FIN 201 test 2 – Flashcards
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A _____________ is an employer-sponsored retirement account, and participating in one is one of the easiest ways to begin an investment program.
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401k account
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Which of the following risks reduces your purchasing power?
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Inflation Risk
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Which of the following investments typically has the largest potential growth?
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Stocks
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Which of the following has returned an average of almost 10% per year since 1926?
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Stock
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If you need access to your funds in two years or less, which of the following investments would be least appropriate?
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Stocks and mutual funds
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A bond backed by the full faith, credit, and unlimited taxing power of the government that issued it is called a ____________ bond.
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General Obligation
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Why do investors purchase corporate bonds?
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Interest income Repayment at maturity Possible increase in value (All of the above)
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The type of bond that is tracked electronically, using computers to record the owners' information, by the issuing company is a
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Registered Bond
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Which of the following securities are rated by 4 companies?
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Corporate
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According to some financial experts like Suze Orman, how much of an investment program should a 50-year-old have in growth investments?
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60%
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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.
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Blue Chip
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The earnings per share equals
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None of these
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This ratio uses the market price per share of the stock and the earning per share.
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Price-earnings Ratio
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Kelly bought some stock using an investment bank from the issuer of those securities. She bought her shares
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on the primary market
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A marketplace where member brokers who represent investors meet to buy and sell securities is called a(n)
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Securities Exchange
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Claudia is a licensed individual who buys or sells investment for her clients. Which of the following is not correct?
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She should focus on churning for her clients
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Mike bought 200 shares of PDQ stock on margin at $15/share. The stock increased to $21/share. What was Mike's profit?
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200*15=3000 200*21=4200 4200-3000=1200
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If you buy common stock, you may receive income from
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Dividends. Dollar appreciation of stock value. Possible increases in value from stock splits. (All of these are correct)
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Why does a company split its stock?
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The stock is trading at a high price, and the company wants to bring the price in line with a theoretical ideal range.
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Megan decided to start investing in stocks. Which of the following should she do first?
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Research the corporation she is interested in as well as their industries
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Which of the following is correct for a closed-end fund?
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The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations.
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A load fund is allowed to collect a sales charge (commission) as high as ___ of the purchase price for investments.
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8.5%
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The average upfront sales charge for the purchase of a no-load mutual fund is
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0%
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A fee charged to defray the costs of advertising and marketing a mutual fund is called a ____ fee.
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12b-1
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Thomas wants to invest in a fund that invests in stock, bonds, and money market instruments. Which of the following will meet his needs?
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Asset Allocation Funds
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Which of the following is not correct?
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A managed fund will outperform an index fund only 60% of the time.
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Which of the following is not a way one can access reliable information about mutual funds on the internet?
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Review blogs from amateur investors about their favorite mutual funds.
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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?
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Mutual Fund Annual Report
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Which of the following is true about mutual funds and taxes?
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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.
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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?
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TDAR=ID+CGD+CG 15+35+120=170 PTR=TDAR/OCOI 170/(100*10)=17%
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When conducting a financial analysis for retirement planning,
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Investments should be evaluated to determine whether their income can help cover living expenses.
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When you retire, you will probably spend less money on
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Clothing
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Which of the following is not a major source of retirement income?
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Annuity. Employer pension plan. Personal retirement plan. Public pension plan. (All of these are major sources of retirement income)
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When an employer's contribution is used to buy stock in the company for its employees, it has a
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Stock Bonus Plan
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An employer's contribution will vary according to the company's profits in a
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Profit-sharing Plan
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Vesting is the right to receive the
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Employer's contributions to a pension plan even if the employee leaves the company before retiring.
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Social Security
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Covers 97% of all American workers
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When estimating your budget or spending plan at retirement, you should consider all of the following except
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Withdrawing all retirement savings within five years of retirement.
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The best definition of estate planning is
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A definite plan for managing property during one's lifetime and at one's death.
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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)
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Stated Amount Will
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A will that is usually prepared with the help of an attorney is known as a(n)
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Formal Will
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A codicil is
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A document that explains, adds, or deletes provisions in an existing will.
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Multiple copies of a ______________ should be distributed to those closest to you as well as your family doctor.
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Living Will
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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)
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Credit-shelter Trust
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The maximum gift that can be given to another person without incurring gift taxes is
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$14,000
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Asset Allocation
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The process of spreading your assets among several different types of investments to lessen risk.
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Bond Indenture
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A legal document that details all of the conditions relating to a bond issue.
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Call Feature
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A feature that allows the corporation to call in, or buy, outstanding bonds from current bondholders before the maturity date.
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Convertible Bond
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A bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock.
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Corporate Bond
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A corporation's written pledge to repay a specified amount of money with interest.
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Current Yield
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Determined by dividing the yearly dollar amount of interest by the bond's current price.
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Debenture
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A bond that is backed only by the reputation of the issuing corporation.
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Emergency Fund
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is an amount of money you can obtain quickly in case of immediate need.
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Face Value
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The dollar amount the bondholder will receive at the bond's maturity.
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General Obligation Bond
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A bond backed by the full faith, credit, and unlimited taxing power of the government that issued it.
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Government Bond
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The written pledge of a government or a municipality to repay a specified sum of money, along with interest.
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High-yield Bond
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A corporate bond that pays higher interest but also has a higher risk of default.
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Line of Credit
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A short-term loan that is approved before the money is actually needed.
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Liquidity
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The ability to buy or sell an investment quickly without substantially affecting the investment's value.
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Maturity Date
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For a corporate bond, the date on which the corporation is to repay the borrowed money.
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Mortgage Bond
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A corporate bond secured by various assets of the issuing firm.
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Municipal Bond
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A debt security issued by a state or local government.
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Registered Bond
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A bond that is registered in the owner's name by the issuing company.
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Registered Coupon Bond
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A bond that is registered for principal only, not for interest.
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Revenue Bond
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A bond that is repaid from the income generated by the project it is designed to finance.
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Serial Bonds
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Bonds of a single issue that mature on different dates.
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Sinking Fund
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A fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue.
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Speculative Investment
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A high-risk investment made in the hope of earning a relatively large profit in a short time.
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Trustee
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A financially independent firm that acts as the bondholders' representative.
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Yield
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The rate of return earned by an investor who holds a bond for a stated period of time.
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Minimum emergency fund =
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Monthly expenses Ă— 3 months
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Book Value
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Determined by deducting all liabilities from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock.
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Common Stock
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The most basic form of corporate ownership.
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Direct Investment Plan
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A plan that allows stockholders to purchase stock directly from a corporation without having to use an account executive or a brokerage firm.
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Dividend
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A distribution of money, stock, or other property that a corporation pays to stockholders.
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Dividend Yield
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The annual dividend amount divided by the stock's current price per share.
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Earnings Per Share
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A corporation's earnings divided by the number of outstanding shares of a firm's common stock.
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Margin
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A speculative technique whereby an investor borrows part of the money needed to buy a particular stock.
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Preferred Stock
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A type of stock that gives the owner the advantage of receiving cash dividends before common stockholders are paid any dividends.
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Primary Market
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A market in which an investor purchases financial securities, via an investment bank or other representative, from the issuer of those securities.
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Record Date
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The date on which a stockholder must be registered on the corporation's books in order to receive dividend payments.
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Selling Short
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Selling stock that has been borrowed from a brokerage firm and must be replaced at a later date.
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Total Return
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Selling stock that has been borrowed from a brokerage firm and must be replaced at a later date.
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EPS
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Earnings/Number of shares outstanding
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PE Ratio=
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PPS/EPS
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Dividend Yield
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Annual dividend amount/Current PPS
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Total Return=
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Dividends+Capital Gains
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Book Value
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Assets - (liabilities/number of shares outstanding)
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Capital Gains Distribution
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The payments made to a fund's shareholders that result from the sale of securities in the fund's portfolio.
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Loan Funds
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A mutual fund in which investors pay a commission (as high as 8.5 percent) every time they purchase shares.
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Mutual Fund
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mutual fund Pools the money of many investors—its shareholders—to invest in a variety of securities.
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Turnover Ratio
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A ratio that measures the percentage of a fund's holdings that have changed or "been replaced" during a 12-month period of time.
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Defined-benefits Plan
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A plan that specifies the benefits the employee will receive at the normal retirement age.
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Defined-contribution plan
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A plan—profit sharing, money purchase, Keogh, or 401(k)—that provides an individual account for each participant; also called an individual account plan
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Individual Retirement Account (IRA)
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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.
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Keogh Plan
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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.
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Probate
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The legal procedure of proving a valid or invalid will.
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Trust
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A legal arrangement through which one's assets are held by a trustee.
