True / False Questions
1. (p. 417-419) The potential return of any investment should be directly related to the risk
that the investor assumes. TRUE
2. (p. 422) When investing in global investments, changes in the currency exchange rate
may affect the return on your investment. TRUE
3. (p. 423) Liquidity is the ease with which an asset can be converted to cash without a
substantial loss in dollar value. TRUE
4. (p. 424) Because of the growth potential, stocks or mutual funds that invest in stocks
should be the only type of securities included in the investment portfolio for most people.
FALSE
5. (p. 424) Asset allocation is the process of spreading your assets among several different
types of investments to lessen risk. TRUE
6. (p. 426) Because of the age factor, most young investors tend to invest a large
percentage of their nest egg in growth-oriented investments. TRUE
7. (p. 428) Preferred stock represents the most basic form of corporate ownership. FALSE
8. (p. 428) Bondholders generally receive interest payments every six months. TRUE
9. (p. 428-429) Mutual funds range from very conservative to extremely speculative
investments. TRUE
10. (p. 430-431) Once you have painstakingly developed a financial plan, it is not wise to
change it. FALSE
Multiple Choice Questions
11. (p. 413) Eric Peltz earns $80,000 a year. His monthly expenses total $4,300. What is
the minimum amount of money that Mr. Peltz should set aside in an emergency fund?
A. $2,150
B. $4,300
C. $8,600
D. $12,900
E. $43,000
12. (p. 414-416) Twenty years ago, you began investing $2,000 a year. Because your
investments earned an average of 8 percent a year, your investment portfolio has a current
dollar value of $92,000. How much did you earn on your investments over the 20-year
period of time?
A. $2,000
B. $40,000
C. $52,000
D. $92,000
E. $132,000
13. (p. 421) A $1,000 corporate bond pays 6.5 percent a year. What is the annual interest
you will receive each year?
A. $0.65.
B. $6.50.
C. $65
D. $1,060.50
E. $1,065
14. (p. 423) The ease with which an investment can be converted to cash without a
substantial loss in dollar value is called the:
A. asset value.
B. liquidity factor.
C. immediate quotient.
D. fixed cost factor.
E. variable cost factor.
15. (p. 424) Terry Hamilton has just received $30,000 from an uncle who died and is trying
to decide how to invest it. She has done some research has decided that about 30% of the
money should go into large cap stocks, 20% into medium cap stocks, 15% into small cap
stocks, 10% into bonds, 10% into foreign stocks and 15% into cash. She thinks that even if
