11. Investment Planning
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1. Mutual funds provide professional management and diversification that individual investors—especially those with
limited resources—can rarely obtain on their own.
a. True
b. False
2. When completed, an investment plan is a way of translating an abstract investment target into a specific investment
program.
a. True
b. False
3. Your goals tend to set the tone for your investment program, and they play a major role in determining how
conservative or aggressive you’re likely to be in making investment decisions.
a. True
b. False
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4. Common stocks are liabilities.
a. True
b. False
5. Exchange traded notes (ETN) face both market risk and the risk of default of the issuing bank.
a. True
b. False
6. Reviewing the amounts of income that you can realistically expect to receive from Social Security and your employee
pension helps you to decide whether they will be adequate to meet your needs.
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a. True
b. False
7. The goal of sheltering income from taxes is an illegitimate goal.
a. True
b. False
8. The New York Stock Exchange (NYSE) is a part of the broker market.
a. True
b. False
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9. The over-the-counter market is a primary market.
a. True
b. False
10. A corporation’s annual stockholders’ report provides financial data and other information related to both past and
planned activities.
a. True
b. False
11. The financial ratios of a company are included in its annual stockholders’ report.
a. True
b. False
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14. Online calculators and worksheets can help you find answers to financial planning and investing questions.
a. True
b. False
15. Online trading is financially safer than trading with a human broker.
a. True
b. False
16. Diversification of investment securities increases risk.
a. True
b. False
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17. A retired couple can probably bear more risk in their portfolio than a young investor with a secure job.
a. True
b. False
18. There is generally a trade-off between earning a high current income from an investment and obtaining significant
capital appreciation from it.
a. True
b. False
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19. Security selection to satisfy an asset allocation plan is final.
a. True
b. False
20. Reallocation of the assets in a portfolio is called rebalancing.
a. True
b. False
21. _____ is a risky short-term investment activity.
a. Purchasing life insurance
b. Buying real estate
c. Speculating in securities
d. Investing in mutual funds
e. Systematically saving for retirement
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22. The most important investment prerequisites are:
a. ample income and debt.
b. ample income and confidential information.
c. ample insurance and liquidity.
d. an investment plan and a nonmonetary goal.
e. inconsistency and risk awareness.
23. You have been offered an opportunity to buy shares of a collection of diversified securities. You will be investing in:
a. bonds.
b. common stocks.
c. mutual funds.
d. real estate.
e. stock options.
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24. _____ are senior, unsecured, unsubordinated debt securities issued by an underwriting bank.
a. Mutual funds
b. Exchange traded notes
c. Corporate bonds
d. Collateral debt obligations
e. Treasury bills
25. Which of the following statements regarding bonds is true?
a. Bonds are liabilities of the issuer.
b. Individuals investing in bonds receive dividends.
c. Bonds cannot be purchased or sold prior to maturity.
d. Income from bonds varies every year.
e. The principal invested in bonds is not returned at the time of maturity.
26. James purchased five bonds with a face value of $1,000 that paid 5% annual interest rate. The total annual interest
income of James for each year is:
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a. $50.
b. $175.
c. $250.
d. $100.
e. $500.
27. Megan invested in 10 bonds with a total face value of $5,000, issued by Zen Corporation. The bonds paid 10%
semiannual interest till the maturity date. Which of the following is the value of interest earned in the first installment on a
single bond?
a. $50
b. $100
c. $500
d. $250
e. $75
28. Which of the following is a difference between an exchange traded fund (ETF) and a mutual fund?
a. An ETF is a fixed income instrument, whereas a mutual fund is a variable income instrument.
b. An ETF can only be traded at the end of the day, whereas a mutual fund can be bought or sold throughout the
trading day.
c. An ETF provides more favorable tax treatment than a mutual fund.
d. An ETF is a convertible security, whereas a mutual fund is a nonconvertible security.
e. An ETF is a hybrid security, whereas a mutual fund is not a hybrid security.
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29. Which of the following is a characteristic of organized securities exchanges?
a. Organized securities exchanges facilitate the trading of unlisted securities with the issuer.
b. A prospectus is primarily traded in organized exchanges.
c. Organized securities exchanges commonly use pink sheets for trading.
d. Organized securities exchanges deal in mutual funds only.
e. Organized securities exchanges are also known as a broker market.
30. Which of the following securities or investment acts regulates the sale of mutual fund shares?
a. Securities Act of 1933
b. Securities and Exchange Act of 1934
c. Investment Company Act of 1940
d. Sarbanes-Oxley Act of 2002
e. Securities and Protection Act of 1970
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31. A bull market is characterized by:
a. investor optimism.
b. low returns.
c. economic slowdown.
d. falling stock prices.
e. lack of growth.
32. A bear market condition is associated with:
a. investor optimism.
b. declining securities prices.
c. economic recovery.
d. increased tax rate.
e. high returns.
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33. The new securities sold in primary markets are handled by a(n):
a. security exchange council.
b. dealer.
c. investment banker.
d. credit bureau.
e. insurance agent.
34. The federal government regulates the disclosure of information about securities through the:
a. Department of Commerce.
b. Federal Reserve System.
c. National Association of Securities Dealers.
d. Securities and Exchange Commission.
e. Federal Securities Agency.
35. When a trade occurs in a securities exchange:
a. the buyer purchases directly from the seller.
b. the dealer executes the trade.
c. an investment banker arranges the trade.
d. the Securities Exchange Commission executes the trade.
e. the central bank guarantees the sale.
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38. Stockbrokers are also known as:
a. market makers.
b. account executives.
c. underwriters.
d. commission sellers.
e. traders.
39. The Securities Investor Protection Corporation (SIPC) provides insurance to protect the investor from:
a. declining security prices.
b. the company’s failure to make dividend payments.
c. a brokerage firm’s financial failure.
d. the loss of the marginal investment on the stock exchange.
e. the loss of the security deposit with the broker.