FIN 201 test 2

A _____________ is an employer-sponsored retirement account, and participating in one is one of the easiest ways to begin an investment program.
401k account
Which of the following risks reduces your purchasing power?
Inflation Risk
Which of the following investments typically has the largest potential growth?
Stocks
Which of the following has returned an average of almost 10% per year since 1926?
Stock
If you need access to your funds in two years or less, which of the following investments would be least appropriate?
Stocks and mutual funds
A bond backed by the full faith, credit, and unlimited taxing power of the government that issued it is called a ____________ bond.
General Obligation
Why do investors purchase corporate bonds?
Interest income
Repayment at maturity
Possible increase in value
(All of the above)
The type of bond that is tracked electronically, using computers to record the owners’ information, by the issuing company is a
Registered Bond
Which of the following securities are rated by 4 companies?
Corporate
According to some financial experts like Suze Orman, how much of an investment program should a 50-year-old have in growth investments?
60%
Cliff retired 10 years ago and wants to still own a few stocks. Dividends are important to him, and he wants to invest in a large, stable corporation. He should purchase _______ stocks.
Blue Chip
The earnings per share equals
None of these
This ratio uses the market price per share of the stock and the earning per share.
Price-earnings Ratio
Kelly bought some stock using an investment bank from the issuer of those securities. She bought her shares
on the primary market
A marketplace where member brokers who represent investors meet to buy and sell securities is called a(n)
Securities Exchange
Claudia is a licensed individual who buys or sells investment for her clients. Which of the following is not correct?
She should focus on churning for her clients
Mike bought 200 shares of PDQ stock on margin at $15/share. The stock increased to $21/share. What was Mike’s profit?
200*15=3000
200*21=4200
4200-3000=1200
If you buy common stock, you may receive income from
Dividends.
Dollar appreciation of stock value.
Possible increases in value from stock splits.
(All of these are correct)
Why does a company split its stock?
The stock is trading at a high price, and the company wants to bring the price in line with a theoretical ideal range.
Megan decided to start investing in stocks. Which of the following should she do first?
Research the corporation she is interested in as well as their industries
Which of the following is correct for a closed-end fund?
The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations.
A load fund is allowed to collect a sales charge (commission) as high as ___ of the purchase price for investments.
8.5%
The average upfront sales charge for the purchase of a no-load mutual fund is
0%
A fee charged to defray the costs of advertising and marketing a mutual fund is called a ____ fee.
12b-1
Thomas wants to invest in a fund that invests in stock, bonds, and money market instruments. Which of the following will meet his needs?
Asset Allocation Funds
Which of the following is not correct?
A managed fund will outperform an index fund only 60% of the time.
Which of the following is not a way one can access reliable information about mutual funds on the internet?
Review blogs from amateur investors about their favorite mutual funds.
Which of the following contains a letter from the president of the investment company, detailed financial information, a schedule of investments, and a letter from the fund’s independent auditors?
Mutual Fund Annual Report
Which of the following is true about mutual funds and taxes?
Investment companies are required to send each shareholder a year-end statement that specifies how much each received in income dividends and capital gain distributions.
Shelby purchased 100 shares of ABCD Growth fund for $10.00 per share. She had income dividends of $15, capital gain distributions of $35, and a capital gain of $120 in the year she sold her shares. What was her percentage of total return on this investment?
TDAR=ID+CGD+CG
15+35+120=170
PTR=TDAR/OCOI
170/(100*10)=17%
When conducting a financial analysis for retirement planning,
Investments should be evaluated to determine whether their income can help cover living expenses.
When you retire, you will probably spend less money on
Clothing
Which of the following is not a major source of retirement income?
Annuity.
Employer pension plan.
Personal retirement plan.
Public pension plan.
(All of these are major sources of retirement income)
When an employer’s contribution is used to buy stock in the company for its employees, it has a
Stock Bonus Plan
An employer’s contribution will vary according to the company’s profits in a
Profit-sharing Plan
Vesting is the right to receive the
Employer’s contributions to a pension plan even if the employee leaves the company before retiring.
Social Security
Covers 97% of all American workers
When estimating your budget or spending plan at retirement, you should consider all of the following except
Withdrawing all retirement savings within five years of retirement.
The best definition of estate planning is
A definite plan for managing property during one’s lifetime and at one’s death.
Darlene is updating her estate planning and wants to set up a legal document that leaves $5. 34 million to her husband. She is writing a(n)
Stated Amount Will
A will that is usually prepared with the help of an attorney is known as a(n)
Formal Will
A codicil is
A document that explains, adds, or deletes provisions in an existing will.
Multiple copies of a ______________ should be distributed to those closest to you as well as your family doctor.
Living Will
Gladys wants to set up a trust that is also known as a bypass trust, family trust, “residuary” trust, A/B trust, and exemption equivalent trust. She should set up a(n)
Credit-shelter Trust
The maximum gift that can be given to another person without incurring gift taxes is
$14,000
Asset Allocation
The process of spreading your assets among several different types of investments to lessen risk.
Bond Indenture
A legal document that details all of the conditions relating to a bond issue.
Call Feature
A feature that allows the corporation to call in, or buy, outstanding bonds from current bondholders before the maturity date.
Convertible Bond
A bond that can be exchanged, at the owner’s option, for a specified number of shares of the corporation’s common stock.
Corporate Bond
A corporation’s written pledge to repay a specified amount of money with interest.
Current Yield
Determined by dividing the yearly dollar amount of interest by the bond’s current price.
Debenture
A bond that is backed only by the reputation of the issuing corporation.
Emergency Fund
is an amount of money you can obtain quickly in case of immediate need.
Face Value
The dollar amount the bondholder will receive at the bond’s maturity.
General Obligation Bond
A bond backed by the full faith, credit, and unlimited taxing power of the government that issued it.
Government Bond
The written pledge of a government or a municipality to repay a specified sum of money, along with interest.
High-yield Bond
A corporate bond that pays higher interest but also has a higher risk of default.
Line of Credit
A short-term loan that is approved before the money is actually needed.
Liquidity
The ability to buy or sell an investment quickly without substantially affecting the investment’s value.
Maturity Date
For a corporate bond, the date on which the corporation is to repay the borrowed money.
Mortgage Bond
A corporate bond secured by various assets of the issuing firm.
Municipal Bond
A debt security issued by a state or local government.
Registered Bond
A bond that is registered in the owner’s name by the issuing company.
Registered Coupon Bond
A bond that is registered for principal only, not for interest.
Revenue Bond
A bond that is repaid from the income generated by the project it is designed to finance.
Serial Bonds
Bonds of a single issue that mature on different dates.
Sinking Fund
A fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue.
Speculative Investment
A high-risk investment made in the hope of earning a relatively large profit in a short time.
Trustee
A financially independent firm that acts as the bondholders’ representative.
Yield
The rate of return earned by an investor who holds a bond for a stated period of time.
Minimum emergency fund =
Monthly expenses × 3 months
Book Value
Determined by deducting all liabilities from the corporation’s assets and dividing the remainder by the number of outstanding shares of common stock.
Common Stock
The most basic form of corporate ownership.
Direct Investment Plan
A plan that allows stockholders to purchase stock directly from a corporation without having to use an account executive or a brokerage firm.
Dividend
A distribution of money, stock, or other property that a corporation pays to stockholders.
Dividend Yield
The annual dividend amount divided by the stock’s current price per share.
Earnings Per Share
A corporation’s earnings divided by the number of outstanding shares of a firm’s common stock.
Margin
A speculative technique whereby an investor borrows part of the money needed to buy a particular stock.
Preferred Stock
A type of stock that gives the owner the advantage of receiving cash dividends before common stockholders are paid any dividends.
Primary Market
A market in which an investor purchases financial securities, via an investment bank or other representative, from the issuer of those securities.
Record Date
The date on which a stockholder must be registered on the corporation’s books in order to receive dividend payments.
Selling Short
Selling stock that has been borrowed from a brokerage firm and must be replaced at a later date.
Total Return
Selling stock that has been borrowed from a brokerage firm and must be replaced at a later date.
EPS
Earnings/Number of shares outstanding
PE Ratio=
PPS/EPS
Dividend Yield
Annual dividend amount/Current PPS
Total Return=
Dividends+Capital Gains
Book Value
Assets – (liabilities/number of shares outstanding)
Capital Gains Distribution
The payments made to a fund’s shareholders that result from the sale of securities in the fund’s portfolio.
Loan Funds
A mutual fund in which investors pay a commission (as high as 8.5 percent) every time they purchase shares.
Mutual Fund
mutual fund Pools the money of many investors—its shareholders—to invest in a variety of securities.
Turnover Ratio
A ratio that measures the percentage of a fund’s holdings that have changed or “been replaced” during a 12-month period of time.
Defined-benefits Plan
A plan that specifies the benefits the employee will receive at the normal retirement age.
Defined-contribution plan
A plan—profit sharing, money purchase, Keogh, or 401(k)—that provides an individual account for each participant; also called an individual account plan
Individual Retirement Account (IRA)
A special account in which the employee sets aside a portion of his or her income; taxes are not paid on the principal or interest until money is withdrawn from the account.
Keogh Plan
A plan in which tax-deductible contributions fund the retirement of self-employed people and their employees; also called an H.R. 10 plan or a self-employed retirement plan.
Probate
The legal procedure of proving a valid or invalid will.
Trust
A legal arrangement through which one’s assets are held by a trustee.