Q&A Hero

Q: If a preferred stock issue is cumulative, this means: a . unpaid preferred stock dividends are paid at the end of the year b . unpaid preferred stock dividends are legally binding on the corporation c . unpaid preferred stock dividends must be paid in the future before common stock dividends can be paid d . unpaid preferred stock dividends are never repaid

Q: Which of the following statements regarding common stocks is true? a. The par value of common stock is usually $100 b. The market value of common stock is equal to its book value c. Dividends on common stock are at the discretion of the company d. Common stock has a senior claim on company assets

Q: If an investor states that Intel is overvalued at 65 times, he is referring to:a. earnings per share b. dividend yield c. book value d. P/E ratio

Q: For U.S. companies, dividends are typically paid: a. monthly b. quarterly c. semi-annually d. yearly

Q: Which of the following 10-year, AAA rated bonds would have the lowest yield? a. corporate bond. b. insured municipal bond. c. U.S. Treasury bond. d. mortgage-backed bond.

Q: Treasury bonds generally have maturities of: a. 5 to 15 years b. 5 to 30 years c. 10 to 20 years d. 10 to 30 years

Q: An investor who pays taxes at the 28% marginal tax rate would need to earn what coupon rate on a corporate bond similar in all respects other than taxes to a 5% coupon municipal bond: a. 1.40% b. 2.50% c. 5.00% d. 6.94%

Q: What is the major difference between municipal bonds and other types of bonds? a. Municipal bonds are always insured; other bonds are not b. Unlike other bonds, municipal bonds sell at a discount c. Municipal bond interest is tax-exempt; interest on other bonds is not d. There is no brokerage commission on municipal bonds unlike other bonds

Q: A municipal bond issue that was sold to finance a toll bridge would most likely be a: a. general obligation bond. b. revenue bond. c. special assessment bond. d. zero-coupon bond.

Q: Which of the following statements is true regarding an investment in mortgage-backed securities? a. There is little default risk. b. The stated maturity is generally 10 years. c. They receive a fixed payment per month. d. They are not subject to prepayment.

Q: What will a bond be worth on the day it matures? a. $0 b. $100 c. its face value (plus remaining coupon, if applicable) d. its remaining coupon, if applicable

Q: Bonds called in are likely to be: a. bonds already in default b. reissued as new bonds with a lower interest rate c. reissued as new bonds with a higher interest rate d. junk bonds

Q: Bonds trade on an accrual interest basis. This means an investor: a. can sell a bond at any time without losing the interest that has accrued b. can buy a bond at any time and gain the interest accrued from the time of the last payment c. can sell a bond at any time and retain the interest portion of the bond d. buy a bond at any time and receive an immediate interest check

Q: Treasury STRIPS are most similar to which type of corporate security? a. preferred stock b. premium bond c. high-yield bond d. zero-coupon bond

Q: Each point on a bond quote represents: a. $100 b. 1 percent of $100 c. 1 percent of $1000 d. $1000

Q: Zero-coupon bonds are similar to Treasury bills in that both: a. are issued exclusively by the U.S. Treasury b. are money-market securities c. are capital-market securities d. are sold at less than par

Q: The coupon rate is another name for the: a. market interest rate. b. current yield. c. stated interest rate. d. yield to maturity

Q: Which of the following would not be considered a capital market security? a. a 20-year corporate bond b. a common stock c. a 6-month Treasury bill d. a mutual fund share

Q: Which of the following statements regarding money market instruments is not true? a. They tend to be highly marketable. b. They have maturities from 1 to 3 years. c. They tend to have a low probability of default. d. Their rates tend to move together.

Q: Which of the U.S. Treasury securities is always sold at a discount? a. Treasury bills b. Treasury notes c. Treasury bonds d. Treasury inflation protected securities (TIPS)

Q: Treasury bills are traded in the --------------------- . a. money market. b. capital market. c. government market. d. regulated market.

Q: Nonmarketable financial assets that protect against inflation include: a. Nonnegotiable certificates of deposit (CDs) b. Money market deposit accounts (MMDAs) c. Series EE US government savings bonds d. US government savings bonds, I bonds

Q: Savings accounts are ---------- but are not------------. a. negotiable; liquid. b. marketable; liquid. c. liquid; personal d. liquid; marketable

Q: Which of the following is not one of the characteristics of the primary nonmarketable financial assets owned by most individuals? a. high liquidity b. high return c. often issued by the U.S. government d. low risk

Q: The largest single institutional owner of common stocks is: a. mutual funds. b. insurance companies. c. pension funds d. commercial banks

Q: What are some of the reasons driving so many individual investors to manage their own investments today, versus the conventional route of investing through a financial advisor, or stockbroker?

Q: What are some of the steps involved in valuing a company's common stock?

Q: A 25-year old college graduate is participating in a 401(k) retirement plan and wishes to minimize risk by eliminating stock-based mutual funds and other equities from his investment portfolio. What will this probably do to his ending retirement funds in 40 years?

Q: Will risk-averse investors ever include commodity futures or options in their portfolios? Explain.

Q: Define risk in the context of investments?

Q: What are some of the career opportunities in the investment industry?

Q: Briefly explain the difference between expected returns and realized returns and between ex ante returns an ex post returns.

Q: Due to the Internet, institutional investors have gained in importance.

Q: Many Wall Street jobs tend to be cyclical in nature..

Q: Financial planners must pass a standardized test and possess certain credentials.

Q: Security analysts are typically employed only at brokerage houses.

Q: Investors unwilling to assume risk should be satisfied with the rate of inflation as their investment return.

Q: Investors enjoyed the best 5 consecutive years in the stock market history over the period 1996-2000.

Q: The minimum actual return necessary to induce investors to invest is known as the expected return.

Q: Risk is defined as the possibility of loss.

Q: The two major considerations in investing are return and timing.

Q: Both 401(k) plans and IRAs are self-directed retirement plans.

Q: Investors always seek to minimize their risk of investing.

Q: A 401(k) plan is an example of a defined benefit retirement plan.

Q: All of the following are benefits of geographic diversification in investment portfolios EXCEPT: a. Gaining exposure to currencies other than the U.S. dollar. b. Some global markets have growth rates higher than the U.S., offering potentially higher returns. c. Global markets behave completely independently of U.S. markets. d. Many global markets are not highly correlated with U.S. markets.

Q: The risk-free rate of return (RFR) equals: a. 3.5% b. the return on long-term Treasury bonds c. the average of the last 3 years' inflation rate d. the return on short-term Treasury bills

Q: Which of the following professionals would be considered an institutional investor? a. Investment Banker b. Security Analyst c. Stockbroker d. Portfolio Manager

Q: The rise of the Internet has: a. greatly increased the cost of security trading. b. significantly democratized the flow of investment information. c. led to fewer number of discount brokers d. led to large amounts of security fraud.

Q: Which of the following statements is true regarding multi-national corporations? a. Both Exxon Mobil and Hewlett Packard earn roughly 70% of their profits from their overseas operations. b. Google currently derives about 95% of its earnings from the U.S. c. Wal-Mart earns nearly 50% of its profits outside the U.S. d. Coca-Cola has no overseas operations and no earnings outside the U.S. at all

Q: Which of the following statements concerning global stock market capitalization is true? a. The United States accounts for roughly 85 percent of stock market capitalization worldwide. b. The United States accounts for roughly 50 percent of stock market capitalization worldwide. c. The United States accounts for roughly 25 percent of stock market capitalization. d. It is expected that the United States will increase its percentage of stock market capitalization in the world over time.

Q: Regulation FD applies to disclosure between: a. private companies and public officials b. public companies and investment professionals c. public companies and public officials d. private companies and investment professionals

Q: Investment decision making traditionally consists of two steps: a. investment banking and security analysis b. buying and selling c. risk and expected return. d. security analysis and portfolio management.

Q: International investing: a. is only practical for institutional investors. b. increases the overall risk of a stock portfolio. c. always leads to higher returns than a domestic portfolio. d. can reduce risk due to increased diversification.

Q: In general, the ex ante risk-return tradeoff a. slopes upward. b. slopes downward c. is flat d. is impossible to determine.

Q: Security analysis is most concerned with: a. analysis of the overall securities market and its direction. b. valuation and analysis of individual securities. c. purchasing securities at the best price. d. determination of the investor's required return.

Q: Which of the following would be considered a risk-free investment? a. gold b. equity in a house c. high-grade corporate bonds d. U.S. Treasury bills

Q: Most investors are risk averse which means: a. they will assume more risk only if they are compensated by higher expected return. b. they will always invest in the investment with the lowest possible risk. c. they actively seek to minimize their risks. d. they avoid the stock market due to the high degree of risk.

Q: Which of the following investment areas is heavily tied to work using mathematical and statistical models? a. Security analysis b. Portfolio management c. Institutional investing d. Retirement planning

Q: Underlying all investments is the tradeoff between: a. expected return and actual return b. low risk and high risk c. actual return and high risk d. expected return and risk

Q: A Chartered Financial Analyst designation is a (an) a. SEC-approved and awarded designation. b. certification of a successful investing record. c. professional designation awarded for meeting recognized standards of conduct and competency. d. professional designation awarded by the brokerage industry.

Q: Most financial advisors are registered with the Securities and Exchange Commission as: a. registered representatives. b. registered investment advisors. c. registered financial planners. d. registered securities consultants.

Q: One reason for the declining importance of pension funds is the: a. decrease in pension benefits for workers. b. downsizing of U.S. companies c. large number of conversions into self-directed plans. d. increasing number of federal regulations that restrict pension fund portfolios.

Q: Investment professionals who take companies public, arrange mergers and acquisitions, and participate in municipal bond issues are : a. registered representatives b. security analysts c. investment bankers d. portfolio managers

Q: Another name for stockbrokers is: a. specialists b. financial advisors c. security analysts d. portfolio managers

Q: The investment professionals that arrange the sale of new securities are called: a. arbitragers b. traders c. investment bankers d. specialists

Q: The retirement plans that guarantee retirees a set amount of money each month are known as: a. 401(k) plans b. self-directed plans c. defined-benefit plans d. defined-contribution plans

Q: Technically, investments include: a. only financial assets. b. only marketable assets. c. financial and real assets that are marketable or non-marketable. d. only financial and real assets that are marketable.

Q: Gold coins would be classified as: a. real assets b. indirect assets c. personal assets d. financial assets

Q: Which of the following is the best definition of wealth? a. the sum of all current and future income b. the total of all assets and all income c. the total of assets and income less any liabilities. d. the sum of current income and the present value of future income.

Q: It is generally easier to predict interest rate risk than market risk.

Q: Bond prices and interest rates are inversely related.

Q: The less the variability of return, the greater the risk.

Q: New regulations concerning auto emissions would be a type of market risk for the auto industry.

Q: Return and risk are inversely related.

Q: Another name for a capital gain is yield.

Q: The first step of portfolio management according to Maginn et al. (2007) is : a. to assess market conditions.b. to determine objectives, constraints and preferences.c. to develop strategies and implement them.d. to adjust the portfolio as necessary.

Q: The initial margin requirement on an SSF contract is 15 percent.

Q: The --------------------- is the legitimate alternative to a portfolio that accurately reflects the objectives of the portfolio owners.market average indexefficient portfoliobenchmark portfolioperformance standard

Q: The stages of the life cycle for setting individual investment objectives are: a. Accumulation Phase, Consolidation Phase, Retirement Phase, Estate Phase.b. Accumulation Phase, Consolidation Phase, Retirement Phase, Gifting Phase.c. Accumulation Phase, Consolidation Phase, Spending Phase, Retirement Phase, Gifting Phase.d. Accumulation Phase, Consolidation Phase, Spending Phase, Gifting Phase.

Q: In order to protect principal against possible loss caused by distressed selling, individuals are typically recommended to have a. a 1-month emergency fund.b. 2-month emergency fund.c. 6-month emergency fund.d. 9-month emergency fund