Economics: Module 4 Test Review – Flashcards
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Which statement below is true about mutual funds? -All mutual funds buy stocks -Mutual funds offer guaranteed returns -Mutual funds are convenient and professionally managed -You can choose which stock to include in your mutual funds
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Mutual funds are convenient and professionally managed
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Which of the following has the highest risk factor: -commodities -insured savings account
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commodities
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Money used for the possibility of growing in value, typically to meet longer-term goals. -investment -savings
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investment
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Monica adds $800 to her mutual fund every year for the next 10 years. Mason decides to wait 10 years when he knows he will have a lump sum of $6,000 to invest in a mutual fund. If both Monica and Mason earn on average a 7% rate of return, who will have the larger mutual fund balance in 20 years? -Monica -Mason -They will have the same balance -There is not enough information
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Monica
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Which of the following has the highest risk factor: -common stock -certificates of deposit
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common stock
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The basic rule of a risk-to-return relationship is that the -lower the risk, the higher the return rate. -higher the risk, the higher the return rate. -higher the risk, the lower the return rate. -two are not related.
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higher the risk, the higher the return rate.
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As an investment, a person decides to buy a small house that has three rental apartments. The profits from this investment may be lower then expected if the -tenant in an apartment decides to paint the hallways. -mortgage on the house is paid off. -taxes on the house are lowered. -one of the apartments is not rented.
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one of the apartments is not rented.
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The highest price of the stock during the current day's trading -day's high -last -change -day's low
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day's high
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The interest earned on United States Series EE Savings Bonds is -exempt from state and local taxes. -paid in a lump sum at the time the face value on the bond is reached. -equal to the money paid to purchase it. -deducted at the time of the bond's purchase.
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exempt from state and local taxes.
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A factor that is likely to affect the market price of a stock is: -The age of the corporation -Corporate profits -The number of corporate employees -Wages
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Corporate profits
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Money set aside to be used for a future purpose, typically to be readily available to pay for a short-term goal. -investment -savings
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savings
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Which one of the following types of investments has the highest risk and the highest potential rate of return? -Money market mutual fund -Stocks -Government bonds -Savings bonds
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Stocks
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Before the Kiss Corporation can issue stocks or bonds, it must register the issue with: -Its Board of Directors -The Federal Reserve -The World Bank -The Securities and Exchange Commission (SEC)
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The Securities and Exchange Commission (SEC)
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A Dante Oil Corporation tanker collided with another ship causing a major oil spill that will destroy the environment in the area for years and will cost billions for cleanup. The price of Dante is likely to: -increase -decrease -remain unchanged -fluctuate wildly
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decrease
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If you had $5000 to invest, and could invest it at 5%, approximately how many years will it take to double? -14 -10 -20 -8
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14
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Used to determine how long it takes for your money to double -Rule of 72 -Time Value of Money -Compounding -Diversification
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Rule of 72
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A pharmacy is to drugs as the American Stock Exchange is to: -Interest -Stock advisors -Securities -Mutual funds
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Securities
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Reduces investment risk by investing in several different types of investments -compounding -diversification
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diversification
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The process of earning interest on interest -Rule of 72 -Time Value of Money -Compounding -Diversification
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Compounding
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Which of the following has the lowest risk factor: -preferred stock -certificates of deposit
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certificates of deposit
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Which one of the following types of investments has the lowest risk and lowest rate of return? -Savings bonds -Stocks -Collectibles -Real estate
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Savings bonds
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In the future, a dollar will be worth -Less than a dollar today -More than a dollar today -The same as a dollar today -Who Cares!
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Less than a dollar today
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A person owns a stock that pays a $2.00 a share dividend. If the person chooses to reinvest that dividend, this means that the $2.00 will go toward buying -more of the same stock. -stocks that are similar to those already owned. -preferred stock in the corporation. -bonds in the corporation.
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more of the same stock.
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If an investor can earn 9% on an investment, approximately how long will it take to double in value? -8 -10 -20 -72 months
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8
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Mutual funds are: -An investment portfolio managed by the investor -An investment that holds a wide range of different investment instruments, providing diversification -Usually less risky than investing in a money market -Guaranteed to increase in value
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An investment that holds a wide range of different investment instruments, providing diversification
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The price of the stock at the end of yesterday's trading session. -last -open -previous close -day's high
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previous close
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The difference between yesterday's closing price and the most recent price (Last) -% change -Previous Close -Change -P/E
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change
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Using a brokerage firm, a qualified investor buys 1,000 shares of a common stock at $50 a share on 50% margin. This means that the -investor will pay only $5000 for the shares. -investor is buying 2000 shares. -brokerage firm is lending the investor 50% of the money. -brokerage firm will own 50% of the 1000 shares of stock that were purchased.
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brokerage firm is lending the investor 50% of the money.
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Which of the following has the lowest opportunity for reward: -commodities -money market account
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money market account
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Current trading price of one unit of a security -Last -Open -Day's High -Day's Low
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Last
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The lowest price of the stock during the current day's trading -day's high -last -change -day's low
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day's low
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The time value of money can best be explained using which of the following concepts? -The "pay yourself first" philosophy -The risk to risk relationship -The dynamics of compounding -The Rule of 72
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The dynamics of compounding
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Erika and Mark received an inheritance of $100,000. They plan to invest their inheritance money to buy a house in six years. Which of the following carries the greatest risk? -Savings account -Common stocks -Bonds -Regular checking accounts
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Common stocks
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The cash payment per share made by the company to its shareholders. -Dividend/Share -Current Dividend Yield -last -open
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Dividend/Share
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Publicly held corporations: -Are not-for-profit organizations -Are listed first on the New York Stock Exchange -Have shares of stock that are held by public (outside) investors -Guarantee a positive return to investors
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Have shares of stock that are held by public (outside) investors
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What is the largest equities market in the world? -American Stock Exchange (AMEX) -NASDAQ market -New York Stock Exchange (NYSE) -Over-the-counter (OTC) market
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New York Stock Exchange (NYSE)
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Spreading your money among different savings and investments -Rule of 72 -Time Value of Money -Compounding -Diversification
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Diversification
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A blue-chip stock can be described as: -A preferred stock -A stock with a good reputation for quality management, products and services -A speculative stock -A stock that pays interest
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A stock with a good reputation for quality management, products and services
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The price paid in a stock's first transaction of the current trading day. -open -bid -ask -last
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open
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When investing your money you should try to -buy high and sell low -buy low and sell high -buy and sell at the same price -invest in savings accounts with FDIC insurance or NCUA insurance
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buy low and sell high
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Chris bought stock for $4,000 and one year later he sold it for $5,000. His sale resulted in a: -yield -market value -capital gain -net profit
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capital gain
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The phrase "don't put all your eggs in one basket" describes the following investment strategy? -Liquidity -Return on investment -Diversification -Pooling
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Diversification
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Which of the following has the highest opportunity for reward: -commodities -money market account
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commodities
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An investor bought 40 shares of ABC corporation's stock at $80 a share. Two weeks later, the investor receives notice that the corporation has approved a 2-for-1 stock split. Based on this information, the investor would own at the moment of the split -20 shares of the stock and the price of each share is $80. -40 shares of the stock and the price of each share is $40. -80 shares of the stock and the price of each share is $40. -80 shares of the stock and the price of each share is $80.
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80 shares of the stock and the price of each share is $40.
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The number of shares that have been traded on the most recent trading day -volume -day's high -day's low -P/E
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volume
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Buying a treasury bill (T-bill) is best for investors who are looking for -a place to invest between 500. -a secure, low risk investment. -a higher yield on their investment than corporate bonds offer. -an investment that matures in 10-30 years.
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a secure, low risk investment.
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The yield on a given investment based on its current price. You can calculate this by dividing the dividend paid for the year into the current price. -Dividend/Share -Current Dividend Yield -last -open
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Current Dividend Yield
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Which of the following has the lowest risk factor: -commodities -U. S. Savings Bonds
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U. S. Savings Bonds
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The Rule of 72 is useful in calculating the -interest an investor needs to earn to reach a goal. -age of money. -time required to double an investment. -fluctuations of the stock market.
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time required to double an investment.
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Which of the following has the highest opportunity for reward: -common stock -U.S. Savings Bonds
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common stock
