Quiz 1-Chapters 1,2 and 3
Liquidity
refers to the existence of secondary markets.
True
False
Investments
are made in anticipation of a return.
True
False
The
investor should specify the goals of investing.
True
False
CFA
is a professional designation for individuals seeking positions as portfolio
managers.
True
False
An
informed investor can expect to consistently outperform the market.
True
False
Which
of the following is an investment as defined by an economist?
A.
|
equipment
|
|
B.
|
land
|
|
C.
|
savings
account
|
|
D.
|
stock
|
Efficient
markets suggests that few investors will outperform the market consistently.
True
False
Portfolio
assessment should include measures of both risk and return.
True
False
Many
investments such as stock have common characteristics including
1. existence of secondary markets
2. risk
3. potential for capital gains
A.
|
all of the above
|
|
B.
|
1 and 3
|
|
C.
|
2 and 3
|
|
D.
|
1 and 2
|
Stocks
are initially sold in the “primary” market and subsequently traded in the
“secondary” market.
True
False
Investments
are made in anticipation of a return.
True
False
Risk
A.
|
refers to the uncertainty of returns
|
|
B.
|
should
be maximized to increase returns
|
|
C.
|
is
reduced through specialization
|
|
D.
|
depends
solely on price fluctuations
|
Risk
is the uncertainty that the anticipated return will not be realized.
True
False
Discounting
A.
|
brings the future back to the present
|
|
B.
|
depends
on the rate of interest
|
|
C.
|
expresses
the present in the future
|
|
D.
|
is
synonymous with compounding
|
The
present value of an annuity due exceeds the present value of an ordinary
annuity.
True
False
The
future value of a dollar
1. increases with higher interest rates
2. decreases with higher interest rates
3. increases as the time period increases
4. decreases as the time period increases
A.
|
1 and 4
|
|
B.
|
2 and 4
|
|
C.
|
1 and 3
|
|
D.
|
2 and 3
|
The
present value of an annuity due is not affected by the frequency of compounding.
True
False
The
present value of an annuity is
1. larger the greater the rate of interest
2. smaller the greater the rate of interest
3. larger as the number of years increases
4. smaller as the number of years increases
A.
|
2 and 3
|
|
B.
|
1 and 4
|
|
C.
|
1 and 3
|
|
D.
|
2 and 4
|
The
concept of the time value of money is a means to bring together the present and
the future.
True
False
Capital
gains and income are the sources of the return on an investment.
True
False
Which
of the following is not an investment in the layperson's general use of the
term?
A.
|
savings
account
|
|
B.
|
stock
|
|
C.
|
equipment
|
|
D.
|
land
|
The
term "investment" in economics generally refers to the purchase of
stock and bonds.
True
False
Time
value concepts may not be used to determine
A.
|
the margin required on a stock purchase
|
|
B.
|
the
future value of $100 deposited in a bank
|
|
C.
|
the
present value of an annuity
|
|
D.
|
the
present value of a lump sum
|
If
the first payment made by an annuity is today, that is an “ordinary annuity”
and not an “annuity due.”
True
False
Compounding
refers to the earning of interest on interest earned previously.
True
False
The
future value of an annuity is
1. larger the higher the rate of interest
2. smaller the higher the rate of interest
3. larger the greater the number of years
4. smaller the greater the number of years
A.
|
2 and 4
|
|
B.
|
2 and 3
|
|
C.
|
1 and 3
|
|
D.
|
1 and 4
|
_______ are financial assets.
A.
|
Bonds
|
|
B.
|
Machines
|
|
C.
|
Stock
|
|
D.
|
A and C
|
|
E.
|
A, B
& C
|
Investment Bankers perform the following role(s):
A.
|
market new stock and bond issues for firms
|
|
B.
|
provide advice to the firms as to market conditions,
price, etc
|
|
C.
|
design securities with desirable properties
|
|
D.
|
all of the above
|
|
E.
|
none of the above
|
Financial assets
permit all of the following except ____________.
A.
|
consumption timing
|
|
B.
|
allocation of risk
|
|
C.
|
separation of ownership and control
|
|
D.
|
elimination of risk
|
|
E.
|
all of the above
|
A purchase of a new issue of stock takes place
A.
|
in the secondary market.
|
|
B.
|
in the primary market.
|
|
C.
|
usually with the assistance of an investment banker.
|
|
D.
|
A and B.
|
|
E.
|
B and C.
|
In a "firm commitment"
A.
|
the
investment banker buys the stock from the company and resells
|
|
B.
|
the investment banker agrees to help the firm sell the stock at
a favorable price.
|
|
C.
|
the investment banker finds the best marketing arrangement for
the investment banking firm.
|
|
D.
|
B and C.
|
|
E.
|
A and B.
|
Initial margin requirements are determined by
A.
|
the Securities and Exchange Commission.
|
|
B.
|
the Federal Reserve System.
|
|
C.
|
the New York Stock Exchange.
|
|
D.
|
B and C.
|
|
E.
|
A and B
|
You purchased XYZ stock at $50 per share. The
stock is currently selling at $65. Your gains may be protected by placing
a __________
A.
|
stop-buy
order
|
|
B.
|
limit-buy
order
|
|
C.
|
market
order
|
|
D.
|
limit sell order
|
|
E.
|
none of
the above
|
The cost of buying and selling a stock consists of
__________.
A.
|
broker's commissions
|
|
B.
|
dealer's bid-asked spread
|
|
C.
|
a price concession an investor may be forced to make.
|
|
D.
|
A and B.
|
|
E.
|
A, B, and C.
|
Assume you purchased 200 shares of XYZ common stock on margin at $70 per
share from your broker. If the initial margin is 55%, how much did you
borrow from the broker?
A.
|
$6,000
|
|
B.
|
$4,000
|
|
C.
|
$7,700
|
|
D.
|
$7,000
|
|
E.
|
$6,300
|
When a firm markets new securities, a preliminary
registration statement must be filed with
A.
|
the exchange on which the security will be listed.
|
|
B.
|
the Securities and Exchange
Commission.
|
|
C.
|
the Federal Reserve.
|
|
D.
|
all other companies in the same line of business.
|
|
E.
|
the Federal Deposit Insurance Corporation.
|
The preliminary prospectus is referred to as a
____________.
A.
|
red herring
|
|
B.
|
indenture
|
|
C.
|
green mail
|
|
D.
|
tombstone
|
|
E.
|
headstone
|
The present value of a dollar
1.
increases as the interest rate increases
2.
decreases as the interest rate increases
3.
increases as the time period increases
4.
decreases as the time period increases
A.
|
1
and 3
|
|
B.
|
1 and 4
|
|
C.
|
2 and 3
|
|
D.
|
2 and 4
|
Time value concepts may be used to
determine
1. the
annual growth rate in dividends
2. the
amount in an IRA account after ten years
3. the
tax owed on a capital gain
A.
|
1 and 2
|
|
B.
|
1 and 3
|
|
C.
|
2 and 3
|
|
D.
|
only 2
|
Discounting :
A.
|
expresses
the present in the future
|
|
B.
|
brings the future back to the present
|
|
C.
|
is
synonymous with compounding
|
|
D.
|
.
depends on the rate of interest
|
An annuity is a series of
A.
|
rising
annual payment
|
|
B.
|
random
payments
|
|
C.
|
equal payments
|
|
D.
|
unequal
payments
|
Time value concepts may not be used to determine
A.
|
the
present value of an annuity
|
|
B.
|
the margin required on a stock purchase
|
|
C.
|
the
future value of $100 deposited in a bank
|
|
D.
|
the
present value of a lump sum
|
You deposited $1,000 into a bank
account earning 4% compounded annually. How much will you have in the account after
10 years?
A.
|
$1,400
|
|
B.
|
$1,450
|
|
C.
|
$1,500
|
|
D.
|
$1,560
|
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