Chapter 4 Formative Assessment
- 1.When a corporation distributes their profit amongst their shareholders, these payments are called what?
- A.
Dividends
- B.
Interest
- C.
Retained Earnings
- D.
Income
- 2.Which type of investments allows one to spread out their risk because their money is being placed in many investments and is being invested by a fund manager?
- A.
Mutual Fund
- B.
Stocks
- C.
Bonds
- D.
Savings Accounts
- 3.Which of the following is an advantage of a Roth IRA?
- A.
Income taxes are avoided on the capital gains, interest, and dividends
- B.
Income taxes are very low on the capital gains, interest, and dividends
- C.
High capital gains are guaranteed
- D.
High interest rates are guaranteed
- 4.When a corporation offers its shares to the general public to buy for the first time, this is called
- A.
An Initial Public Offering
- B.
An Initial First Offering
- C.
A Roth IRA
- D.
The buy price
- 5.Growth investors make their money when
- A.
They buy a financial product or asset.
- B.
They sell a financial product or asset.
- C.
The value of the asset increases.
- D.
The value of the asset decreases.
- 6.According to the investment pyramid that tracks degree of risk and degree of possible reward, three investments that are considered “lower risk, lower reward” are
- A.
Options, futures, collectibles.
- B.
Cash, government bonds, bank accounts.
- C.
Real estate, stocks, high income bonds
- D.
CDs, real estate, collectibles.
- 7.An investment that is liquid is one that you
- A.
Keep in the stock market.
- B.
Keep in a long-term bond.
- C.
Can turn into cash, but with a penalty fee.
- D.
Can turn into cash easily.
- 8.How much you invest in capital preservation and how much you place in capital appreciation depends, in part, on your age. A person who is in their late 50s should invest
- A.
More of their money in capital preservation.
- B.
More of their money in capital appreciation.
- C.
All of their money in capital preservation.
- D.
All of their money in capital appreciation.
- 9.Which of the following is true of a dividend yield? The money dividends pay
- A.
Varies, and is considered unearned income.
- B.
Is fixed, and considered unearned income.
- C.
Varies, and is considered earned income.
- D.
Is fixed, and considered earned income.
- 10.The author strongly advises that you should not invest all of your savings. Which of the following are funds that you should NOT invest?
- A.
Money you hope to use for a down payment on a house ten years from now
- B.
Money for a new car in three or four years
- C.
Money for a winter ski trip in ten months
- D.
Money left over after budgeting all expenses and savings goals
- 11.An investor who chooses to put their money in various financial products, such as Treasury bonds, CDs, stocks, mutual funds, and real estate, has a(n)
- A.
Liquid portfolio.
- B.
Illiquid portfolio.
- C.
Diversified asset allocation portfolio.
- D.
Non-diversified asset allocation portfolio.
- 12.Which of the following types of bonds are described here: Interest is compounded twice a year, the bonds are guaranteed by the federal government, there is no state or local tax on the interest, but there is a penalty for redeeming before five years.
- A.
U.S. Savings Bonds
- B.
U.S. Treasury bonds, notes and bills
- C.
State municipal bonds
- D.
Corporate bonds
- 13.If an investor wants to receive regular dividend payments, they should invest in
- A.
U.S. Savings Bonds.
- B.
Municipal bonds.
- C.
The stock of large, corporate companies.
- D.
The stock of small, start-up companies.
- 14.A stock broker is someone who
- A.
Works for a company to sell you its shares.
- B.
Can buy and sell shares for you.
- C.
Sells you his shares in a company.
- D.
Buys your shares in a company.
- 15.Despite volatility in the stock market, between 1926 and 2008, stocks have produced an average annual return of 9.6%, which is
- A.
Double the return of bonds over the same period.
- B.
Slightly better than the return of bonds over the same period.
- C.
Equal to the return of bonds over the same period.
- D.
Half the return of CDs over the same period.
- 16.Which of the following statements is NOT true about mutual funds?
- A.
They are a form of indirect investing
- B.
They give the investor access to more diversity for less money
- C.
They offer less diversity than other investments
- D.
They are a dominant investment choice in many retirement accounts
- 17.Complete the following statement: “The author recommends, as a general rule, that the majority of your investments should be in ____________ when you are in your 20s, moving toward a majority in ____________ by the time you are near retirement.”
- A.
Capital appreciation; capital preservation
- B.
Bonds; stocks
- C.
IRA; Roth IRA
- D.
IRA; Employee Pension
- 18.All of the following are powers of the Securities and Exchange Commission (SEC), except:
- A.
It requires public companies to file quarterly and annual reports
- B.
It recommends new laws and rules to be passed by Congress
- C.
It sets the fees brokers can charge clients for buying stock
- D.
It takes legal action against wrongdoers
- 19.A rise of one point in a share of any stock means an increase of
- A.
One dollar in the dividend paid
- B.
One percent of the price earnings ratio
- C.
One percent over the previous day's price of stock
- D.
One dollar in the price of the stock
- 20.The goal of an income investment is to
- A.
Maximize risk for higher returns
- B.
Delay the return on the investment until a future date
- C.
Increase current cash flow
- D.
Increase the value of an asset
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