11. Investment Planning
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40. When you buy 300 shares of a company, you have purchased a(n):
a. odd lot.
b. round lot.
c. combined lot.
d. even lot.
e. prime lot.
41. Discount brokers will:
a. charge low commissions.
b. give a commission to the investment bankers.
c. issue a prospectus of the new issue in the primary market.
d. provide finances to underwrite the shares issued for the first time.
e. maintain a minimum balance of unsold shares of loss-making corporations.
42. A market order is transacted at the:
a. lowest price of the day.
b. best price when the order is entered.
c. limit price.
d. price quoted by the broker.
e. average price of the stock on the transaction day.
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43. Instructing your broker to buy or sell a stock at a particular price is a:
a. limit order.
b. market order.
c. margin order.
d. regular order.
e. stop order.
44. Which of the following is a characteristic of a stop-loss order?
a. The stop-loss order is the quickest way to have an order filled.
b. The stop-loss order allows buy orders to be filled at the lowest price.
c. The stop-loss order allows stocks to be purchased at the current market price.
d. The stop-loss order sells a stock when the market price drops below a specified price.
e. The stop-loss order is used to buy stocks at a 10% margin.
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45. _____ is a process to settle disputes between a brokerage firm and its clients.
a. Diversification
b. Estate planning
c. Arbitration
d. Asset allocation
e. Portfolio tracking
46. The _____ reflects the total market value of over 98 to 99% of all publicly traded stock in the United States.
a. Dow Jones Industrial Average Index
b. Standard & Poor 500 Index
c. National Association of Securities Dealers Automated Quotations Index
d. Dow Jones Wilshire 5000 Index
e. New York Stock Exchange Index
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47. Which of the following sections in the annual report gives information on ongoing litigation?
a. The chief executive’s letter
b. Management’s discussion and analysis
c. Income statement
d. Auditor’s report
e. Notes about the financial statements
48. An _____ provides financial and descriptive information about a firm’s operations in the recent past to the internal and
external interested parties.
a. annual stockholders’ report
b. annual tax report
c. annual portfolio report
d. annual research report
e. annual education report
49. A collection of securities assembled to meet common investment goals is called a(n):
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a. treasury.
b. diversification.
c. grouping.
d. envelope.
e. portfolio.
50. A diversified portfolio of securities is characterized by:
a. dissimilar risk–return characteristics of the financial instruments.
b. concentration on a single industry which has the highest growth rate.
c. erratic loss potential due to investment in the latest financial vehicles.
d. unstable earnings for the entire investment horizon.
e. investing on a single security which has the lowest risk and the highest returns.
51. Which of the following best describes portfolio management?
a. The management of a marketplace in which stocks, bonds, and other financial instruments are traded
b. A procedure used to settle disputes between a brokerage firm and its clients, which makes a final and usually
binding decision on the matter
c. The management of an agency of the federal government that regulates the disclosure of information about
securities and generally oversees the operation of the securities exchanges and markets
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d. The process of creation of a document that is made available to prospective security buyers that describes the firm
and a new security issue
e. The buying, selling, and holding of various securities in order to meet a set of predetermined investment needs
and objectives
52. A portfolio manager created a portfolio containing 80% common stocks, which would be appropriate for:
a. John and Vanessa, a retired couple who need a stable return.
b. Michelle, a divorced middle-aged mother who needs a high current income.
c. Meredith and Joe, a blue-collar, two-income family with five children.
d. Ramone, a young worker with a secure job putting money aside for retirement.
e. Antonio and Lora, a couple in their mid-50s with dependent parents.
53. Which of the following characteristics of an investor should be evaluated to formulate an effective portfolio strategy?
a. Level of professional investment knowledge
b. Interest in specific activities
c. Level and stability of income
d. Level of Internet skills
e. Judgment skills to buy and sell securities
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54. A young investor with a secure job is:
a. more concerned about current income.
b. more able to bear risk.
c. less oriented toward investments with capital gains.
d. less aggressive when investing.
e. more skillful in tax preparation.
55. Maria has invested $200,000 in mutual funds and $20,000 in bonds. The total value of her portfolio is:
a. $220,000.
b. $130,000.
c. $250,000.
d. $400,000.
e. $310,000.
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56. Mathew purchased 100 shares of Blue Corporation for $100 per share. Currently, the stocks of Blue Corporation are
trading at $150. Which of the following is the return on Mathew’s investment in one share?
a. 65%
b. 50%
c. 75%
d. 80%
e. 40%
57. Clara’s portfolio is worth $200,000, and her portfolio consists of common stocks worth $56,000. Therefore, equity
constitutes _____ of Clara’s portfolio.
a. 10%
b. 33%
c. 28%
d. 56%
e. 61%
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58. The first thing you need to determine in order to reach an investment goal after accumulating the capital is the:
a. rate of return.
b. rate of savings.
c. rate of inflation.
d. rate of consumption.
e. rate of interest.
59. Retired people prefer an investment offering:
a. high current income at low risk.
b. low current income at low risk.
c. high current income at high risk.
d. low current income at high risk.
e. variable income at variable risk.
60. Ownership in a corporation would be represented by:
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e. prospectuses.
61. The owner of a bond would expect to receive _____ annual income.
a. an increasing
b. a steady
c. a decreasing
d. an erratic
e. no
62. _____ have no maturity date.
a. Common stocks
b. Bonds
c. Corporate deposits
d. Insurance policies
e. Equity loans
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63. A fixed dividend would be received with:
a. common stocks.
b. preferred stocks.
c. bonds.
d. insurance policies.
e. real estate investments.
64. A convertible bond would let the investor exchange it for:
a. common stock.
b. preferred stock.
c. a mutual fund.
d. an exchange traded fund.
e. an exchange traded note.
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65. _____ is one of the most frequent investment objectives of an individual.
a. Exceeding the credit limit
b. Obtaining a loan
c. Paying more taxes
d. Enhancing current income
e. Business expansion
66. The Securities and Exchange Commission was established as a result of the:
a. Investment Company Act of 1940.
b. Securities Exchange Act of 1934.
c. Securities Exchange Commission Act of 1940.
d. Sarbanes-Oxley Act of 2002.
e. Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010.
1934. See 11–2: Securities Markets.
67. _____ contains the Volcker Rule, which prohibits depository banks from proprietary trading.
a. The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010
b. The Sarbanes-Oxley Act of 2002
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c. The Investment and Exchanges Regulation and Protection Act of 2005
d. The Patrick-Miller Exchange Regulation and Protection Act of 2011
e. The Maloney Act of 1938
68. The Dow Jones Industrial Average is based on:
a. 50 stocks.
b. 30 stocks.
c. 500 stocks.
d. 200 stocks.
e. 100 stocks.
69. The _____ is based on 500 different stocks.
a. Standard & Poor’s index
b. Dow Jones Industrial Average
c. New York Stock Exchange index
d. Wall Street Commercial Average
e. NASDAQ
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70. _____ is the process of analyzing the performance of the securities held by an investor.
a. Portfolio tracking
b. Investor trading
c. Index pegging
d. Securities building
e. Value reporting
71. _____ involves dividing a portfolio among different classes of securities in order to preserve the capital by protecting
the portfolio against negative market developments.
a. Arbitration
b. Asset allocation
c. Portfolio tracking
d. Estate planning
e. Investor management
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72. The _____ of securities in a worksheet of investments will be the most helpful in calculating the cumulative return on
investments.
a. type
b. market value
c. description
d. date of purchase
e. names
73. Monte wants to save for his daughter’s college education. He would like to have $85,000 in 15 years. If Monte can
earn an average of 8.5% on this fund, how much would he need to deposit in the account today to meet his goal? If Monte
has $5,000 set aside now and can earn an average of 8.5% on this fund, how much would he need to add to the account
each month? (Round to the nearest whole number.)
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74. You have inherited $250,000. You have decided that since you don’t need the money currently, you should invest the
money in order to meet future expenses. After seeking advice, you decide on an asset allocation plan that puts 10% in
short-term securities, 75% in equities, and 15% in bond funds. How much money would you put in each category? (Show
all work.)