2/23/2020 Quiz 1: Understanding Investments and Investment Alternatives: Attempt review

 > FM301_202001 > Quiz 1: Understandin...

Started on Sunday, 16 February 2020, 1:20 PM

State Finished
Completed on Saturday, 22 February 2020, 11:36 AM
Time taken 5 days 22 hours
Mark 20.00 out of 20.00 (100%)

Question 1
Correct Most investors are risk averse, which means they:
Mark 1.00 out
of 1.00 Select one:
a. will always invest in the investment with the lowest possible risk.

b. avoid the stock market due to the high degree of risk.

c. will assume more risk only if they are compensated by higher expected return.

d. actively seek to minimize their risks.

The correct answer is: will assume more risk only if they are compensated by higher expected return.

Question 2
Correct Which of the following would not be considered a capital market security?
Mark 1.00 out
of 1.00 Select one:
a. A mutual fund share

b. A 20-year corporate bond

c. A 6-month Treasury bill


d. A common stock

The correct answer is: A 6-month Treasury bill

Question 3
Correct Which of the following is the best definition of wealth?
Mark 1.00 out
of 1.00 Select one:
a. The sum of current income and the present value of future income

b. The total of assets and income less any liabilities

c. The total of all assets and all income

d. The sum of all current and future income

The correct answer is: The sum of current income and the present value of future income

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2/23/2020 Quiz 1: Understanding Investments and Investment Alternatives: Attempt review

Question 4
Correct Bonds called in are likely to be:
 > FM301_202001
Mark 1.00 out > Quiz 1: Understandin...
of 1.00 Select one:
a. bonds already in default.

b. replaced with new bonds that have a lower interest rate.


c. junk bonds.

d. replaced with new bonds that have a higher interest rate.

The correct answer is: replaced with new bonds that have a lower interest rate.

Question 5
Correct Which of the following would be considered a risk-free investment?
Mark 1.00 out
of 1.00 Select one:
a. U.S. Treasury security

b. Gold

c. Equity in a house

d. High-grade corporate bond

The correct answer is: U.S. Treasury security

Question 6
Correct For an investor with a 28% marginal tax rate, what return would a corporate bond have to pay to provide
Mark 1.00 out the same after-tax return as a municipal bond paying 5%?
of 1.00

Select one:
a. 6.94%
b. 2.50%

c. 5.00%

d. 1.40%

The correct answer is: 6.94%

Question 7
Correct Gold coins would be classified as:
Mark 1.00 out
of 1.00 Select one:
a. personal assets.

b. real assets.

c. indirect assets.

d. financial assets.

The correct answer is: real assets.

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2/23/2020 Quiz 1: Understanding Investments and Investment Alternatives: Attempt review

Question 8
Correct Bonds trade on an accrual interest basis. This means an investor:
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Mark 1.00 out > Quiz 1: Understandin...
of 1.00 Select one:
a. can sell a bond at any time without losing the interest that has accrued.

b. can buy a bond at any time and receive an immediate interest check.

c. can sell a bond at any time and retain the interest portion of the bond.

d. can buy a bond at any time and gain the interest accrued from the time of the last payment.

The correct answer is: can sell a bond at any time without losing the interest that has accrued.

Question 9
Correct What is the biggest difference between an option and a futures contract?
Mark 1.00 out
of 1.00 Select one:
a. Options give investors a way to manage portfolio risk, while futures do not.

b. Options give their holders the right to buy or sell, whereas futures contracts are obligations to buy or
sell.

c. Options can be used by speculators to profit from price fluctuations, while futures cannot.

d. Options are traded on exchanges, whereas futures are not.

The correct answer is: Options give their holders the right to buy or sell, whereas futures contracts are
obligations to buy or sell.

Question 10
Correct TL Bank is planning to purchase a T-bill with a $100,000 face value. The T-bill is quoted at a bank discount
Mark 1.00 out of 2.2% and has 300 days to maturity. What is the T-bill’s bond equivalent yield (BEY)? (Hint: refer to
of 1.00 notes and example in Chapter 2, page 30)

Select one:
a. 2.27%
b. 2.23%

c. 2.21%

d. 2.25%

The correct answer is: 2.27%

Question 11
Correct Which of the following is a security that represents shares of a foreign company, which are held in a bank?
Mark 1.00 out
of 1.00 Select one:
a. Convertible bond

b. Asset-backed security

c. American Depository Receipt (ADR)


d. LEAPS

The correct answer is: American Depository Receipt (ADR)

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2/23/2020 Quiz 1: Understanding Investments and Investment Alternatives: Attempt review

Question 12
Correct The risk-free return (RF) equals:
 > FM301_202001
Mark 1.00 out > Quiz 1: Understandin...
of 1.00 Select one:
a. the average of the last 3 years’ inflation rate.

b. the return on Treasury securities


c. 0.0%.

d. the rate on the bonds of financially sound corporations.

The correct answer is: the return on Treasury securities

Question 13
Correct What is the major difference between municipal bonds and other types of bonds?
Mark 1.00 out
of 1.00 Select one:
a. Unlike other bonds, municipal bonds sell at a discount.

b. There is no brokerage commission on municipal bonds unlike other bonds.

c. Municipal bonds are always insured; other bonds are not.

d. Municipal bond interest is tax-exempt; interest on other bonds is not.



The correct answer is: Municipal bond interest is tax-exempt; interest on other bonds is not.

Question 14
Correct Savings accounts are:
Mark 1.00 out
of 1.00 Select one:
a. liquid but are not personal.

b. marketable but are not liquid.

c. liquid but are not marketable.


d. negotiable but are not liquid.

The correct answer is: liquid but are not marketable.

Question 15
Correct In general, the ex ante risk-return tradeoff:
Mark 1.00 out
of 1.00 Select one:
a. slopes downward.

b. is impossible to determine.

c. is flat.

d. slopes upward.


The correct answer is: slopes upward.

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2/23/2020 Quiz 1: Understanding Investments and Investment Alternatives: Attempt review

Question 16
Correct If an investor states that Intel is overvalued at 20 times, he is referring to Intel’s:
 > FM301_202001
Mark 1.00 out > Quiz 1: Understandin...
of 1.00 Select one:
a. earnings per share.

b. P/E ratio.

c. book value.

d. dividend yield.

The correct answer is: P/E ratio.

Question 17
Correct Underlying all investments is the tradeoff between:
Mark 1.00 out
of 1.00 Select one:
a. actual return and high risk.

b. expected return and risk.


c. low risk and high risk.

d. expected return and actual return.

The correct answer is: expected return and risk.

Question 18
Correct Ted is considering a State of Nebraska bond that pays 3.40% and a comparable risk bond issued by Verizon
Mark 1.00 out that pays 5.25%. Ted is in the 37% marginal tax bracket. Relative to the Verizon bond, Ted should conclude
of 1.00 that the taxable equivalent yield (TEY) on the Nebraska bond is approximately: (Hint: refer to Ch. 2, p.38)

Select one:
a. 15 basis points lower.

b. 9 basis points higher.

c. 9 basis points lower.

d. 15 basis points higher.



The correct answer is: 15 basis points higher.

Question 19
Correct Which of the following statements regarding money market instruments is not true?
Mark 1.00 out
of 1.00 Select one:
a. They tend to have a low probability of default.

b. Their rates tend to move together.

c. They tend to be highly marketable.

d. They have maturities from 1 to 3 years.



The correct answer is: They have maturities from 1 to 3 years.

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2/23/2020 Quiz 1: Understanding Investments and Investment Alternatives: Attempt review

Question 20
Correct TR Bank is planning to purchase a T-bill with a $100,000 face value. The T-bill is quoted at a bank discount
 > FM301_202001
Mark 1.00 out of>2.1%
Quizand
1: Understandin...
has 220 days to maturity. What is the T-bill’s effective annual yield (EAY)? (Hint: Refer to Ch. 2, p.30)
of 1.00

Select one:
a. 2.21%

b. 2.15%

c. 2.19%

d. 2.17%

The correct answer is: 2.17%

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