Personal Financial Planning Final
Flashcard maker : Lily Taylor
Mutual funds often sell directly to investors
Investing Requires a fairly large sum such as $5,000 to get started
Investing and speculating are two entirely different activities
Owning common stock represents an equity investment
A prospectus describes the firm and the issue of a new security
There are a variety of investment vehicles including which of the following:
Common stock, bonds, preferred and convertible securities, real estate
Which of the following is an order to sell a stock when the market price drops to or below a specified level
Stop loss order
You have been offered an opportunity to buy shares of a diversified collection of securities. You will be investing in:
Which of the following types of brokers is most likely to involve an investor trading electronically from his or her personal computer
The most important investment prerequisites are
Adequate income and insurance
Long-term securities are traded in the money market
Investing is considered a short-term activity that involves the buying and selling of securities
An investment in a financial futures contract would represent a fairly low risk investment
Prices are rising in bear markets, indicating economic optimism
Mutual funds provide professional management and diversification that individual investors – especially those with limited resources – can rarely obtain on their own.
During a bull market…
Sock prices go up
Which of the following is least likely to be an investment objective?
Pay monthly bills
The most common reason given for investing is
Saving for retirement
Buying a(n) ____ would not be an investment.
Which of the following is a true statement about the Dow Jones Industrial Average?
It is based on 30 industrial stocks
The Federal Deposit Insurance Corporation insures brokerage firm deposits.
There is a trade-off between earning a high current income from an investment and obtaining significant capital appreciation from it.
Without using margin accounts, common stock holders can not lose more than they initially invest in a common stock.
A company with low financial risk has little to no long-term debt.
All securities involve risk of some kind.
Interest rate risk is greater for stocks than for bonds.
A bond with a yield to maturity that equaled or exceeded an investor’s desired rate of return is considered an attractive investment.
A characteristic of defensive stocks is…
Price stability in economic decline
Corporate ownership is evidenced by
Only the strongest, most stable and safe-return companies can be called
blue chip stocks
The easiest way to invest in foreign stock is to purchase
international mutual funds
_____ stocks are really purchased as a gamble rather then because they have a proven history of good performance.
Compound interest is a very important concept when evaluating the return on an investment you plan to hold for a long time.
Common stocks pay a guaranteed dividend each year.
The returns you expect from securities are income and growth.
An investment is acceptable if the expected rate of return is greater than the desired rate of return.
Business risk considers the possibility that the firm may fail.
Stocks whose price movements who tend to follow the business cycle are called what?
A high inflation rate would result in a high degree of
purchasing power risk
One of the more appealing features of a common stock is that stock investments offer
Ownership with limited liability
In which of the following type of investment is the most liquidity risk present…
Security investors incur varying degrees of risk. Business risk is related to
the potential success or failure of the firm
You received a cash dividend from your stock investment this year. This is taxable income.
Changes in the value of securities due to social, political, or economic factors are referred to as market risk.
Index funds are actively managed.
Socially responsible funds have experienced lower return than other types of funds of similar risk.
Spiders and Diamonds are examples of ETF’s.
The price per share of a closed-end investment fund could be lower than its NAV.
For most investors, the best way to deal in foreign securities is through an international mutual fund.
The author recommends small investors should stick to…
Index funds have provided competitive rates of return because
their quotes are lower than other stock funds, it is difficult to outperform the market, they have very low turnover rates, they are tax efficient.
Redeeming your mutual fund shares might result in a charge called a
Investment company earnings come from
interest, dividends, and capital gains
Investors tend to use mutual funds for which of the following reasons
diversification, professional management, financial returns, convenience.
Open-ended mutual funds are guaranteed, they can not lose value.
The price an investor can sell his shares of an open-end mutual fund share is the net asset value.
By definition, all ETF are no-load funds.
Mutual funds may be classified by the types of securities they purchase.
The most important advantage of a mutual fund is pooled diversification.
Having money taken automatically from your paycheck and put into a mutual fund is.an example of
an automatic investment plan
Which of the following bond mutual funds would provide tax-free income?
Municipal bond fund
An annual fee charged by some mutual funds to cover marketing and distribution expenses is the
A mutual fund allows investors to
become owners of a widely diversified portfolio of securities.
A _____ is a type of investment that is required by law to pay out nearly all earnings to owners.
real estate investment trust
A fund’s objective must be stated in its prospectus.
The major benefit to small investors of mutual funds is diversification.
Another name for a mutual fund is
an open-end investment company
It really makes little difference whether you start retirement savings at age 25 or at age 45.
Self-employer workers pay twice as much for Social Security coverage compared to employed workers.
Most people are too conservative when investing their retirement funds.
If one is unsure about the facts needed to estimate retirement needs, it is better to do nothing for a few years.
Social security benefits alone can usually fund a comfortable retirement.
The proceeds of a variable annuity are dependent on the
The major mistake(s) people make in retirement planning is(are)
Saving too little
The major financial benefit of beginning your retirement funding early is related to
increased cost of living
Annuities are administered by
A Roth IRA
is funded with after tax dollars, allows interest or dividends to accrue tax free, permits you to withdraw your contribution at any time, provides for tax-free earnings if you hold the account 5 years and are 59 ½ at withdrawal.
Supplemental retirement plans are usually voluntary.
Government assistance, primarily Social Security, is the largest single source of income for the average retiree.
Even the best retirement plan needs to be reviewed every few years.
By itself, Social Security is sufficient allow a worker and spouse to maintain their preretirement standard of living.
The first step in retirement planning is to identify retirement goals.
The cost of an annuity varies with the
age of the annuitant at issue, age of the annuitant when payment begins, method of proceeds distribution, sex of the annuitant.
Funds to finance social security come from
compulsory contributions from employee, employer, and self-employed.
The need for retirement planning is increased by the uncertainties of
inflation, social security benefits, the assets you hold, your pension benefits.
When setting retirement goals you should consider
what you want to do in retirement, your expected standard of living, your proposed level of income, special retirement activities and projects.
The amount of money in your defined contribution retirement portfolio will depend on
the age at which you begin contributing, the amount of money you deposit each month, the rate of return on your savings.
Individuals are being forced to assume more and more responsibility for their own retirement.
Intestacy results from dying without a valid will.
Probate property includes only real property.
More damage is done to estates by doing nothing than by doing the wrong thing.
A potential estate planning problem is improper distribution of assets.
Property held in different states does not complicate the estate planning process.
A will is used to
name a personal representative to guide the distribution of the estate, name a guardian for persons and property, specify the distribution of tax burdens to beneficiaries.
When writing a will, you should seek the professional services of
A will is a legal document outlining the plan for
disposition of your assets
In the absence of a valid will, the heir most generally favored would be the
Which of the following are requirements of a valid will?
Mental capacity, freedom of choice, proper execution.
Knowing where parents keep important documents is essential to the estate planning process.
Liquidity is important in an estate to pay for death costs and possible taxes.
Gathering data on all aspects of the family is an important estate planning function.
Funeral expenses are examples of second-level death-related costs.
One should make a copies of his will and store them in different places.
Life insurance could alleviate estate problems caused by
lack of liquidity
The goal of estate planning is to:
accumulative, preserve, distribute
The decedent’s personal representative is called a(n)
____ would be a first-level death-related cost.
Estate planning is closely related to
tax and investment planning & retirement and investment planning
Insufficient capital can cause problems paying estate taxes.