Chapter 13 – Investing Fundamentals
1. (p. 424) The decision to establish an investment plan is an important first step to
accomplishing your financial goals.
2. (p. 426) Potential investors should not wait until they put their financial affairs in order before
starting to invest.
3. (p. 426) An emergency fund is an amount of money that can be obtained quickly in case of
immediate need.
Chapter 13 – Investing Fundamentals
4. (p. 426) A line of credit is a short-term loan that is approved before the money is actually
needed.
5. (p. 426) A credit ceiling on a credit card is determined by the borrower and is the dollar
amount that they want to borrow using the cash advance provision on their credit card.
6. (p. 428-429) The rate of return on an investment has no affect on a long-term investment
program.
Chapter 13 – Investing Fundamentals
7. (p. 430) There is no relationship between risk and safety.
8. (p. 432) The potential return of any investment should be directly related to the risk that the
investor assumes.
9. (p. 433) During inflationary times, there is a risk that the financial return on an investment will
not keep pace with the rate of inflation.
10. (p. 435) One risk associated with a global investment is the difficulty of obtaining reliable
accounting information needed to evaluate stocks issued by international companies.
Chapter 13 – Investing Fundamentals
11. (p. 435) When investing in global investments, changes in the currency exchange rate may
affect the return on your investment.
12. (p. 436) An investment that an investor expects will increase in value is known as a growth
investment.
13. (p. 436) Liquidity is the ease with which an asset can be converted to cash without a
substantial loss in dollar value.
14. (p. 437) Over the past 50 years, stocks and U.S. government bonds have returned about the
same rate of return.
Chapter 13 – Investing Fundamentals
15. (p. 437) Asset allocation is the process of spreading your assets among several different
types of investments to lessen risk.
16. (p. 439) The amount of time that your investments have to work for you is an important
factor when managing your investment portfolio.
17. (p. 439) Because of the age factor, most young investors tend to invest a large percentage of
their nest egg in growth-oriented investments.
18. (p. 440) Preferred stock represents the most basic form of corporate ownership.
Chapter 13 – Investing Fundamentals
19. (p. 440) The most important priority for an investor in preferred stock is receiving cash
dividends before common stockholders are paid any cash dividends.
20. (p. 441) Bondholders generally receive interest payments every six months.
21. (p. 441) Mutual funds range from very conservative to extremely speculative investments.
22. (p. 442) A speculative investment is an investment that is made in the hope of earning a
relatively large profit over a long period of time.
Chapter 13 – Investing Fundamentals
23. (p. 442) Generally, options are conservative, long-term investment techniques.
24. (p. 439-443) Once you have painstakingly developed a financial plan, it is unwise to change
it.
25. (p. 439-443) Once you have made a decision to buy an investment, there is no need for
continued evaluation.
26. (p. 445) Accurate recordkeeping can help you spot opportunities to maximize profits or
reduce dollar losses when you sell your investments.
Chapter 13 – Investing Fundamentals
27. (p. 447) Although useful for many things, the Internet cannot be used to monitor the value of
stock, bond, and mutual fund investments.
28. (p. 447) Today, federal, state, and local governments and most corporations have a home
page where you can obtain valuable information.
29. (p. 447) The average investor cannot afford to purchase much of the investment information
available from the U. S. government.
30. (p. 449) A corporation must give each potential investor an annual report.
Chapter 13 – Investing Fundamentals
31. (p. 449) The fees for investor services and newsletters usually range between $30 and $1,000
per year.
32. (p. 424) Which of the following is a true statement?
33. (p. 424) A short-term investment objective is one that will be accomplished within a period
of:
Chapter 13 – Investing Fundamentals
34. (p. 424) An intermediate-term investment objective is defined as one that will be
accomplished within a period of:
35. (p. 425-426) All of the following statements are considered to be good advice for a potential
investor starting an investment program except:
36. (p. 425) A good rule of thumb is to limit consumer credit payments to ____________ percent
of your net monthly income.
Chapter 13 – Investing Fundamentals
37. (p. 426) An emergency fund should be deposited in a:
38. (p. 426) 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?
39. (p. 426) Jack Masters earns $40,000 a year. His monthly expenses total $2,100. What is the
minimum amount of money that Mr. Masters should set aside in an emergency fund?
Chapter 13 – Investing Fundamentals
40. (p. 426) Which of the following features does not accurately describe a line of credit?
41. (p. 427-428) All except which one of the following are good ways to acquire money for
starting an investment program?
42. (p. 428) Allen Arnold earns $3,000 per month. He pays his mortgage, utilities, grocery and
other bills and then he makes sure to set aside $150 for his savings and investment accounts
before he spends money to go to movies and other personal expenses. Which suggestion for
obtaining the money he needs for investing is he following?
Chapter 13 – Investing Fundamentals
43. (p. 428) Alice Cooper contributes ten percent of her monthly earnings to her 401(k) plan at
work. The plan allows her to invest in several different types of mutual funds and her
employer matches up to 5% of her salary. Which suggestion for obtaining the money she
needs for investing is she following?
44. (p. 428) James Gripka has a mutual fund that automatically takes $50 out of his checking
account each month. Which suggestion for obtaining the money he needs for investing is he
following?
Chapter 13 – Investing Fundamentals
45. (p. 428) After Christmas is over, Ted Riley works hard to control his expenses in February so
that he can make an extra payment into a mutual fund. Which suggestion for obtaining the
money needs for investing is he following?
46. (p. 428) Sam Waters just received $10,000 from his grandmother’s estate. He has thought
about buying himself a new Harley with the money but has decided instead to add the money
to his mutual fund account. Which suggestion for obtaining the money he needs for investing
Chapter 13 – Investing Fundamentals
47. (p. 428-429) 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?
48. (p. 428-429) Twenty years ago, you began investing $250 a month. Because your investments
earned an average of 8 percent a year, your investment portfolio has a current dollar value of
$145,000. How much did you earn on your investments over the 20-year period of time?
Chapter 13 – Investing Fundamentals
49. (p. 431) Gina Davidson has received $50,000 in a divorce settlement and is trying to decide
how to invest it. She has looked at stocks but knows that some stocks have lost a lot of value
for their owners recently. What aspect of investing is she most concerned about?
50. (p. 434) Which one of the following individuals should have a higher tolerance for risk?
51. (p. 432) Brenda Lee has received a $10,000 gift from her mother and is trying to decide how
to invest it. She thinks she would like to invest it in stocks because she knows that stocks have
been earning about a 10% rate of return over the last several years. What aspect of investing
interests Brenda?
Chapter 13 – Investing Fundamentals
52. (p. 433) Which one of the following is a true statement?
53. (p. 433) If interest rates in the overall economy decrease to 6 percent, which one of the
following is most likely to be the market value of a $1,000 corporate bond with a fixed
interest rate of 7 percent?
Chapter 13 – Investing Fundamentals
54. (p. 433) If interest rates in the overall economy increase to 8 percent, which one of the
following is most likely to be the market value of a $1,000 corporate bond with a fixed
interest rate of 7 percent?
55. (p. 431) After the death of her husband, Gina Baker, 35, received a check for $350,000 from
a life insurance company. Gina has two small children and wants to make sure that both she
and the children are taken care of in the future. Based on this information, which of the
investment factors listed below would be the most important to Gina in her investment
program?
Chapter 13 – Investing Fundamentals
56. (p. 433) If interest rates in the overall economy decrease, what will happen to the market
value of a corporate bond with a fixed interest rate?
57. (p. 433) An example of ____________ risk occurs when an investment does not keep up
with prices that are increasing in the overall economy.
Chapter 13 – Investing Fundamentals
58. (p. 433) A $1,000 corporate bond pays 6.5 percent a year. What is the annual interest you
will receive?
59. (p. 435) Bad products or poor corporate management may result in investors experiencing
______________ risk.
60. (p. 433) When a bondholder loses money because interest rates in the economy increase, it is
an example of ____________ risk.