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Test on Chapters 11-15

1. The most important investment prerequisites
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.
2. 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
3. You have been offered an opportunity to buy
shares of a diversified collection of securities.
You will be investing in
a. bonds.
b. common stock.
c. mutual funds.
d. real estate.
e. stock opt ions.
4. Securities sold in the primary markets are
usually handled by a(n)
a. commercial banker.
b. broker.
c. investment banker.
d. dealer.
e. none of these.
5. Which of the following is an order to sell a
stock when the market price drops to or below
a specified level?
a. market order
b. limit order
c. stop loss order
d. fill or kill order
e. day order

6. The SEC requires corporations to issue ____

describing the firm and the security issue it
wishes to sell.
a. an advertisement
b. a prospectus
c. an underwriting journal
d. a dealer newsletter
e. none of these
7. Which of the following are characteristics of
an effective portfolio strategy?
a. level and stability of income
b. investment time horizon
c. investment experience and age
d. disposition toward risk
e. all of these
8. A bull market is characterized by
a. investor optimism.
b. governmental stimulus.
c. economic slowdown.
d. falling stock prices.
e. investor pessimism.
9. Which of the following are characteristics of a
limit order?
a. the order that provides the quickest way to
have an order filled
b. buy orders are filled at the lowest available
c. stock is purchased at the current market
d. the order is executed as soon as the
specified price is reached
e. securities are always bought on margin.
10. A collection of investments is called
a. a letter of exposure.
b. a diversification.
c. a grouping.
d. an envelope.
e. a portfolio.
11. Security investors incur varying degrees of risk.
Business risk is related to
a. price level changes in the economy.
b. investor behavior in the market.
c. the debt-to-equity ratio of the firm.
d. the potential success or failure of the firm.
e. security price fluctuations.

12. Which of the following types of risk affect

owners of fixed income securities more than
owners of equity securities?
a. business risk
b. financial risk
c. market risk
d. purchasing power risk
e. none of these
13. Risk and return are ____ related.
a. inversely
b. directly
c. slightly
d. oppositely
e. none of these
14. Bond prices and current interest rates are ____
a. inversely
b. directly
c. slightly
d. positively
e. none of these
15. Corporate ownership is evidenced by
a. preferred stock.
b. common stock.
c. bonds.
d. capital gain.
e. property rights.
16. The ____ of a stock reflects stockholder
a. par value
b. book value
c. face value
d. price/earnings ratio
e. dividend yield
17. A characteristic of defensive stocks is
a. income.
b. steady earnings.
c. steady dividends.
d. growth.
e. price stability in economic decline.

18. Which of the following is most likely to occur

immediately following the announcement that
the rating on a corporate bond has been
lowered to junk status?
a. The yield-to-maturity on the bond will
b. The price of the bond will decline.
c. The price of the bond will increase
d. More than one of these
e. None of these
19. A bond is issued at $1,000 par value during a
time in which interest rates for similar bonds
were 8%. Today new bonds issued with a
similar credit worthiness is 10%. Which of the
following is most likely to be true about the
a. It is currently selling for a premium
b. It is currently selling at a discount
c. currently selling at par
d. The bond is likely to be called
e. none of these
20. Which of the following types of bonds are
a. mortgage bond
b. equipment trust certificate
c. debenture bond
d. agency bond
e. all of these are unsecured

Another name for a mutual fund is

a closed-end investment company.
an opened-end investment company.
a mutual investment company.
an open investment company.
a closed investment company.

22. Investors tend to use mutual funds for which of

the following reasons?
a. Diversification
b. Professional Management
c. Financial Returns
d. convenience
e. all of these
23. A(n) ____ actually runs the portfolio and
makes the buy and sell decisions.
a. transfer agent
b. distributor
c. money manager
d. investment advisor
e. c and d

24. Which of the following combines the operating

characteristics of an opened-end fund with
some of the trading characteristics of a
closed-end fund?
a. preferred fund
b. common fund
c. exchange-traded fund
d. net-asset fund
e. Unit Investment Trust

30. Which of the following is not a source of

mutual fund returns?
a. dividend income
b. capital gains
c. changes in NAV
d. changes in IDB
e. All of these are sources of mutual fund

25. Redeeming your mutual fund shares might

result in a charge called a
a. back-end load.
b. front-end load.
c. redemption tax.
d. management fee.
e. none of these.

31. The biggest unknown factor that retirees have

when estimating their retirement needs and
income is
a. social security.
b. inflation.
c. pension benefits.
d. expenditures.
e. retirement age.

26. Mutual funds may be bought and sold through

a. mutual savings banks and brokerage firms.
b. funds salespeople and mutual savings
c. brokerage firms and fund salespeople.
d. brokerage firms and funds exchange.
e. fund exchange and fund salespeople.

32. The major mistake(s) people make in

retirement planning is(are)
a. starting too early.
b. saving too little.
c. investing too aggressively.
d. a and b
e. a, b, and c

27. A(n) ____ fund is quite speculative.

a. balanced
b. growth
c. equity income
d. aggressive growth
e. money market

33. Major sources of retirement income include all

of the following except
a. life insurance.
b. annuities.
c. individual savings plans.
d. employer retirement and pension plans.
e. social security.

28. A mutual fund with an objective of both

growth and income is a(n)
a. bond fund.
b. equity-income fund.
c. growth fund.
d. sector fund.
e. balanced fund.
29. ____ would not be a reason for purchasing
mutual funds.
a. Diversification
b. Professional management
c. Tax advantage
d. Financial return
e. Convenience

34. The amount of your social security

contribution depends on
a. age and income.
b. income and current tax rate.
c. age and current tax rate.
d. current income and retirement income goal.
e. employer's contribution and current tax
35. An investment vehicle that systematically pays
out benefits over an extended period of time is
a. common stock.
b. bonds.
c. mutual funds.
d. annuity.
e. money market securities.

36. The portion of the principal and interest of an

annuity that has not been paid to the annuitant
prior to death is the ____ benefit.
a. principal
b. distribution
c. survivorship
d. installment
e. accumulated
37. Annuities are administered by
a. banks.
b. brokerage houses.
c. insurance companies.
d. mutual fund companies.
e. All of these
38. Estate planning is closely related to
a. retirement and investment planning.
b. tax and retirement planning.
c. tax and investment planning.
d. retirement and insurance planning.
e. insurance and investment planning.
39. The goal of estate planning is to:
a. accumulate
b. preserve
c. distribute
d. all of these
e. none of these
40. This situation calls especially for an estate plan
based on the people planning perspective.
a. working couple with handicapped child
b. married man with no dependents
c. single person, no dependents, some
d. single person, no property
e. mother and daughter, independent, ages 65
and 43, share housing
41. Life insurance could alleviate estate problems
caused by
a. inflation.
b. improper management.
c. disabilities.
d. lack of liquidity.
e. incorrect vehicle of transfer.

42. The probate estate consists of

a. real property
b. personal property
c. regulated by interstate laws if you have no
valid will
d. all of these
e. none of these
43. A will is used to
a. name a personal representative to guide the
distribution of the estate
b. name a guardian for persons and property
c. specify the distribution of tax burdens to
d. all of these
e. none of these
44. A will is a legal document outlining the plan
a. your funeral.
b. disposition of your assets.
c. payment of taxes.
d. management of your assets.
e. survivors' goals.
45. If you die without a will you are said to have
a. improperly.
b. without heirs.
c. without estate.
d. intestate.
e. in probate.
46. In the absence of a valid will, the heir most
generally favored would be the
a. spouse.
b. children.
c. parents.
d. grandchildren.
e. All of these are treated as equals.
47. Which of the following are requirements of a
valid will?
a. mental capacity
b. freedom of choice
c. proper execution
d. all of these
e. none of these

48. The person who writes a will is called the

a. testator.
b. attorney.
c. probater.
d. estate planner.
e. grantor.

49. When writing a will, you should seek the

professional services of
a. tax accountants.
b. attorneys.
c. executors.
d. intestate administrators.
e. trustees.
50. A codicil is a(n)
a. means to revoke a will.
b. court-named guardian.
c. survivors' response to a will.
d. revision to a will.
e. executor's revision of a will.