Chapter 11 Review

  1. Tax-exempt bonds offer slightly higher interest rates than corporate bonds.
  2. True
  3. False
  4. Which of the following statements is not true?
  5. When establishing an investment program, you should begin by establishing your investment goals.
  6. When you are choosing an investment, you should examine the risk factor associated with each investment.
  7. When establishing an investment program, you should examine the potential return offered by different investment alternatives.
  8. Leave the financial planning to the professionals.
  9. Continue to evaluate the investments contained in your investment plan.
  10. Which of the following investments offers the greatest growth potential?
  11. Bank accounts
  12. Common stock
  13. Corporate bonds
  14. Government bonds
  15. Option bonds
  16. Which of the following is not a true statement?
  17. No one is going to make you save the money you need to start an investment program.
  18. To be useful, investment objectives must be specific and measurable.
  19. Investment goals must be tailored to the particular financial needs of the individual.
  20. Because investment objectives deal with the future, it is useless to plan more than five years in the future.
  21. A long-term investment objective involves a time period of five years or more.
  22. Which of the following statements is true?
  23. Convertible corporate bonds are more secure than government bonds.
  24. Convertible bonds often pay 1 to 2 percent more interest than nonconvertible bonds.
  25. Because of the conversion feature, it is not necessary to evaluate convertible, corporate bonds.
  26. In reality, there is no guarantee that bondholders will convert to common stock even if the market value of the common stock does increase in value.
  27. Even if convertible bondholders convert their investment to common stock, the bondholders still receive interest payments.
  28. Earnings that are reinvested in a corporation are called
  29. retained earnings.
  30. surplus earnings.
  31. retention capital.
  32. additional capital.
  33. collected capital.
  34. Generally, U.S. government securities issued by the Treasury Department
  35. Are not graded because they are risk free for practical purposes.
  36. Receive the Standard & Poor’s AAA rating.
  37. Receive Moody’s Aaa rating.
  38. Receive the Wall Street Journal’s U.S. Government rating.
  39. Receive the Treasury Department’s “risk-free” rating.
  40. A bond backed by the full faith, credit, and unlimited taxing power of the government that issues it is called a ____ bond.
  41. debenture
  42. mortgage
  43. secured
  44. general obligation
  45. revenue
  46. The risk of business failure is associated with investments in stock and corporate bonds.
  47. True
  48. False
  49. Investment growth means that investments will increase in value.
  50. True
  51. False
  52. A bond that is backed only by the reputation of the issuing corporation is called a(n) ____ bond.
  53. debenture
  54. mortgage
  55. indenture
  56. preemptive
  57. treasure
  58. An emergency fund is a certain amount of money that can be obtained quickly in case of immediate need.
  59. True
  60. False
  61. There is no relationship between risk and safety.
  62. True
  63. False
  64. An individual can reduce the amount of risk associated with an investment program by using
  65. an investment timer.
  66. asset allocation.
  67. a portfolio picker.
  68. speculative investments.
  69. a personal investment notebook.
  1. Sandra Peterson has been thinking about investing in corporate bonds. She is concerned about safety and wants the most secure bond investment possible. She would most likely invest in ____ bonds.
  2. debenture
  3. mortgage
  4. indenture
  5. convertible
  6. subordinated
  7. Liquidity is the ease with which an asset can be converted to cash without a substantial loss in dollar value.
  8. True
  9. False
  10. The decision to establish an investment plan is an important first step to accomplishing your financial goals.
  11. True
  12. False
  13. A government security issued in minimum units of $1,000 with a 10-year to 30-year maturity is called a
  14. subordinated bond.
  15. treasury bill.
  16. treasury note.
  17. treasury bond.
  18. savings bond.
  19. A bond with a price quotation of 73 sells for $73.
  20. True
  21. False
  22. For Moody’s and Standard & Poor’s, the first four bond-rating categories represent investment grade securities.
  23. True
  24. False

Chapter 11 Review

Personal Finance 1200-C