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Chapter 11—Investment Planning
1. Investing is considered a short-term activity that involves the buying and selling of securities.
a.
True
b.
False
2. Investing and speculating are two entirely different activities.
a.
True
b.
False
3. 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
4. A systematic investment routine involves investing similar sums in regular intervals.
a.
True
b.
False
Chapter 11—Investment Planning
5. When completed, an investment plan is a way of translating an abstract investment target into a specific investment
program.
a.
True
b.
False
6. The term "investment' refers to money placed in some medium where value and level of return are totally
unpredictable.
a.
True
b.
False
7. Once you meet the conditions of ample insurance and liquidity, you’re ready to start investing.
a.
True
b.
False
8. A statement specifying how investment capital will be invested in order to reach targeted goals is called a marketing
plan.
a.
True
b.
False
Chapter 11—Investment Planning
9. 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
10. The major reason most people invest is to shelter current income from taxes.
a.
True
b.
False
11. Owning common stock represents a debt investment.
a.
True
b.
False
Chapter 11—Investment Planning
12. Common stock pays interest payments on a quarterly basis.
a.
True
b.
False
13. Common stock generally allows the stockholder an equal vote in electing the management of the corporation.
a.
True
b.
False
14. Securities may be traded in the primary market only once.
a.
True
b.
False
15. Newly issued securities are sold to the public in the secondary market.
a.
True
b.
False
Chapter 11—Investment Planning
16. A prospectus describes the firm and the issue of a new security.
a.
True
b.
False
17. The New York Stock Exchange is a dealer market.
a.
True
b.
False
18. Preferred stocks are the common stocks of ultra blue-chip companies.
a.
True
b.
False
19. Convertible securities provide the fixed income features of bonds while offering the price appreciation potential of
common stock.
a.
True
b.
False
Chapter 11—Investment Planning
20. Mutual funds often sell directly to investors.
a.
True
b.
False
21. A stockbroker buys and sells securities on behalf of clients.
a.
True
b.
False
22. The Securities Investor Protection Corporation insurance guarantees the dollar value of your securities will not dip
below a certain level.
a.
True
b.
False
Chapter 11—Investment Planning
23. A round lot consists of multiples of 100 shares of stock.
a.
True
b.
False
24. A sale of 450 shares of stock would involve the trade of an odd lot.
a.
True
b.
False
25. All OTC stocks are listed on the NASDAQ.
a.
True
b.
False
26. The bid price is the price paid by an investor for a stock.
a.
True
b.
False
Chapter 11—Investment Planning
27. The NASDAQ is now the second-largest broker market in the United States.
a.
True
b.
False
28. The federal government regulates securities markets through the Securities and Exchange Commission.
a.
True
b.
False
29. Prices are rising in bear markets, indicating economic optimism.
a.
True
b.
False
30. When a brokerage house gives a margin call, you need to provide more collateral or your investment will be
liquidated.
a.
True
b.
False
31. According to recent legislation, under the FDIC each brokerage account is insured up to $250,000.
a.
True
b.
False
32. An odd lot transaction is generally more expensive than a round lot transaction.
a.
True
b.
False
33. There are 50 shares in a round lot.
a.
True
b.
False
34. Brokers charge a commission on security purchases as well as on security sales.
a.
True
Chapter 11—Investment Planning
b.
False
35. Discount brokers discount the price of securities to below the prevailing market price.
a.
True
b.
False
36. You are covered through the SIPC for losses you incur due to the inept advice you receive from a brokerage firm.
a.
True
b.
False
37. A limit order may be used either to buy or to sell.
a.
True
b.
False
Chapter 11—Investment Planning
38. Buying on margin allows you to purchase securities using 100 percent borrowed funds.
a.
True
b.
False
39. The Federal Reserve Board sets the margin requirements on security purchases.
a.
True
b.
False
40. The SEC has the power to raise and lower the margin requirements for stock purchases.
a.
True
b.
False
41. A short sale transaction will be profitable when prices are falling.
a.
True
b.
False
Chapter 11—Investment Planning
42. The margin requirement for common stock is 50%.
a.
True
b.
False
43. Trading on margin can magnify both losses and profits.
a.
True
b.
False
44. A corporation's annual stockholders' report provides financial data and other information related to both past and
planned activities.
a.
True
b.
False
45. The most widely followed measure of stock market performance is the New York Stock Exchange Index.
a.
True
b.
False
Chapter 11—Investment Planning
46. The Standard and Poor's Index is based on 30 industrial stocks.
a.
True
b.
False
47. The NYSE index includes all stocks listed on the "big board."
a.
True
b.
False
48. The first step in asset allocation is selecting the specific securities that should go into your portfolio.
a.
True
b.
False
49. The Maloney Act contains the so-called Volcker Rule, which prohibits depository banks from proprietary trading.
Chapter 11—Investment Planning
a.
True
b.
False
50. A diversified portfolio is less risky than putting your money into a single security.
a.
True
b.
False
51. Diversification increases risk.
a.
True
b.
False
52. A retired couple can probably bear more risk in their portfolio than a young investor with a secure job.
a.
True
b.
False
Chapter 11—Investment Planning
53. 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
54. Once one's asset allocation plan is developed and securities are selected, these decisions do not have to be made again
until there is a major life change.
a.
True
b.
False
55. A portfolio is a collection of investment vehicles assembled to meet an investment goal.
a.
True
b.
False
56. The total return of a portfolio is influenced far more by specific security selection than asset allocation.
a.
True
b.
False
Chapter 11—Investment Planning
57. Portfolio rebalancing refers to buying and selling activities intended to return a portfolio to its target allocation levels.
a.
True
b.
False
58. Accumulating funds for the purchase of a home is the single most important reason for investing.
a.
True
b.
False
59. The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 is the most significant change in financial
regulation since the Great Depression.
a.
True
b.
False
60. The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 is designed to improve accountability and
transparency in the U.S. financial system.
a.
True
Chapter 11—Investment Planning
b.
False
61. In terms of market capitalization, Apple is the largest company in the world.
a.
True
b.
False
62. Based on a retired person's needs, one should choose investments offering high current income with high risk.
a.
True
b.
False
63. Exchange-traded notes (ETNs) face both market risk and the risk of the issuing bank defaulting.
a.
True
b.
False
64. ____ is a short-term investment activity.
a.
Buying life insurance
Chapter 11—Investment Planning
b.
Buying bonds
c.
Investing in common stock
d.
Speculating in common stock
e.
Saving
65. Which of the following is least likely to be an investment objective?
a.
enhance current income
b.
save for a major purchase
c.
pay monthly bills
d.
accumulate funds for retirement
e.
seek shelter from taxes
66. Which of the following is not a securities market?
a.
capital market
b.
money market
c.
primary market
d.
secondary market
e.
Dow Jones market
67. The Securities Investor Protection Corporation insures brokerage firm accounts up to
Chapter 11—Investment Planning
a.
$500,000 per account and $250,000 in cash
b.
$250,000 per account and $100,000 in cash
c.
$1,000,000 per account and $500,000 in cash
d.
$500,000 per account and $250,000 in cash
e.
$500,000 per account and $100,000 in cash
68. Which of the following securities/investment acts regulates the sale of mutual fund shares?
a.
The Securities Act of 1933
b.
the Securities and Exchange Act of 1934
c.
The Investment Company Act of 1940
d.
The Sarbanes-Oxley Act of 2002
e.
The Securities and Protection Act of 1970
69. During a bull market
a.
prices go up.
b.
prices go down.
c.
prices remain stable.
d.
investors are pessimistic.
e.
cattle futures perform well.
Chapter 11—Investment Planning
70. The most important investment prerequisites are
a.
adequate income and savings.
b.
adequate income and insurance.
c.
adequate insurance and liquidity.
d.
an investment plan and professional advice.
e.
consistency and risk awareness.
71. The most common reason given for investing is
a.
enhancing current income.
b.
saving for retirement.
c.
sheltering earnings from taxes.
d.
paying for an expensive vacation.
e.
saving for college education.
72. During a bear market, security prices generally
a.
hold value
b.
rapidly increase in value
c.
remain neutral
d.
decline in value
e.
consolidate in value
