Do You Have Basic Idea Of Financial Statements?

2.

Assuming a 4% inflation rate, how long would it take to lose half of your purchasing power? (A dollar is worth only 50 cents) Hint: Rule of 72

12 years
18 years
20 years
24 years

Correct Answer

A. 12 years

Explanation

The Rule of 72 is a quick and simple way to estimate the time it takes for an investment or value to double. By dividing 72 by the inflation rate of 4%, we get 18, which represents the number of years it would take for the purchasing power to double. Since we want to know when the purchasing power would decrease by half, we divide 18 by 2, which gives us 9. Therefore, it would take approximately 9 years for the purchasing power to decrease by half. However, none of the given options match this calculation. Therefore, the explanation for the given correct answer of 12 years is not available.

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3.

In general, a savings account with a bank often cannot make enough interest to offset the losses from inflation.

True
False

Correct Answer

A. True

Explanation

A savings account typically earns a low interest rate, which may not be enough to keep up with inflation. Inflation refers to the increase in prices of goods and services over time, which erodes the purchasing power of money. If the interest earned on a savings account is lower than the rate of inflation, the account's value will effectively decrease over time. Therefore, it is true that a savings account often cannot make enough interest to offset the losses from inflation.

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1

4.

In general, what happens to bond prices when interest rates go up?

Bond prices rise
Bond prices fall
Bond prices neither rise or fall

Correct Answer

A. Bond prices fall

Explanation

When interest rates go up, bond prices tend to fall. This is because as interest rates increase, newly issued bonds offer higher yields, making existing bonds with lower yields less attractive to investors. As a result, the demand for existing bonds decreases, causing their prices to decline. Conversely, when interest rates decrease, bond prices tend to rise as the fixed interest payments of existing bonds become more attractive compared to newly issued bonds with lower yields.

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5.

Treasury Bonds (T-Bonds) pay a higher interest rate than Treasury Bills (T-Bills).

True
False

Correct Answer

A. False

Explanation

This statement is false because Treasury Bills (T-Bills) actually pay a higher interest rate than Treasury Bonds (T-Bonds). T-Bills are short-term debt instruments with maturities of one year or less, while T-Bonds have longer maturities of 10 years or more. Due to the longer time period, T-Bonds typically offer higher interest rates to compensate investors for the increased risk and uncertainty associated with holding the bond for a longer period of time.

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1

6.

What is a bank CD?

A multimedia CD-ROM for a computer?
A music CD for home entertainment?
A certificate of deposit with interest payments that is placed with a bank for a specific period.
All of the above

Correct Answer

A. A certificate of deposit with interest payments that is placed with a bank for a specific period.

Explanation

A bank CD refers to a certificate of deposit that is placed with a bank for a specific period and earns interest payments. It is not related to a multimedia CD-ROM or a music CD for home entertainment. Therefore, the correct answer is that a bank CD is a certificate of deposit with interest payments that is placed with a bank for a specific period.

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7.

What is a P/E ratio?

The ratio of the price of a stock divided by the stock's earnings per share
The ratio of the price of a bond divided by the coupon of the bond
The ratio of the price of a stock divided by the stock's yield

Correct Answer

A. The ratio of the price of a stock divided by the stock's earnings per share

Explanation

The P/E ratio, or price-to-earnings ratio, is a financial metric used to evaluate the valuation of a stock. It is calculated by dividing the price of a stock by the stock's earnings per share. This ratio helps investors determine how much they are willing to pay for each dollar of earnings generated by the company. A higher P/E ratio suggests that investors have higher expectations for future earnings growth, while a lower P/E ratio may indicate that the stock is undervalued.

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8.

What is an income statement?

A statement of the profits and losses of a company
Part of a financial statement
A statement that summarizes revenues and expenses of a firm over a time period
All of the above

Correct Answer

A. All of the above

Explanation

The income statement is a financial statement that summarizes the revenues and expenses of a company over a specific time period. It is a part of the overall financial statement of a company and provides a snapshot of the profits and losses incurred by the company. Therefore, the correct answer is "All of the above" as all the given options accurately describe the income statement.

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9.

What is a dividend?

A cash payment distributed among creditors
A payment of additional shares of stock to stockholders
A bonus to employees
A division of an international corporation

Correct Answer

A. A payment of additional shares of stock to stockholders

Explanation

A dividend is a payment of additional shares of stock to stockholders. This means that instead of receiving cash, shareholders receive additional shares of the company's stock as a form of payment. This is a common way for companies to distribute profits to their shareholders.

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10.

What is the Dow Jones Industrial Average or DJIA or the Dow?

Price-weighted average of 30 industrial company stocks
An indicator of the U.S. stock market
On May 30, 1996, total components multiplied by 0.34599543
All of the above

Correct Answer

A. All of the above

Explanation

The Dow Jones Industrial Average (DJIA) or the Dow is a price-weighted average of 30 industrial company stocks. It is also an indicator of the U.S. stock market. On May 30, 1996, the total components of the Dow were multiplied by 0.34599543. Therefore, all of the given options are correct explanations of the DJIA or the Dow.

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11.

What is Accounting?

Market Capitalization
Bookkeeping of business or personal finances
Asset allocation.

Correct Answer

A. Bookkeeping of business or personal finances

Explanation

Accounting refers to the process of systematically recording, summarizing, and analyzing financial transactions of a business or an individual. It involves the bookkeeping of financial records, including income, expenses, assets, and liabilities. By maintaining accurate and up-to-date financial records, accounting provides a clear picture of the financial health and performance of an entity. It helps in making informed decisions, ensuring compliance with financial regulations, and facilitating effective financial management. Therefore, the given answer, "Bookkeeping of business or personal finances," accurately describes the concept of accounting.

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12.

What is an Asset?

Any item owned by a business or individual.
A financial obligation.
An obligation to pay money to a third party.
Option 4

Correct Answer

A. Any item owned by a business or individual.

Explanation

An asset is defined as any item that is owned by a business or individual. This can include tangible assets such as property, equipment, or inventory, as well as intangible assets such as patents, trademarks, or copyrights. The key characteristic of an asset is that it has value and can be used to generate future economic benefits. Therefore, option 4 correctly describes what an asset is.

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Do You Have Basic Idea Of Financial Statements?

Which of the following has returned the highest rate of return on investment since 1926?

Quiz Preview

Assuming a 4% inflation rate, how long would it take to lose half of your purchasing power? (A dollar is worth only 50 cents) Hint: Rule of 72

In general, a savings account with a bank often cannot make enough interest to offset the losses from inflation.

In general, what happens to bond prices when interest rates go up?

Treasury Bonds (T-Bonds) pay a higher interest rate than Treasury Bills (T-Bills).

What is a bank CD?

What is a P/E ratio?

What is an income statement?

What is a dividend?

What is the Dow Jones Industrial Average or DJIA or the Dow?

What is Accounting?

What is an Asset?