theaverageannualreturnforstockshasbeenaboutA.8%.
B.10%.
C.12%.
D.14%.
E.16%.
49.Amandawantstobepartoftheownershipforacorporation.Sheshouldinvestin
A.Bonds.
B.Commonstock.
C.Dividends.
D.Asavingsaccount.
E.Aproxy.
50.Equityfinancingismoneyreceivedfromthesaleof
A.Bonds.
B.Commonstock.
C.Dividends.
D.Asavingsaccount.
E.Aproxy.
51.Adistributionofmoney,stock,orotherpropertythatispaidtoownersofacompanyiscalleda
A.Bond.
B.Commonstock.
C.Dividend.
D.Savingsaccount.
E.Proxy.
52.Alegalformthatrequeststhatownerstransfertheirvotingrightstoindividual(s)iscalleda
A.Bond.
B.Commonstock.
C.Dividend.
D.Savingsaccount.
E.Proxy.
53.Allofthefollowingstatementsarecorrectexcept
A.Dividendsarepaidoutofprofits.
B.Dividendpaymentsmustbeapprovedbythestockholders.
C.Adividendcanbeadistributionofmoney,butitcanalsobestockorotherproperty.
D.Dividendsarenotmandatory.
E.Utilitycompaniestypicallydistributeahigherpercentageofearningsthanrapidlygrowingfirms.
54.Albertaowns100sharesofstockofABCCompany,andBobbyowns200sharesofthesamestock.IfABCCompanypaysa$5dividendtoallstockholderswitharecorddateofFriday,June15,then
A.AlbertawillreceivethesameamountasBobbyiftheyownedthestocktwobusinessdaysbeforetherecorddate.
B.Bothwillreceivethedividendaslongastheyselltheirstockthreedaysbeforetherecorddate.
C.AlbertawillreceivehalfasmuchasBobbyiftheyownedthestocktwobusinessdaysbeforetherecorddate.
D.Bothwillreceivethedividendiftheyboughtthestockontherecorddate.
E.AlbertaandBobbywillreceivethesameamountiftheyboughtthesharesatleastonemonthbeforetherecorddate.
55.Ifyouownstock,youmayreceiveincomefrom
A.Dividends.
B.Dollarappreciationofstockvalue.
C.Possibleincreasesinstockpriceduetostocksplits.
D.Twoofthesearecorrect.
E.Allofthesearecorrect.
56.MNOPInc.declareda$1.00dividendwitharecorddateofThursday,September15,andapaymentdateofThursday,October20.Cheriwantstopurchasestockandreceivethedividend.Whatisthelatestdatethatsheneedstohavepurchasedthestockinordertoreceivethedividend?
A.September12
B.September13
C.September15
D.September19
E.October18
57.MNOPInc.declareda$1.00dividendwitharecorddateofThursday,September15,andapaymentdateofThursday,October20.Cheridoesnotwantreceivethiscurrentdividend.Whatistheearliestdatethatsheshouldpurchasethestockinordertoavoidreceivingthedividend?
A.September12
B.September13
C.September15
D.October18
E.October20
58.Whydoesacompanysplititsstock?
A.Thestockistradingatalowprice,andthecompanywantstoincreaseitsstockvalue.
B.Itwantsfewersharesoutstanding.
C.Thestockistradingatahighprice,andthecompanywantstobringthepriceinlinewithatheoreticalidealrange.
D.Itwantsthetotalmarketcapitalizationtobelowerthanthecurrentlevel.
E.Thecompanywantstoguaranteethatthestockpricewillincrease.
59.Whichofthefollowingstatementsaboutstocksplitsiscorrect?
A.Ifacompanyhasa2-for-1split,thepricewillbedoubled.
B.Ifacompanyhasa3-for-1split,thepricewillincreasebyafactorof3.
C.Ifacompanyhasa4-for-1split,thenewnumberofshareswillbefourtimesasmanyasbeforethesplit.
D.Ifacompanyhasa5-for-1split,thenewnumberofshareswillbeequaltotheoldnumberofsharesdividedby5.
E.Noneoftheseiscorrect.
60.Whichofthefollowingisnotcorrectregardingpreferredstock?
A.Preferredstocksareconsideredtobesaferinvestmentsthancommonstocks.
B.Ownersofpreferredstockhavefirstclaimtoacorporation'sassetsaftercreditorsinabankruptcy.
C.Ownersofpreferredstockreceivecashdividendsbeforecommonstockholdersreceivetheirdividends.
D.Thedollaramountofthedividendonpreferredstockisknownbeforethestockispurchased.
E.Theyieldonpreferredstocksisoftenmuchhigherthantheyieldonbonds.
61.Megandecidedtostartinvestinginstocks.Whichofthefollowingshouldshedofirst?
A.Baseherinvestingdecisionsonhottipsshehearsatwork.
B.Buystocksbasedsolelyonherstockbroker'srecommendation.
C.Choosestocksbasedonrecommendationsfromherfamilymembers.
D.Pickstocksatrandom.
E.Researchthecorporationssheisinterestedinaswellastheirindustries.
62.Whichofthefollowingstatementsiscorrect?
A.TheInternetisnottobetrustedasareliablesourcetoevaluatepotentialinvestments.
B.Individualcompanywebsitesusuallychargeforaccesstotheirownfinancialreports.
C.TheInternetprovideswebsitesthatmaybemoreuptodateandthoroughthanprintedmaterials.
D.WebsiteslikeYahoo!Financearenotdependable.
E.Noneoftheseiscorrect.
63.Asafeinvestmentthatgenerallyattractsconservativeinvestorsiscalleda(n)stock.
A.bluechip
B.income
C.microcap
D.midcap
E.penny
64.Aninvestmentthatpayshigherthanaveragedividendsiscalleda(n)stock.
A.bluechip
B.income
C.microcap
D.midcap
E.penny
65.Astockthattypicallysellsforlessthan$1pershareiscalleda(n)stock.
A.bluechip
B.income
C.microcap
D.midcap
E.penny
66.Astockissuedbyacorporationthathasacapitalizationofbetween$2billionand$10billioniscalleda(n)stock.
A.bluechip
B.income
C.microcap
D.midcap
E.penny
67.Astockissuedbyacompanythathasacapitalizationof$300millionorlessiscalleda stock.
A.bluechip
B.income
C.microcap
D.midcap
E.penny
68.Cliffretired10yearsagoandwantstostillownafewstocks.Dividendsareimportanttohim,butsoisgrowth.Heismostinterestedinstocksthataresafeinvestments.Heshouldpurchase stocks.
A.bluechip
B.cyclical
C.microcap
D.midcap
E.penny
69.Patrickgraduatedfromcollegefiveyearsago.Hehassetupanemergencyfundandhasbeenpayingoffhisstudentloans.Inaddition,heparticipatesintheretirementplanofferedbyhisemployer.Hewantstoinvest$75permonthinverysmallcompanies(capitalizationof$300millionorless).Heshouldpurchase
stocks.
A.bluechip
B.income
C.microcap
D.midcap
E.penny
70.Whichofthefollowingissomeoftheinformationfoundonafinancialwebsitesuchas
A.Companyname,lastprice,targetprice,pricechange.
B.52-weekpricerange,numberofsharestraded(volume).
C.Marketcapitalization.
D.Dividendpaidandyield.
E.Allofthisinformationisincluded.
71.Whichofthefollowingusuallyofferssomefreeinformationandchargesformoredetailedresearchinformationyoumayneedtoevaluateastockinvestment?
A.Financialwebsitessuchas
B.Personalfinancewebsitessuchas
C.ProfessionaladvisoryservicessuchasStandardPoor'sFinancialInformationServices
D.SearchenginessuchasYahoo!
E.SecuritiesandExchangeCommissionwebsite
72.Whichofthefollowingistrue?
A.Mergent'sHandbookofCommonStocksisamisnomerbecauseitanalyzesonlyindustries.
B.StandardPoor'sreportsareavailableonlyontheInternet.
C.Stockadvisoryservicesincludeprinteddetailedfinancialreports.
D.ValueLineistheonlyreliablestockadvisoryserviceusedbyinvestors.
E.Allofthesearecorrect.
73.Financialreportsfromadvisoryservicesincludeallofthefollowingsectionsexcept
A.Stockprices,earnings,anddividends.
B.Businesssummary.
C.Prospectssection.
D.Financialdata.
E.Alloftheseareincludedinfinancialreports.
74.Annualreports
A.Areavailablefromacompanyforafee.
B.Areavailableonlytocurrentstockholders.
C.Includethesameinformationasaprospectus.
D.Mustbesenttoallstockholdersonanannualbasis.
E.Includeestimatedfinancialdataonly.
75.Whichofthefollowingiscorrect?
A.Earningsareaminorfactorindeterminingthevalueofastock.
B.Corporateearningsarereportedintheproxystatement.
C.Earningspershareusesthepriceofthestockinthecalculation.
D.EPSisakeyfactorthatseriousinvestorsusetoevaluatestockinvestments.
E.Theprice/earningsratioisthepriceofashareofstockdividedbythecorporation'searningspershareofstock.
76.Theearningspershareequals
A.Totalnumberofsharesofpreferredstockdividedbyearnings.
B.Totalnumberofsharesofcommonstockdividedbyearnings.
C.Totalearningsdividedbynumberofsharesofpreferredstock.
D.Totalearningsdividedbynumberofsharesofcommonandpreferredstock.
E.Noneofthese.
77.Whenanalyzingaprice-earningsratio,
A.Ahigherprice-earningsratioindicatespessimismbecausethepriceistoohighcomparedtotheearnings.
B.Thehighertheprice-earningsratio,themoreinvestorsarepayingforearnings.
C.Alowratioindicatesthatinvestorsexpecthigherearningsinthefuture.
D.Price-earningsratiosarehelpfulwhencomparingtwocompaniesinthesameindustry,butnottothemarketingeneral.
E.Theprice-earningsratioaloneprovidesenoughinformationtoallowaninvestortodecidewhethertoinvestinaparticularstock.
78.Whichofthefollowingisbasedonhistoricalnumbers?
A.Earnings.
B.Earningspershare.
C.Price-earningsratio.
D.Allofthese.
E.Noneofthese.
79.Ifyouwanttocomparetwocompanies,youshoulduse
A.Bookvaluepershare.
B.Dividendyield.
C.Pricepershare.
D.Netincome.
E.Price-earningsratio.
80.Whichofthefollowingisaprofitabilityratiothatusesthenumberofoutstandingsharesinthecalculation?
A.Capitalgain
B.Earningspershare
C.Pricepershare
D.Netincome
E.Dividendyield
81.Thisratiousesthemarketpricepershareofthestockandtheearningpershare.
A.Bookvaluepershare
B.Earningspershare
C.Marketpricepershare
D.Netincome
E.Price-earningsratio
82.WhichofthefollowingchangeswouldNOTcauseanalyststochangeearningsestimatesforahealthcarecorporation?
A.Interestrates
B.Unemploymentrates
C.Theeconomyingeneral
D.Industry
E.Weather
83.Thiscalculationusestheannualamountofmoneypaidtoinvestorsfromthecompany.
A.Bookvalue
B.Dividendyield
C.Earningspershare
D.Marketvalue
E.Price-earningsratio
84.Theformula"(Assets-Liabilities)/Sharesoutstanding"equals
A.Bookvalue.
B.Dividendyield.
C.Earningspershare.
D.Marketvalue.
E.Price-earningsratio.
85.Thiscalculationincludestheannualdividendsindollarsandtheincreaseintheoriginalpurchasepriceoftheinvestment.
A.Bookvalue
B.Capitalgain
C.Marketvalue
D.Price-earningsratio
E.Totalreturn
86.Totalreturnequals
A.Dividendyield.
B.Annualdividendsindollarspluscapitalgains.
C.Capitalgains.
D.Annualdividendsindollarslesscapitalgains.
E.Capitalgainslessannualdividendsindollars.
87.Dividendyieldequals
A.Annualdividendamount/Currentpricepershare.
B.Quarterlydividendamount/Pricepershare.
C.Annualdividendamount/Bookvaluepershare.
D.Quarterlydividendamount/Bookvaluepershare.
E.Annualdividendamount/Earningspershare.
88.Bookvalueequals
A.(Assets+Liabilities)/Numberofsharesoutstanding.
B.(Liabilities-Assets)/Numberofsharesoutstanding.
C.(Assets+Liabilities)/Earningspershare.
D.(Liabilities+Assets/Price-earningsratio.
E.(Assets-Liabilities)/Numberofsharesoutstanding.
89.AbewascontactedbyXYZ'swhenXYZwantedtosellnewsecuritiestothegeneralpublicforthefirsttime.
A.initialpublicoffering
B.investmentbank
C.primarymarket
D.secondarymarket
E.securitiesexchange
90.StephenwantedtobecomeoneoftheownersofGHICorp.whenitfinallywasavailabletothegeneralpublic.Heparticipatedinthe
A.Initialpublicoffering.
B.Investmentbank.
C.Primarymarket.
D.Secondarymarket.
E.Securitiesexchange.
91.Kellyboughtsomestockusinganinvestmentbankfromtheissuerofthosesecurities.Sheboughthersharesonthe
A.Initialpublicoffering.
B.Investmentbank.
C.Primarymarket.
D.Secondarymarket.
E.Securitiesexchange.
92.PatricksoldhisGEsharesusinghisonlinebroker.Onecansaythathesoldthemonthe
A.Initialpublicoffering.
B.Investmentbank.
C.Primarymarket.
D.Secondarymarket.
E.Securitiesexchange.
93.JakewantedtobuyandsellvariousstocksontheNYSE.Hewasusingoneofthelargest
intheworld.
A.initialpublicofferings
B.investmentbanks
C.primarymarkets
D.secondarymarkets
E.securitiesexchanges
94.Amarketplacewherememberbrokerswhorepresentinvestorsmeettobuyandsellsecuritiesiscalleda(n)
A.Initialpublicoffering.
B.Investmentbank.
C.Primarymarket.
D.Secondarymarket.
E.Securitiesexchange.
95.TheNYSEisanexampleofa(n)
A.Initialpublicoffering.
B.Investmentbank.
C.Primarymarket.
D.Secondarymarket.
E.Securitiesexchange.
96.NYSEstandsfor
A.NewYorkSecuritiesExchange.
B.NewYorkStockExchange.
C.NewYorkSchoolofEngineering.
D.NeverYetSoEven.
E.NewYearSellingExchange.
97.Mohammadwasinterestedinpurchasinglow-valuesecuritiesthatwerenotlistedontheNYSE.Heprobablyused tocompletehistransaction.
A.aninitialpublicoffering
B.aninvestmentbank
C.theover-the-countermarket
D.aprimarymarket
E.thesecuritiesexchangecommissionwebsite
98.Alicensedindividualwhobuysorsellsinvestmentsforhisorherclientsiscalleda(n)
A.Accountexecutive.
B.Accountinvestor.
C.Onlineexecutive.
D.Marketmaker.
E.Twoofthesearecorrect.
99.Peterisa NASDAQdealerwhomatches buyand sellorders forFord. Heisknown asa(n)
A.Accountexecutive.
B.Accountinvestor.
C.Discountbroker.
D.Full-servicebroker.
E.Marketmaker.
100.Excessivebuyingandsellingofsecuritiestogeneratecommissionsiscalled
A.Churning.
B.Flipping.
C.Marketing.
D.Prospecting.
E.Scamming.
101.Claudiaisalicensedindividualwhobuysorsellsinvestmentforherclients.Whichofthefollowingis
notcorrect?
A.Sheisanaccountexecutive.
B.Sheshouldnotuseherdiscretionwithoutherclient'sapproval.
C.Sheshouldfocusonchurningforherclients.
D.Sheshouldprovideinformationandadvicetobeusedinevaluatingpotentialinvestments.
E.Allofthesearecorrect.
102.Terrywantstobegininvestingandneedssomeguidancebecauseheisuncomfortablemakinginvestmentdecisions.Heshouldusea(n)
A.Discountbroker.
B.Full-servicebroker.
C.Marketmaker.
D.Onlinebroker.
E.Noneoftheseiscorrect.
103.Tammyfeelsquitecomfortabletradingherownstocksusingacomputer.Sheshouldusea(n)
A.Discountbroker.
B.Full-servicebroker.
C.Marketmaker.
D.Onlinebroker.
E.Allofthesearecorrect.
104.Tanyaunderstandsthe"howto"ofresearchingstocksandlikestomakeherowndecisions.However,sheisnotcomfortableusingtheInternettotradestocks.Sheshouldusea(n)
A.Discountbroker.
B.Full-servicebroker.
C.Marketmaker.
D.Onlinebroker.
E.Allofthesearecorrect.
105.Averyisthinkingaboutusingthecomputertodohisinvesting.Heshouldaskallofthefollowingquestionsexcept
A.CanImanagemyowninvestmentsclosely?
B.HowlongwillIbeonthecomputer?
C.Howlargeismyinvestmentportfolio?
D.Noneofthesequestionsisappropriate.
E.Twooftheseareappropriatetoask.
106.Mallorywantstopurchasestockatthecurrentmarketprice.Sheshouldusea
A.Currentsaleorder.
B.Limitorder.
C.Marketorder.
D.Stoporder.
E.Stop-lossorder.
107.DevinwantstopurchaseDEFstockfor$40.00or less.Heshouldusea
A.Currentsaleorder.
B.Limitorder.
C.Marketorder.
D.Stoporder.
E.Stop-lossorder.
108.GavinhasownedMNOPstockforseveralyearsandhasseenthestockincreaseinvaluefrom$20to$35.Hewantsto"lockin"hisgains,soheneedstoplaceanorderthatwillsellhisstockatthenextavailableopportunityafteritsmarketpricedropsto$33.Whatkindofordershouldheuse?
A.Currentsaleorder.
B.Limitorder.
C.Marketorder.
D.Stop-lossorder.
E.Noneofthese.
109.Ethanwantstopurchasesomestockforthefirsttime.Whichofthefollowingiscorrect?
A.HisaccountexecutiveshouldbeencouragedtochurnEthan'saccounttomaximizehisreturn.
B.Heshoulduseanonlinebrokertogetspecificadviceaboutpurchasingstock.
C.Hispurchasepricewillexactlyequalthenumberofshareshepurchasestimesthepricepershareandisknowninadvance.
D.Ifheusesamarketorder,hecanlockinthepriceatwhichhewantstobuythestock.
E.Hiscommissionshouldbeloweratanonlinebrokerthanatafull-servicebroker.
110.Ifyouboughta stockonJune15,2010,andsold itonJuly15,2011,youwould likelybeclassifiedasa(n)
A.Speculator.
B.Trader.
C.Investor.
D.Twoofthesearecorrect.
E.Allofthesearecorrect.
111.Ifyouboughtastock onJuly1,2010, andsold it onJuly 15,2010,youmaybe a(n)
A.Speculator.
B.Trader.
C.Investor.
D.Twoofthesearecorrect.
E.Allofthesearecorrect.
112.Brendapurchasesstockandneverplanstosellthem.Shecouldbeconsideredtobeusinga
A.Buy-and-holdtechnique.
B.Directinvestmentplan.
C.Directreinvestmentplan.
D.Dollarcostaveragingtechnique.
E.Margintechnique.
113.Marissapurchases$500ofstockfromacorporationwithouthavingtouseanaccountexecutiveorabrokeragefirm.Sheisusinga
A.Buy-and-holdtechnique.
B.Directinvestmentplan.
C.Directreinvestmentplan.
D.Dollarcostaveragingtechnique.
E.Margintechnique.
114.Rebeccaownsstockthatpaysadividend.Shedoesnotwantthecashnow;insteadshewouldprefertohavemoresharesofstock.Sheshouldusea
A.Buy-and-holdtechnique.
B.Directinvestmentplan.
C.Dividendreinvestmentplan.
D.Dollarcostaveragingtechnique.
E.Margintechnique.
115.Timothyhas$100automaticallyinvestedinastockeachmonth.Thisway,hedoesn'tbuyhighandselllow.He is using a
A.Buy-and-holdtechnique.
B.Directinvestmentplan.
C.Directreinvestmentplan.
D.Dollarcostaveragingtechnique.
E.Margintechnique.
116.Fayesometimesborrowsmoneyfromherbrokertobuyherstock.Sheisbuying
A.Acalloption.
B.Adirectinvestment.
C.Onmargin.
D.Aputoption.
E.Ashortsale.
117.Investorswhoearnlargerreturnsbecausetheyborrowpartofthemoneyneededtobyaparticularstockareusingwhichofthefollowingtechniques?
A.Acalloption
B.Directinvesting
C.Buyingonmargin
D.Aputoption
E.Sellingshort
118.Ifyoubuyorsellwiththistechnique,youmayberequiredtopledgeadditionalcollateralorcashforaloan.
A.Acalloption
B.Directinvesting
C.Buyingonmargin
D.Aputoption
E.Sellingshort
119.Benborrowedsomesecuritiesfromhisbrokerandplannedtoreplacethematalaterdate.Whichofthefollowingstrategiesdidheuse?
A.Acalloption
B.Directinvesting
C.Buyingonmargin
D.Aputoption
E.Sellingshort
120.Whichofthefollowingiscorrect?
A.Thebrokerpaysyouinterestonmoneyborrowedtopurchasestockonmargin.
B.Sellingshortissellingstockborrowedfromabrokeragefirm.
C.Aputoptionistheright,butnottheobligation,topurchaseastockataspecifiedpricebyagivendate.
D.Abrokeragefirmreceivesdoubleitscommissionwhenstockisboughtandsoldwhentheinvestorissellingshort.
E.Ifthestockpriceincreasesandyoupurchasedstockonmargin,youmayreceiveamargincall.
121.Whichofthefollowingisnotcorrect?
A.Youpayinterestonmoneyborrowedtopurchasestockonmargin.
B.Sellingshortissellingstockborrowedfromabrokeragefirm.
C.Acalloptionistheright,butnottheobligation,topurchaseastockataspecifiedpricebyagivendate.
D.Abrokeragefirmreceivesdoubleitscommissionwhenstockisboughtandsoldwhentheinvestorissellingshort.
E.Ifthestockpricedecreasesandyoupurchasedthatstockonmargin,youmayreceiveamargincall.
122.Theopportunity,butnottheobligation,tobuyasecuritywithinaspecifiedperiodoftimeataguaranteedpriceis
A.Acalloption.
B.Directinvesting.
C.Buyingonmargin.
D.Aputoption.
E.Ashortsale.
123.Theopportunity,butnottheobligation,tosellasecuritywithinaspecifiedperiodoftimeis
A.Acalloption.
B.Directinvesting.
C.Buyingonmargin.
D.Aputoption.
E.Ashortsale.
124.MarySueowns1,000sharesofQRSMovingCompany.QRSpaysaquarterlydividendof$.25pershare.
WhatisthetotalannualdividendthatMarySuewillreceive?A.$.50.
B.$2.00.C.$250.00.D.$500.00.
E.$1,000.00.
125.MaryJaneowns1,000sharesofTUVTruckingCompany.TUVpaysaquarterlydividendof$.50pershare.WhatisthetotalannualdividendthatMaryJanewillreceive?
A.$.25.
B.$1.00.C.$500.D.$1,000.
E.$2,000.
126.Gregorybought500sharesofstockatapriceof$60 pershare.Helatersoldhisstockatapriceof$56.
Whatwashistotalreturnonhisinvestment?
A.$2,000 loss
B.$60 loss
C.$4gain
D.$2,000gainE.$26,500gain
127.OnJuly3,2009,Devinpurchased100sharesofCDEFstockatacost of$30pershare.Hiscommissionwas$29.HesoldhissharesonJuly6,2011,atapriceof$45pershareless another$29commission.
Duringthetimeheheldthestock,heearneddividendsof$2.50pershare.Whatwashistotalreturnonhisinvestment?
A.$250B.$1,492C.$1,692D.$1,721E.$1,750
128.Usingtheinformationgivenhere,whataretheearningspershareforDEFCompany?
•Income=$180,000
•Numberofsharesoutstanding=60,000
•Pricepershare=$30
•Bookvaluepershare=$10A.$1.00
B.$2.00C.$3.00D.$5.00E.$6.00
129.Usingtheinformationgivenhere,whataretheearningspershareforGHICompany?
•Income=$375,000
•Numberofsharesoutstanding=150,000
•Pricepershare=$60
•Bookvaluepershare=$20A.$0.33
B.$1.33C.$2.50D.$3.00E.$7.50
130.Usingtheinformationgivenhere,whatistheprice-earningsratioforDEFCompany?
•After-taxincome=$180,000
•Numberofsharesoutstanding=60,000
•Pricepershare=$30
•Bookvaluepershare=$10
•Earningspershare=$3.00A.$3.00
B.$4.00C.$7.50D.$10.00E.$20.00
131.•Income=$180,000
•Numberofsharesoutstanding=60,000
•Pricepershare=$30
•Bookvaluepershare=$10
Usingtheinformationgivenhere,whatistheprice-earningsratioforDEFCompany?(Hint:Thisisatwo-stepcalculation.)
A.$3.00B.$4.00C.$7.50D.$10.00E.$20.00
132.GiventheinformationshownhereforNMOPInc.,calculatethedividendyield.
•Annualdividend=$4.00
•Currentmarketvaluepershare=$60.00A.6.7%.
B.$0.67.C.15%.D.$1.50.
E.Needmoreinformationtocalculate.
133.GiventheinformationshownhereforNMOPInc.,calculatethedividendyield.
•Annualdividend=$4.00
•Numberofsharesoutstanding=40,000
•Currentmarketvaluepershare=$40.00
•Bookvaluepershare=$8.00A.10%
B.15%
C.20%
D.25%
E.40%
134.GiventheinformationshownhereforQRSInc.,calculatethebookvalue.
•Assets =$18,000,000
•Liabilities=$10,000,000
•Numberofsharesoutstanding=2,000,000A.$1.33
B.$2.50C.$3.50D.$4.00E.$7.50
135.GiventheinformationshownhereforTUV,Inc.,calculatethetotalreturn.
•Dividendspershare=$1.50
•Purchaseprice(July15,2010)=$50.00
•Sell price(July 15,2011)=$56.00A.($6.00)
B.($4.50)C.$1.50D.$6.00E.$7.50
136.Gregorypurchased600sharesofQRSstockatapriceof$25pershare.Inaddition,hepaidacommissionof$30forthetransaction.Howmuchdidheneedtopayhisbroker?
A.$7,500.B.$15,470.C.$15,000.D.$15,030.E.$15,050.
137.Ifyouboughtstockusingdollarcostaveragingaslistedhere,whatwasyouraveragecost?
A.$27.50B.$27.78C.$27.96D.$28.57E.$30.00
138.Mikebought200sharesofPDQstockonmarginat$15/share.Thestockincreasedto$21/share.WhatwasMike'sprofit?
A.$600B.$1,200C.$3,000D.$4,200E.$5,200
139.Stockshavebeentrackedforyears.Whathasbeentheaverageannualreturnforstockssince1926?
140.Whataretwocharacteristicsofcommonstock?
141.Whymightyouwanttoinvestincommonstocks?
142.Whatisadifferencebetweencommonstockandpreferredstock?
143.Inreality,whatisoneofthemostimportantthingsaninvestorshoulddobeforeinvestinginanystocks?
144.IstheInternetavalidtooltouseforevaluatingstocks?Whyorwhynot?
145.Listfivethingsthatcanbefoundatawebsitesuchas
146.Stockadvisoryservicesprovidedetailedinformationaboutcorporations.Describethreesectionsthatappearinareport.
147.Whoseresponsibilityisittodeterminewhetheracompany'sstockisagoodinvestment?
148.Whatarethreecalculationsthatcanbeusedtoevaluatetheprofitabilityofacorporation?
149.Whatistherelationshipbetweentheprice-earningsratioandconfidencebyinvestorsinthecompany?
150.Whatisthedifferencebetweenaprimarymarketandasecondarymarket?
151.Discussfull-service,discount,andonlinebrokers.
152.Whenchoosingabrokerforyoursecuritiestransactions,youshouldaskyourselfsomequestions.Whatarethreequestionsyoushouldask?
153.YouboughtHarley-Davidsonstockat$9inMarch2009andsawthevalueincreaseto$22,thendropto
$17byearlyJune2009.Lookingback,yourealizedthatyoumissedachanceto"lockin"yourprofitsandsellthestockatapriceof$21orhigher.Ifyoudidnotwanttouseamarketorder,whatshouldyouhaveusedtolockinyourprofit?
154.Listtwolong-terminvestingtechniques.
155.Listtwoshort-terminvestingtechniques.
156.Whyisshort-terminvestingriskierthanlong-terminvesting?Explainyouranswer.
1.(p. 390)TRUE
2.(p.390)FALSE
3.(p.390)FALSE4.(p. 392)TRUE
5.(p.392)FALSE
6.(p.392)FALSE7.(p. 392)TRUE
8.(p.393)FALSE
9.(p.393)FALSE
10.(p.393)FALSE
11.(p.394)FALSE
12.(p. 397)TRUE
13.(p. 397)TRUE
14.(p.398)FALSE
15.(p.398)FALSE
16.(p. 398)TRUE
17.(p. 398)TRUE
18.(p.399)FALSE
19.(p.399)FALSE
20.(p.402)FALSE
21.(p.402)FALSE
22.(p. 402)TRUE
23.(p. 402)TRUE
24.(p.404)FALSE
25.(p.407)FALSE
26.(p. 407)TRUE
27.(p.407)FALSE
28.(p.408)FALSE
29.(p. 407)TRUE
30.(p.409)FALSE
31.(p.409)FALSE
32.(p. 410)TRUE
33.(p. 412)TRUE
34.(p.412)FALSE
35.(p.412)FALSE
36.(p. 412)TRUE
12 Key
37.(p.412)FALSE
38.(p.414)FALSE
39.(p. 414)TRUE
40.(p. 414)FALSE
41.(p. 414)TRUE
42.(p.414)FALSE
43.(p.414)FALSE
44.(p.414)FALSE
45.(p.416)FALSE
46.(p.418)FALSE47.(p. 392) D
48.(p. 395)B
49.(p. 392)B
50.(p. 392)B
51.(p. 392)C
52.(p. 393)E
53.(p. 393)B
54.(p. 393)C
55.(p. 393)E
56.(p. 393) A
57.(p. 393)B
58.(p. 394)C
59.(p. 394)C
60.(p. 396)E
61.(p. 397)E
62.(p. 398)C
63.(p. 398) A
64.(p. 398)B
65.(p. 398)E
66.(p. 398) D
67.(p. 398)C
68.(p. 398) A
69.(p. 398)C
70.(p. 400)E
71.(p. 400)C
72.(p. 400)C
73.(p. 401)E
74.(p. 402) D
75.(p. 404)E
76.(p. 406)E
77.(p. 404)B
78.(p. 405) D
79.(p. 404)E
80.(p. 404)B
81.(p. 404)E
82.(p. 405)E
83.(p. 406)B
84.(p. 407) A
85.(p. 407)E
86.(p. 407)B
87.(p. 406) A
88.(p. 407)E
89.(p. 408)B
90.(p. 408) A
91.(p. 408)C
92.(p. 408) D
93.(p. 408)E
94.(p. 408)E
95.(p. 409)E
96.(p. 409)B
97.(p. 409)C
98.(p. 410) A
99.(p. 410)E
100.(p. 410) A
101.(p. 410)C
102.(p. 411)B
103.(p. 411) D
104.(p. 411) A
105.(p. 411)E
106.(p. 412)C
107.(p. 412)B
108.(p. 412) D
109.(p. 412)E
110.(p. 414)C
111.(p. 414) D
112.(p. 414) A
113.(p. 414)B
114.(p. 416)C
115.(p. 414) D
116.(p. 416)C
117.(p. 416)C
118.(p. 416)C
119.(p. 417)E
120.(p. 417)B
121.(p. 417) D
122.(p. 418) A
123.(p. 418) D
124.(p. 396)E
125.(p. 396)E
126.(p. 397) A
127.(p. 397)C
128.(p. 404)C
129.(p. 404)C
130.(p. 405) D
131.(p. 405) D
132.(p. 406) A
133.(p. 406) A
134.(p. 407) D
135.(p. 407)E
136.(p. 408) D
137.(p. 414)B
138.(p. 416)B
139.(p.390)Theaverageannualreturnisjustbelow10%.
•Stockholderselecttheboardofdirectors.
•Stockholdersmayvoteinpersonorbyproxyattheannualmeeting.
•Commonstocksmaypaydividends.
•Commonstocksareequityfinancing.
140.(p.392)• Commonstocksarethemostbasicformofownership foracorporation.
141.(p.392)Youmightwanttoinvestincommonstocksbecauseofthepotentialprofitabilityduetodollarappreciationofstockvalue,incomefromdividends,andpotentialincreasesinstockvalueafterstocksplits.
Commonstockholderscanvote,whereaspreferredstockholdersnormallydonotvote.
142.(p.392)Preferredstockholdersreceiveaconstant,knowndividendbeforeanycommondividendsarepaid.Therefore,commonstockholdersreceivevariabledividends.
143.(p.392)Aninvestorshouldresearchandevaluatethecompanyaswellastheindustryinwhichitoperates.
144.(p.398)TheInternetisavalidtoolbecauseitiseasilyaccessibleandmaybemoreup-to-dateandthoroughthanprintedmaterial.Companywebsites,personalfinancewebsites,andprofessionaladvisoryservicesallprovidefinancialinformationaboutcompanies.
•Stockpricechangesandranges.
•Volume.
•Dividends.
•Financials.
•Ownership.
•Analystcoverage.
•Information.
•News.
•Charts.
•Stockquotes.
•Companynameandtickersymbol.
145.(p.400)
•Finalsection—auditors,whereprincipalofficeislocated,transferagent,corporateofficers.
•Financialdata—dataforthepastfiveyearsplusthelastthree-monthreportingperiod.Includestotalrevenues,earningspershare,dividendspershare,returnonequity,andnetincome.
•Prospects—company'soutlook.
•Recentdevelopments—currentinformationaboutthecompany'snetincomeandsalesrevenue.
•Businesssummary—company'smajoroperationsindetail.
•Topsection—stockprices,earnings,dividends.
146.(p.400)ThetextprovidesanexamplefromMergent'sthatincludessixsections:
147.(p.402)Itistheinvestor'sjobtointerpretinformationanddecidewhetheracompany'sstockisagoodinvestment.
•Returnonequity(notdiscussedinthissectionofthetext;nevertheless,somestudentsmaybeawareofthisratio).
•Returnonassets(notdiscussedinthissectionofthetext;nevertheless,somestudentsmaybeawareofthisratio).
•Capitalgain.
•Totalreturn.
•Dividendyield.
•Price-earningsratio.
•Earningspershare.
148.(p.404)Possibleanswersincludethese:
149.(p.404)Adirectrelationshipexistsinthatahighprice-earningsratiooftenindicatesinvestoroptimismbecauseoftheexpectationofhigherearningsinthefuture.
150.(p.408)Inaprimarymarket,investorspurchasestockfromtheissuerofthesecurities(e.g.,initialpublicoffering).Asecondarymarketdealswithexistingsecurities(e.g.,yousellyoursharestoanotherinvestor).
Anonlinebrokerisalsoappropriateforpeoplewhounderstandhowtoresearchstocksand prefertomaketheirowndecisions.Thisisforindividualswhoarecomfortabletradingstocksonline.Onlinebrokersgenerallyhavethelowestcommissions.
Adiscountbrokerisforindividualswhoareuncomfortabletradingstocksonlineandforpeoplewhounderstandhowtoresearchstocksandprefertomaketheirowndecisions.
151.(p.411)Afull-servicebrokerisappropriateforbeginninginvestorswithlittleornoexperienceandforthosewhoareuncomfortablemakinginvestmentdecisions.Commissionsgenerallyarehighestwithfull-servicebrokers.
•Arethereanyfeesin additiontothecommissionsI paywhenIbuyor sellstocks?
•Isthereachargeforstatements,researchreports,andotherfinancialreports?
•HowoftendoIgetstatements?
•Doyouhaveatoll-freetelephonenumberforcustomeruse?
•Whatisthetypicalcommissionforastocktransaction?
•CanItradestocksonline?
•CanIbuyorsellstocksoverthephone?
152.(p.411)Possiblequestionsincludethese:
153.(p.412)Youshouldhaveusedastop-lossordertoselltheHarleystockatthenextavailableopportunityafteritsmarketpricereached$21.
•Dividendreinvestmentplan.
•Directinvestmentplan.
•Dollarcostaveraging.
•Buyandhold.
154.(p.414)Long-termtechniquesinclude
•Putoptions.
•Calloptions.
•Sellingshort.
•Buyingstockonmargin.
155.(p.416)Short-termtechniquesinclude
156.(p.416)Short-terminvesting(speculatingortrading)ismoreriskybecauseofthestrategiesused.Buyingonmarginusesfinancialleverage,whichcanprovidelargerreturnswhenthestockvalueincreasesaswellaslowerreturnswhenthestockvaluedecreases.Sellingshortisriskybecausethestockissoldbeforeitispurchased.Ifthestockpricedecreases,itcanbepurchasedatalowerprice;however,ifthepriceincreases,theinvestmentwillprovidealoss(buyhighandselllow).Optionsareriskybecausechangesinpriceneedtooccurbeforetheexpirationdateortheinvestorcanlosethemoneyinvestedintheoption.
12SummaryCategory / #ofQuestions
Blooms:Analyze / 9
Blooms:Apply / 17
Blooms:Remember / 48
Blooms:Understand / 82
Difficulty:1Easy / 26
Difficulty:2Medium / 107
Difficulty:3Hard / 23
Kapoor-Chapter12 / 156
LearningObjective:12-01Identifythemostimportantfeaturesofcommonandpreferredstock. / 33
LearningObjective:12-02Explainhowyoucanevaluatestockinvestments. / 28
LearningObjective:12-03Analyzethenumericalmeasuresthatcauseastocktoincreaseordecreaseinvalue. / 32
LearningObjective:12-04Describehowstocksareboughtandsold. / 35
LearningObjective:12-05Explainthetradingtechniquesusedbylong-terminvestorsandshort-termspeculators. / 28
Topic:BuyingandSellingStocks / 35
Topic:CommonandPreferredStock / 33
Topic:EvaluatingaStockIssue / 28
Topic:Long-TermandShort-TermInvestmentStrategies / 28
Topic:NumericalMeasuresThatInfluenceInvestmentDecisions / 32
13
Student:
1.Forindividuals,stocksandbondsaresaferchoicesthanmutualfundsbecausemoneyispooledfrommanyinvestorsformutualfunds.
TrueFalse
2.Manypeopleinvestinmutualfundsthroughtheirretirementaccounts.TrueFalse
3.In2011,investorsintheUnitedStatescouldchoosefrommorethan25,000mutualfunds.TrueFalse
4.Mutualfundscarrya"realrisk"thattheycandecreaseinvalue.TrueFalse
5.Mutualfundsprovideamateurmanagement.TrueFalse
6.Mostmutualfundsareclosed-endfunds.TrueFalse
7.Anexchange-tradedfundhasportfoliomanagerswhoactivelyresearchandselectthestocksandothersecurities.
TrueFalse
8.An"Afund"mutualfundmayhaveacommissionashighas9.5%.TrueFalse
9.Fredwantstoinvestina"no-load"fund.Thismeansthatthefundhasno12b-1fees.TrueFalse
10.Anaggressivegrowthfundinvestsincompanieswithalonghistoryofpayingdividends.TrueFalse
11.Thedifferencebetweenaglobalstockfundandaninternationalfundisthattheglobalstockfundinvestsincompaniesthroughouttheworld,includingtheUnitedStates,whereastheinternationalfundinvestsoutsidetheUnitedStates.
TrueFalse
12.Stephaniewantstoinvestinamutualfundthatinvestsincompanieswithinthesameindustry.Sheshouldputhermoneyintoaregionalfund.
TrueFalse
13.Asociallyresponsiblefundinvestsincompaniesthatproducetobacco,nuclearenergy,andweaponsinordertoinfluencetheboardstochangethecompanies'missionstatements.
TrueFalse
14.ThereturnforanintermediateU.S.governmentbondfundshouldbehigherthanforajunkbondfund.
TrueFalse
15.Afamilyoffundsisa groupingoffundsthatallinvestinbondsorallinvestinstocks.TrueFalse
16.Open-endmutualfundshavemanagersandclosed-endfundsdonot.TrueFalse
17.MostmanagedmutualfundsoutperformtheStandardPoor's500stockindex.TrueFalse
18.A"good"fundmanagerhastheabilitytoincreasethesharevaluewhentheeconomyisgoodandretainthatvaluewhentheeconomyisbad.
TrueFalse
19.IfRyanwantstoinvestinanindexmutualfund,heshouldnotexpecthisfundtobehavedifferentlythantheunderlyingindex.
TrueFalse
20.Brendawantstoinvestinafundthatwilloutperformmostothers.Onaverage,shewouldbebetterofftoinvestinanindexfundinsteadofamanagedclosed-endfund.
TrueFalse
21.Theonlywaytogetreliableinformationaboutmutualfundsistopayafeeforit.TrueFalse
22.Aninvestmentcompanysponsoringamutualfundmustgivepotentialinvestorsanannualreport.True False
23.Anewspaperwillprovidemorecompletecoverageofmutualfundscomparedtoothersources.TrueFalse
24.Manypeopleownmutualfundsaspartofa401(k)plan.TrueFalse
25.Acapitalgaindistributionistheprofitthatusuallyresultswhentheinvestorsselltheirsharesthathaveincreasedinvalue.
TrueFalse
26.CynthiareceivedanIRSForm1099DIV.Thisformissentattheendofeachquartertospecifyhowmuchshereceivedindividendsandcapitalgaindistributions.
TrueFalse
27.Ahigherturnoverratioforamutualfundcanresultinhighertaxbills.TrueFalse
28.Allofthefollowingareadvantagesofamutualfundexcept
A.Diversification.
B.Professionalmanagement.
C.Loadsofupto 8.5%.
D.Easeofbuyingandsellingshares.
E.Alloftheseareadvantages.
29.Whatpercentageofallmutualfundsareclosed-endfunds?
A.6% B.13% C.36% D.85% E.93%
30.Whichtypeoffundhasthepricesdeterminedbyfactorsofsupplyanddemandlikeastock?
A.Closed-endfund
B.SECgovernmentfund
C.Netassetvaluefund
D.No-loadfund
E.Open-endfund
31.Whichofthefollowingisafundthatinvestsinstocksorsecuritiescontainedinaspecificstockorsecuritiesindex?
A.Closed-endfund
B.Exchange-tradedfund
C.Netassetvaluefund
D.No-loadfund
E.Open-endfund
32.Whosesharesareissuedandredeemedbytheinvestmentcompanyattherequestofinvestors?
A.Closed-endfund
B.Exchange-tradedfund
C.Netassetvaluefund
D.No-loadfund
E.Open-endfund
33.HowisanETFsimilartoaclosed-endfund?
A.Sharesaretradedonasecuritiesexchangeorintheover-the-countermarket.
B.Aninvestorcanpurchaseaslittleasoneshareofafund.
C.Pricesaredeterminedbysupplyanddemandandthevalueofstocksandotherinvestmentscontainedintheportfolio.
D.Pricesaredeterminedbyinvestorexpectations.
E.Allofthesearecorrect.
34.Whichofthefollowingiscorrectforaclosed-endfund?
A.Itisnottradedonasecuritiesexchange.
B.Thepriceofitssharesisdeterminedbysupplyanddemand,bythevalueofstocksintheportfolio,andbyinvestorexpectations.
C.Itisnotactivelymanagedbyprofessionalfundmanagers.
D.Itspriceisequaltothenetassetvalue.
E.Itsloadcannotexceed2%.
35.Thenetassetvalueiscalculatedas
A.(Liabilities-Valueofportfolio)+Numberofsharesoutstanding.
B.Numberofsharesoutstanding/(Liabilities-Valueofportfolio).
C.(Liabilities-Valueofportfolio)/Numberofsharesoutstanding.
D.(Currentmarketvalueofportfolio-Liabilities)/Numberofsharesoutstanding.
E.Numberofsharesoutstanding/(Valueofportfolio-Liabilities).
36.Manymutualfundschargeacommissioneverytimetheyarepurchasedbyinvestors.Thesearecalled
A.Loadfunds.
B.Closed-endfunds.
C.Exchange-tradedfunds.
D.Netassetvaluefunds.
E.Open-endfunds.
37.Aloadfundisallowedtocollectasalescharge(commission)ashighasA.0%.
B.2%.
C.3-5%.
D.8.5%.
E.11.5%.
38.TheaverageloadchargeformutualfundsisA.0%.
B.2%.
C.3-5%.
D.8.5%.
E.11.5-14.5%.
39.Theaverageupfrontsaleschargeforano-loadmutualfundisA.0%.
B.2%.
C.3-5%.
D.8.5%.
E.11.5-14.5%.
40.Ano-loadmutualfund
A.Mayallowinvestorstopayasalescharge.
B.Chargescommissionwhenyoubuyshares.
C.Usessalespeopletosellthefunds.
D.IsavailableonlyviatheInternet.
E.Cancharge a12b-1 feeofupto0.25%ofitsassets.
41.Acontingentdeferredsalesloadisknownasallofthefollowingexcept
A.Back-endload.
B.Bfund.
C.Redemptionfee.
D.Onlytwoofthesearecorrect.
E.Allofthesearecorrect.
42.Afeechargedtodefraythecostsofadvertisingandmarketingforamutualfundiscalledafee.
A.3c
B.12b-1 C.14c-2D.401(k)
E.403(b)
43.Whichofthefollowingisnotcorrectaboutthe12b-1fee?
A.Itisalsoknownasadistributionfee.
B.Ano-load fundcancharge a12b-1fee ofupto 0.25%ofits assets.
C.Itisoftenanongoingfeethatischargedonanannualbasis.
D.Itneedstobedisclosedintheannualreportbutnotintheprospectus.
EItisusedtodefraythecostsofadvertisingandmarketingamutualfundandcommissionspaidtoa
. brokerwhosoldsharesinthemutualfund.
44.Whichclassofshareschargesacommissionwhensharesarepurchased?
A.A
B.B
C.C
D.K
E.Q
45.Whichclassofshareschargesacommissionwhenwithdrawalsaremadeduringthefirstfiveyears?
A.A
B.B
C.C
D.K
E.Q
46.Whichclassofsharesdoesnotimposeasalesloadorcontingentdeferredsalesfeebutchargesahigher12b-1feethantheotherclasses?
A.A
B.B
C.C
D.K
E.Q
47.Whichofthefollowingtypesofstockfundsinvestsinstockissuedbycompanieswithalonghistoryofpayingdividends?
A.Equityincomefunds
B.Growth funds
C.Indexfunds
D.Internationalfunds
E.Regionalfunds
48.Whichofthefollowingtypesofstockfundsinvestsinstockissuedbycompaniesexpectinghigher-than-averagerevenueandearningsgrowth?
A.Equityincomefunds
B.Growth funds
C.Indexfunds
D.Internationalfunds
E.Regionalfunds
49.WhichofthefollowingtypesofstockfundsinvestsinthesamecompaniesincludedintheStandardPoor's500stockindex?
A.Equityincomefunds
B.Growth funds
C.Indexfunds
D.Internationalfunds
E.Regionalfunds
50.WhichofthefollowingtypesofstockfundsinvestsinstockissuedbycompaniesthroughouttheworldoutsidetheUnitedStates?
A.Equityincomefunds
B.Growth funds
C.Indexfunds
D.Internationalfunds
E.Regionalfunds
51.Whichofthefollowingtypesofstockfundsinvestsinstocktradedwithinonespecificregionoftheworld?
A.Equityincomefunds
B.Growth funds
C.Indexfunds
D.Internationalfunds
E.Regionalfunds
52.Sallywantstoinvestinafundthatinvestsonlyinstock.Whichofthefollowingwillmeetherneeds?
A.Assetallocationfunds
B.Balancefunds
C.Junk bond funds
D.Midcapfunds
E.Short-termcorporatebondfunds
53.Thomaswantstoinvestinafundthatinvestsinstock,bonds,andmoneymarketinstruments.Whichofthefollowingwillmeethisneeds?
A.Assetallocationfunds
B.Aggressivegrowthfunds
C.Junk bond funds
D.Midcapfunds
E.Short-termcorporatebondfunds
54.Valwantstoinvestinafundwhoseprimaryobjectiveistoconserveprincipal,provideincome,andprovidelong-termgrowth.Whichofthefollowingwillbestmeetherneeds?
A.Cyclicalfunds
B.Balancedfunds
C.Junk bond funds
D.Midcapfunds
E.Short-termcorporatebondfunds
55.Anexampleofalifecyclefundisafundthat
A.Assistsinvestorswithplanningforretirementbyaspecificdate.
B.Initiallyinvestsinconservativesecurities,thenchangestoinvestinmorerisk-orientedsecuritiesastimegoesby.
C.Investsinsharesofothermutualfundsinordertoincreasediversificationandassetallocation.
D.Hasprincipalprotectionasitsmainobjective.
E.Noneoftheseisanexampleofalifecyclefund.
56.Ifyoustartanewjobandareofferedtheopportunitytoparticipateinthecompany's401(k)or403(b)retirementplan,whichofthefollowingdecisionscanaffectyourfinancialfuture?
A.Participatingintheretirementaccountasawaytoreduceincometaxes.
B.Participatingintheretirementaccounttotakeadvantageoftheemployer'smatchingcontributions.
C.Choosingmutualfundsfromanumberofdifferentfundoptionsforyourretirementaccount.
D.Basingyouractualchoiceofinvestmentsonyourage,howlongbeforeyouretire,andyourtolerancefor risk.
E.Allofthesedecisionswouldhaveafinancialimpact.
57.Timeisanimportantfactorwhenevaluatingamutualfundforwhichofthefollowing?
A.Theexistenceoftheunderlyingindex.
B.Thelifeofthecompaniesinthefund.
C.Thelengthoftimethatthefundmanagerhasbeenmanagingthefund.
D.Thestatusoftheeconomy.
E.Noneofthese.
58.Whichofthefollowingisnotcorrect?
AWhenevaluatingamutualfund,animportantquestiontoaskisthis:Howlonghasthepresentfund
. managerbeenmanagingthefund?
B.Overtheyears,themajorityofmanagedmutualfundshavefailedtooutperformtheStandardPoor's500stockindex.
C.Managedfundsmaybeopen-endfundsorclosed-endfunds.
DAbenchmarkofagoodfundmanageristheabilitytoincreasesharevaluewhentheeconomyisgood
. andretainthatvaluewhentheeconomyisbad.
E.Amanagedfundwilloutperformanindexfundonly60%ofthetime.
59.Whichofthefollowingisnotawayonecanaccessreliableinformationaboutmutualfundsontheinternet?
A.Findstatisticalinformationfromtheinvestmentcompany'swebpage.
B.Obtaincurrentmarketvaluesformutualfundsbyusingasearchenginesuchas
C.Reviewblogsfromamateurinvestorsabouttheirfavoritemutualfunds.
D.Researchreportsformutualfundsusingprofessionaladvisoryservices.
E.Allofthesearereliablesourcesofinformationaboutmutualfunds.
60.Professionaladvisoryservicesprovidedetailedinformationaboutmutualfunds.Whichofthefollowingisnotaprofessionaladvisoryservice?
A.Dun and Moody's.
B.LipperAnalyticalServices.
C.Morningstar,Inc.
D.ValueLine.
E.Alloftheseareprofessionaladvisoryservicesthatprovideinformationaboutmutualfunds.
61.Professionaladvisoryservicesprovideresearchonmutualfundsinallofthefollowingareasexcept
A.Ahistoricalprofile.
B.Statisticalinformation.
C.Performance,riskanalysis,andportfolioanalysis.
D.Summaryoftheanalyst'sresearch.
E.Alloftheseareincludedbyprofessionaladvisoryservices.
62.Sallywantstoinvestinamutualfund.Themutualfundmustprovidea(n)toher.
A.analysisfromafinancialpublication
B.annualreport
C.prospectus
D.quarterlyreport
E.summaryreport
63.Whichofthefollowingprovidessomeinformationaboutmutualfundsforfreeandmoredetailedinformationatacost?
A.Financialpublications
B.Internet
C.Mutualfundannualreport
D.Newspapers
E.Professionaladvisoryservices
64.Whichofthefollowingprovidesagoodmeansofmonitoringthevalueofyourmutualfundinvestments,butnotasmuchinformationasothersourcesofinformationthatconductamorecompleteevaluation?
A.Financialpublications
B.Internetresources
C.Mutualfundannualreport
D.Newspapers
E.Professionaladvisoryservices
65.Whichofthefollowingcontainsaletterfromthepresidentoftheinvestmentcompany,detailedfinancialinformation,ascheduleofinvestments,andaletterfromthefund'sindependentauditors?
A.Financialpublications
B.Internet
C.Mutualfundannualreport
D.Newspapers
E.Professionaladvisoryservices
66.Howdomutualfundsprovidereturnstotheirshareholders?
A.Incomedividends.
B.Capitalgaindistributions.
C.Capitalgains.
D.Allofthese.
E.Noneofthese.
67.Earningspaidtoshareholdersthatarenotrelatedtothesaleofsecuritiesinthefund'sportfolioarecalled
A.Capitalgaindistribution.
B.Incomedividend.
C.Capitalgain.
D.Mutualfundmoney.
E.Fundtaxes.
68.Paymentstoinvestorsrelatedtothesaleofsecuritiesinthefund'sportfolioare
A.Capitalgaindistributions.
B.Incomedividends.
C.Capitalgains.
D.Mutualfundmoney.
E.Fundtaxes.
69.Whenyousellyoursharesinamutualfund,youmayreceiveaprofitcalled
A.Capitalgaindistribution.
B.Incomedividend.
C.Capitalgain.
D.Mutualfundmoney.
E.Fundtaxes.
70.Whichofthefollowingistrueaboutmutualfundsandtaxes?
A.Capitalgaindistributionsaretaxedwhenyousellyourshares.
B.Incomedividendsaretaxedquarterly.
CInvestmentcompaniesarerequiredtosendeachshareholderayear-endstatementthatspecifieshow
.mucheachreceivedindividendsandcapitalgaindistributions.
D.Capitalgainsdistributionsarenottaxed.
E.Taxescanbeeliminatedifyouholdyourmutualfundsharesinyour401(k)retirementaccount.
71.IfyouholdmutualfundsharesinyourRothindividualretirementaccount,thetaxeswillbe
A.Deferred.
B.Eliminated.
C.Evaluated.
D.Payableimmediately.
E.Noneofthese.
72.Aproblemwithmutualfundsis
A.Professionalmanagement.
B.ThepossibilitytoeliminatetaxesifheldinaRothindividualretirementaccount.
C.Beingrequiredtoreportreinvestedincomedividendsandcapitalgaindistributionsonyourfederaltaxreturn.
D.Taxdeferralifthefundisheldinaretirementaccountlikea401(k)account.
E.Thediversificationofferedtoinvestors.
73.Allofthefollowingarevalidwaystopurchasemutualfundsexcept
A.Aregularaccounttransaction.
B.Avoluntarysavingsplan.
C.Acontractualsavingsplan.
D.Areinvestmentplan.
E.Allofthewayslistedarevalidpurchaseoptions.
74.Melindawantstowithdrawsomemoneyfromhermutualfund.Whichofthefollowingisnotanoptionavailable?
A.Writeacheck
B.Sellacertainnumberofshareseachinvestmentperiod
C.Withdrawafixedpercentageofassetgrowth
D.Withdrawallincomedividendsandcapitalgaindistributionsearnedeachinvestmentperiod
E.Withdrawallprincipalandleaveinterestdividendsandcapitalgaindistributionsintheaccount
75.TheinvestmentsintheAlamoBasicsContingencyFundhaveacurrentmarketvalueof$800million.Thefundalsohasliabilitiesthattotal$60million.Ifthismutualfundhas20millionshares,whatisthenetassetvaluepershare?
A.$3.00 B.$37.00 C.$40.00 D.$43.00 E.$60.00
76.TheinvestmentsintheAlreadyBeenCountedFundhaveacurrentmarketvalueof$600million.Thefundalsohasliabilitiesthattotal$40million.Ifthismutualfundhas25millionshares,whatisthenetassetvaluepershare?
A.$1.60.
B.$22.40.
C.$24.00.
D.$25.60.
E.Noneofthese.
77.TheAndersonBalancedmutualfundchargesasalesloadof4.85%.Ifyouinvest$15,000,howmuchmustyoupayincommissions?
A.$4.85 B.$485.00 C.$600.00 D.$727.50 E.$750.00
78.TheAndersonBalancedmutualfundchargesasalesloadof4.85%.Ifyouinvest$15,000,howmuchofyourinvestmentwillactuallybeusedtopurchasesharesinthefund?
A.$14,250.00 B.$14,272.50 C.$14,400.00 D.$14,485.00 E.$15,000.00
79.Francescawithdrew$7,000fromBsharesthatsheownedintheAlreadyBeenCountedmutualfundwithinoneyearofherpurchase.Ifshemustpaya5%contingentdeferredsalesfee,whatwillhertotalfeebe?
A.$0
B.$3.50 C.$35.00 D.$350.00
E.$3,500.00
80.Francescawithdrew$7,000fromBsharesthatsheownedintheAlreadyBeenCountedmutualfundwithinoneyearofherpurchase.Ifshemustpaya5%contingentdeferredsalesfee,whatamountwillsheactuallyreceive?
A.$350 B.$6,650 C.$7,000 D.$7,350 E.$7,500
81.Nicholaspurchased150sharesofABCMutualFundat$10.50andsoldthemoneyearlateratapriceof
$14.50.HistotalearningswereA.$400
B.$600 C.$2,025 D.$2,625 E.$4,650
82.Whatisamutualfund?
83.Whatarethetwoprimaryreasonsthatinvestorspurchasemutualfunds?
84.Howisthepricepershareforclosed-endmutualfundsdetermined?
85.WhatisanETF?
86.Howisthepricepershareforopen-endmutualfundsdetermined?
87.Contrastaloadfundandano-loadfund.
88.Listandexplainfivetypesofstockfunds.
89.Describetheinvestmentstrategyofasociallyresponsiblefund.
90.Whatisabalancedfund?
91.Whatisafamilyoffunds,andwhatareitsadvantages?
92.Whyhavelifestylefundsbecomesopopularwithinvestors?
93.Knowingwhatweknownow,ifyouwereaninvestorin2007,whatchangeswouldyouhavemadetoyourmutualfundinvestmentstominimizeyourlossesintheeconomiccrisisthatfollowed?
94.Howisanindexfunddifferentfromothermutualfunds?
95.Whenyouthinkaboutgoodandbadeconomictimes,whataretheresponsibilitiesofa"good"fundmanager?
96.Comparethereturnsofmanagedfundsandindexfunds.
97.Identifythreeitemsthatshouldbefoundinamutualfundprospectus.
98.Whatarethreewaysthatashareholdercanreceiveareturnfromamutualfund?
99.Ifyouwanttoeliminatealltaxesfromthesaleofsharesfromyourmutualfunds,whatshouldyoudo?
100.Explainthetaxabilityofreinvestedincomedividendsinamutualfund.
101.Whatistheturnoverratio?
1.(p. 429)FALSE2.(p. 429)TRUE
3.(p. 429)FALSE4.(p. 429)TRUE
5.(p.430)FALSE
6.(p.408)FALSE
7.(p.431)FALSE
8.(p.433)FALSE
9.(p.433)FALSE
10.(p.438)FALSE
11.(p. 438)TRUE
12.(p.439)FALSE
13.(p.439)FALSE
14.(p.439)FALSE
15.(p.440)FALSE
16.(p.442)FALSE
17.(p.442)FALSE
18.(p. 442)TRUE
19.(p. 443)TRUE
20.(p. 443)TRUE
21.(p.443)FALSE
22.(p.446)FALSE
23.(p.446)FALSE
24.(p. 450)TRUE
25.(p.450)FALSE
26.(p.450)FALSE
27.(p. 450)TRUE28.(p. 431)C
29.(p. 431) A
30.(p. 431) A
31.(p. 431)B
32.(p. 433)E
33.(p. 433)E
34.(p. 431)B
35.(p. 433) D
36.(p. 433) A
13 Key
37.(p. 433) D
38.(p. 433)C
39.(p. 433) A
40.(p. 433)E
41.(p. 434)E
42.(p. 434)B
43.(p. 435) D
44.(p. 435) A
45.(p. 435)B
46.(p. 435)C
47.(p. 439) A
48.(p. 439)B
49.(p. 439)C
50.(p. 439) D
51.(p. 439)E
52.(p. 439) D
53.(p. 439) A
54.(p. 439)B
55.(p. 440) A
56.(p. 435)E
57.(p. 441)C
58.(p. 441)E
59.(p. 443)C
60.(p. 443) A
61.(p. 446)E
62.(p. 446)C
63.(p. 443)E
64.(p. 448) D
65.(p. 446)C
66.(p. 450) D
67.(p. 450)B
68.(p. 450) A
69.(p. 450)C
70.(p. 452)C
71.(p. 452)B
72.(p. 452)C
73.(p. 453)E
74.(p. 454)E
75.(p. 433)B
76.(p. 433)B
77.(p. 433) D
78.(p. 433)B
79.(p. 434) D
80.(p. 434)B
81.(p. 451)B
82.(p.428)Amutualfundisaninvestmentcompanythatpoolsthemoneyofmanyinvestors,itsshareholders,toinvestinavarietyofsecurities.
83.(p.430)Thetwomainreasonsareprofessionalmanagementanddiversification.
84.(p.431)Thepricesofsharesaredeterminedbythefactorsofsupplyanddemand,bythevalueofstocksandotherinvestmentscontainedinthefund'sportfolio,andbyinvestorexpectations.
85.(p.431)AnETF(exchange-tradedfund)isafundthatinvestsinthestocksorothersecuritiescontainedinaspecificstockorsecuritiesindex,andwhosesharesaretradedonasecuritiesexchangeoroverthecounter.
86.(p.433)Thepricepershareisthenetassetvalue(NAV).TheNAVisequaltothecurrentmarketvalueofsecuritiescontainedintheportfoliolesstheliabilitiesdividedbythenumberofsharesoutstanding.
87.(p.433)A loadfundisamutualfundinwhichinvestorspayacommissionevery timetheypurchase shares.Ano-load fundisamutual fundinwhichtheindividualinvestorpaysnosaleschargewhensharesarepurchased;however,itmaychargea12b-1feeupto.25%ofitsassets.
Foradescriptionofeachtypeoffund,seethesection"ClassificationofMutualFunds."
•Sociallyresponsiblefundsavoidinvestingincompaniesthatmaycauseharmtopeople,animals,ortheenvironment.
•Small-capfundsinvestinsmaller,lesswell-knowncompanieswithtotalcapitalizationoflessthan$2billion.
•Sectorfundsinvestincompanieswithinthesameindustry.
•Regionalfundsseektoinvestinstocktradedwithinonespecificregionoftheworld.
•Midcapfundsinvestinthestocksofcompanieswithtotalcapitalizationof$2billionto$10billion.
•Large-capfundsinvestinthestocksofcompanieswithtotalcapitalizationof$10billionormore.
•InternationalfundsinvestinforeignstockssoldinsecuritiesmarketsthroughouttheworldoutsidetheUnitedStates.
•IndexfundsinvestinthesamecompaniesincludedinanindexlikeStandardPoor's500stockindex,theDowJonesIndustrialAverage,ortheNASDAQ100Index.
•Growthfundsinvestinwell-establishedcompaniesexpectinghigher-than-averagerevenueandearningsgrowth.
•Globalstockfundsinvestinstocksofcompaniesthroughouttheworld,includingtheUnitedStates.
•Equityincomefundsinvestinstocksissuedbycompanieswithalonghistoryofpayingdividends.
•Aggressivegrowthfundsseekrapidgrowthbypurchasingstocksofsmall,growthcompanieswhosepricesareexpectedtoincreasedramaticallyina shortperiod oftime.
88.(p.438)Allofthefollowing are stock funds:
89.(p.439)Asociallyresponsiblefundavoidsinvestingincompaniesthatmaycauseharmtopeople,animals,andtheenvironment.Typicallythesefundsdonotinvestincompaniesthatproducetobacco,nuclearenergy,orweapons,nordotheyinvestincompaniesthathaveahistoryofdiscrimination.Insteadtheyinvestincompaniesthathaveahistoryofmakingethicaldecisions,establishingeffortstoreducepollution,andothersociallyresponsibleactivities.
90.(p.439)Abalancedfundinvestsinbothstocksandbonds.Itsprimaryobjectiveisconservingprincipal,providingincome,andprovidinglong-termgrowth.
91.(p.440)Afamilyoffundsexistswhenoneinvestmentcompanymanagesagroupofmutualfundswhereeachfundwithinthefamilyhasadifferentfinancialobjective.Theinvestmentmayofferexchangeprivilegeswithinthefamilyandtheconvenienceofswitchinginvestmentswithinthefamily.
92.(p.440)Lifestyle,orlifecycle,fundshaveanassetallocationthatchangesthroughtime.Initiallythesefundsinvestinmorerisk-orientedsecurities(stocks)andthenbecomeincreasinglyconservativeandincome-oriented(bondsandCDs).Theyarepopularwhenaninvestorisplanningforretirementbyaspecificdate.
93.(p.441)Ifyouwouldhaveknownthataneconomiccrisiswascoming,youwouldhavechangedyourinvestmentstobemoreconservativeinordertoconserveyourinvestmentdollarsandminimizeyourlosses.
94.(p.441)Anindexfundhasamanager;however,hisorherresponsibilityisto"mirror"theunderlyingindex.Therefore,theindexfundispassivelymanaged.Othermutualfundshaveprofessionalmanagerswhoseresponsibilityistoactivelymanagethefundtoearnreturns.Also,theexpenseratioforanindexfundissmallerwhencomparedtotheexpenseratioformanagedfunds.
95.(p.441)Agoodfundmanagerhastheabilitytoincreasesharevaluewhentheeconomyisgoodandretainthatvaluewhentheeconomyisbad.
96.(p.441)Indexfundsoutperformmanaged fundsasoftenas50-80%ofthetime.Twofactorsaccountfor anindexfund'sperformance.First,indexfundsareamirrorimageofanindex.Historically,anindexliketheStandardandPoor's500stockindexoutperformsmostmanagedfunds.Second,indexfundshavelowerexpenseratiosthanmanagedmutualfunds,whichcanmakeasignificantdifferenceinthevalueoftheinvestmentoveralongperiod.
•Adescriptionofservicesprovidedtoinvestorsandfeesforservices,ifany.
•Theprocessan investorcan usetobuyorsell sharesinthefund.
•Howoftenthefund'sinvestmentportfoliochanges.
•Limitationsorrequirements,ifany,thefundmusthonorwhenchoosinginvestments.
•Thefund'smanagement.
•Dividends,distribution,andtaxes.
•Informationabout
•Astatementdescribingthetypeofinvestmentscontainedinthefund'sportfolio.
•Adescriptionofthefund'spastperformance.
•Astatementdescribingtheriskfactorassociatedwiththefund.
•Afeetablesummarizingthefeesafundcharges.
•Thefund'sobjective.
97.(p.446)A prospectusincludes
98.(p.450)Incomedividends,capitalgaindistributions,andcapitalgains.
99.(p.452)YoushouldholdyourmutualfundinaRothindividualretirementaccount.
100.(p.452)Reinvestedincomedividendsaretaxableandmustbereportedonafederaltaxreturnascurrentincomeintheyeartheyareearned.
101.(p.452)Theturnoverratiomeasuresthepercentageofafund'sholdingsthathavechangedor"beenreplaced"duringa12-monthperiod.Itis ameasureofafund'stradingactivity.Unlessyouareusingthefundina401(k)or403(b)retirementaccountorsometypeofindividualretirementaccount,amutualfundwithahighturnoverratiocanresultinhigherincometaxbills.
13SummaryCategory / #ofQuestions
Blooms:Analyze / 8
Blooms:Apply / 7
Blooms:Evaluate / 1
Blooms:Remember / 49
Blooms:Understand / 36
Difficulty:1Easy / 12
Difficulty:2Medium / 71
Difficulty:3Hard / 18
Kapoor-Chapter13 / 101
LearningObjective:13-01Explainthecharacteristicsofmutualfundinvestments. / 40
LearningObjective:13-02Classifymutualfundsbyinvestmentobjective. / 21
LearningObjective:13-03Evaluatemutualfunds. / 22
LearningObjective:13-04Describehowandwhymutualfundsareboughtandsold. / 18
Topic:ClassificationsofMutualFunds / 21
Topic:HowtoMake aDecisionto BuyorSellMutual Funds / 22
Topic:TheMechanicsofaMutualFundTransaction / 18
Topic:WhyInvestorsPurchaseMutualFunds / 40
14
Student:
1.Thebesttimetobeginplanningforretirementisatage27.TrueFalse
2.AnnabelleworksatAcmeCleaningCompany.Whensheretires,heremployer'shealthinsuranceplanandMedicareshouldcoverallofhermedicalexpenses.
TrueFalse
3.BruceandChristopherarebothretiringfromBestConditioningCompany.Theybothshouldhavethesameamountofmoneyintheirretirementfundsregardlessofthelifestyletheyexpectduringretirement.
TrueFalse
4.Cindy'snetworthshouldincreaseeachyearasshemovesclosertoherretirement.TrueFalse
5.Housingandlifeinsurancearesoimportanttoyourretirementincomethatotherinvestmentscanbeignoredasyoureviewyourassets.
TrueFalse
6.WhenDonretires,histransportationexpenseswilllikelyincrease.TrueFalse
7.Becauseofthepotentialeffectofinflation,individualsshouldunderestimatetheamountofmoneyneededforretirement.
TrueFalse
8.Thefourprimarysourcesofretirementincomeareemployerpensionplans,personalretirementplans,annuities,andpublicpensionplans.
TrueFalse
9.Abenefitofanemployerpensionplanisthattaxesareeliminated.TrueFalse
10.Anexampleofadefinedcontributionplanisastockbonusplan.TrueFalse
11.Asalaryreductionplanforanonprofitorganizationiscalleda401(k)plan.TrueFalse
12.Loraisafull-timeemployeeatHarley-DavidsonInc.Sheshouldbeeligibletoparticipateinthecompany's401(k)plantosaveforretirement.
TrueFalse
13.Adefinedbenefitplanspecifiesthebenefitsthatyouwillreceiveatretirementage.TrueFalse
14.WhenSocialSecuritywasestablished,itwasintendedtoprovidelessthan100%ofone'sretirementincome.
TrueFalse
15.SocialSecuritycovers97%ofallworkersinAmerica.TrueFalse
16.AboutoneoutofeverythreeAmericanscurrentlycollectssomeformofSocialSecuritybenefit.True False
17.OnlypeoplewhoareretiredcanreceiveabenefitfromSocialSecurity.TrueFalse
18.Ifyouwerebornin1960orlater,youwillfirstbecomeeligibletoreceiveSocialSecuritybenefitsatage67.
TrueFalse
19.Eightyearsago,ThomasbeganinvestinginhisRothIRA.Heisnowpurchasinghisfirsthome.HemaywithdrawsomemoneyfromhisRothIRAtax-freeandpenalty-freeforthispurchase.
TrueFalse
20.TheSEPIRAisthesimplesttypeofretirementplanifapersonisself-employed.TrueFalse
21.WhenPaulleaveshisjobatAcmeBendingCompany,hemaychoosetomovehis401(k)balancetoaplancalledarolloverIRA.
TrueFalse
22.Thelongermoneyaccumulatestax-deferred,thebiggerthebenefit.TrueFalse
23.Retirementmeansthatyouwillneverworkagain.TrueFalse
24.Peopleshouldneverdipintotheirsavingsinretirement.TrueFalse
25.Yourestateconsistsofeverythingyouown.TrueFalse
26.Estateplanningisimportantforfinancialplanningbutnotforretirementplanning.TrueFalse
27.Ifyouaresingle,youshouldnothavebeneficiaries.TrueFalse
28.Everyadultshouldhaveawrittenwill.TrueFalse
29.Ifyoudieintestate,yourbeneficiarieswillreceiveyourestate.TrueFalse
30.Atraditionalmaritalsharewillleaveseverythingtoyourspouse.TrueFalse
31.Atraditionalmaritalsharewillhassomeassetsgoingintoatrusttoprovideyourspouselifelongincomethatwillnotbetaxed.
TrueFalse
32.Astatedamountwillidentifiestheamountthatwillnotgotoyourspouse.TrueFalse
33.Ifawillisfoundtobeinvalid,theresultiscalledin-probate.TrueFalse
34.Probateisashort,quickprocess.TrueFalse
35.Aholographicwillhasaholographicsealtoproveitsauthenticity.TrueFalse
36.Aholographicwillislegalinallstates.TrueFalse
37.Astatutorywillisonethatispreparedwiththehelpofanattorney.TrueFalse
38.Ifyouaremarried,yourestatewillautomaticallypasstoyourspouse.TrueFalse
39.Onlyonewillmaylegallybewrittenduringaperson'slifetime.TrueFalse
40.Changestoawillshouldbewrittenininkonthewillandinitialed.TrueFalse
41.Apowerofattorneyshouldhandletheestateofadeceasedperson.TrueFalse
42.Acopyofyourlivingwillshouldbedistributedtoyourfamilydoctor.TrueFalse
43.Anothernameforawillisaletteroflastinstruction.TrueFalse
44.Arevocabletrustcannotbechangedorended.TrueFalse
45.Adisclaimertrustisappropriateforcoupleswhodonotyethaveenoughassetstoneedacreditsheltertrust.
TrueFalse
46.Anintervivostrusttakeseffectwhileyou'realive.TrueFalse
47.Atestamentarytrusttakeseffectwhileyou'realive.TrueFalse
48.Anindividualcangiveawayupto$13,000peryearbeforepayinganinheritancetaxtotheIRS.True False
49.Whenthinkingaboutretirement,whichofthefollowingiscorrect?
A.You'llspendlessmoneywhenyouretire.
B.Savingjustalittlebitwon'thelp.
C.YoucandependonSocialSecurityandacompanypensionplantopayyourbasiclivingexpenses.
D.Theearlieryoustartsaving,thebetter.
E.Yourpensionbenefitswillincreasetokeeppacewithinflation.
50.Whenplanningforretirement,youshouldreview
A.Housing.
B.Lifeinsurance.
C.Investments.
D.Assets.
E.Allofthese.
51.Whenplanningforretirement,
A.Amortgageshouldnotaffectyourfinancialplanning.
B.Investmentsshouldbeevaluatedtodeterminewhethertheirincomecanhelpcoverlivingexpenses.
C.Keepingyourcurrent,largehousewillbecheapertomaintainthanamovetoasmallerhouse.
D.Lifeinsuranceshouldbeavoided.
E.Allofthesearetrue.
52.Accordingtothetext,whichofthefollowingwillprobablybeyourmostvaluableassetatretirement?
A.Automobile.
B.House.
C.Investments.
D.Lifeinsurance.
E.Allofthese.
53.Whatstepsshouldbetakeninretirementplanning?
A.Conductafinancialanalysis.
B.Estimateretirementlivingexpenses.
C.Exceedbudgetamountsforspending.
D.Conductafinancialanalysisandestimateretirementlivingexpenses.
E.Allofthesearecorrect.
54.An"average"olderhouseholdspendsmostofitsmoneyon
A.Entertainment.
B.Food.
C.Housing.
D.Medicalcare.
E.Transportation.
55.An"average"olderhouseholdspendsmoremoneyon
A.Clothingthanonhousing.
B.Contributionsthanonmedicalcare.
C.Entertainmentthanontransportation.
D.Housingthanoncontributions,entertainment,andclothingcombined.
E.Personalinsurancethanonfood.
56.Whenyouretire,youwillprobablyspendlessmoneyon
A.Clothing.
B.Healthinsurance.
C.Medicalcare.
D.Recreation.
E.Allofthese.
57.Whenyouretire,youwillprobablyspendmoremoneyon
A.Clothing.
B.Transportation.
C.Taxes.
D.Healthinsurance.
E.Allofthese.
58.Whenplanningforretirement,inflation
A.Decreasesthroughretirement.
B.Shouldbeignoredsinceitwillhavenoeffectonretirementfunding.
C.Shouldbeconsideredsinceincomereceivedearlierinretirementwillbuymorethanthesameamountreceivedlaterinretirement.
D.Isunimportantsincepensionincomedoesnotchangeinretirement.
E.Shouldberecognizedsinceitwillincreasethevalueofincomereceivedinretirement.
59.Whichofthefollowingisnotasourceofretirementincome?
A.Annuity.
B.Employerpensionplan.
C.Personalretirementplan.
D.Publicpensionplan.
E.Allofthesearesourcesofretirementincome.
60.Allofthefollowingareexamplesofdefinedcontributionplansexcept
A.Definedbenefitplan.
B.Money-purchaseplan.
C.Profit-sharingplan.
D.Salaryreductionplan.
E.Stockbonusplan.
61.Whenanemployerpromisestosetasideacertainamountofmoneyforeachemployeeeachyear,ithassetupa
A.Definedbenefitplan.
B.Money-purchaseplan.
C.Profit-sharingplan.
D.Salaryreductionplan.
E.Stockbonusplan.
62.Asalaryreductionplanisalsoknownasa
A.401(k)plan.
B.Money-purchaseplan.
C.Profit-sharingplan.
D.Salaryreductionplan.
E.Stockbonusplan.
63.Whenanemployer'scontributionisusedtobuystockinthecompanyforitsemployees,ithasa
A.401(k)plan.
B.Money-purchaseplan.
C.Profit-sharingplan.
D.Salaryreductionplan.
E.Stockbonusplan.
64.Anemployer'scontributionwillvaryaccordingtothecompany'sprofitsina
A.401(k)plan.
B.Money-purchaseplan.
C.Stockbonusplan.
D.Profit-sharingplan.
E.Salaryreductionplan.
65.Anemployermaychoosetomatchmoneyemployeesinvestina
A.401(k)planorasalaryreductionplan.
B.Money-purchaseplan.
C.Stockbonusplan.
D.Profit-sharingplan.
E.Individualretirementaccount.
66.Vestingistherighttoreceivethe
A.Employer'scontributionstoapensionplan.
B.401(k)contributionsmadebytheemployee.
C.Employee'scontributionseachpayperiod.
D.Portableemployeebenefitsfromadefinedbenefitplan.
E.Employeeofthemonthawardatacompanythatmakeslifejackets.