Question 1

The government is generally

Accepted Answer

A)   a demander of funds in the financial market.
B)   the owner of the financial market.
C)   a supplier of funds to the financial market.
D)   not involved in the financial markets.

Question 2

Investment in a professionally managed pool of assets such as a managed fund is an example of

Accepted Answer

A)   direct investment.
B)   indirect investment.
C)   speculative investment.
D)   derivative investment.

Question 3

Which of the following economic conditions is most difficult to identify?

Accepted Answer

A)   Change in direction.
B)   Expansion.
C)   Recovery.
D)   Recession.

Question 4

Bonds represent a lower level of risk than shares in the same company.

Accepted Answer

A) True 
 B)False

Question 5

Debt represents funds loaned in exchange for

Accepted Answer

A)   interest income and a partial ownership interest in the firm.
B)   dividend income and the repayment of the loan principal.
C)   dividend income and an ownership interest in the firm.
D)   interest income and the repayment of the loan principal.

Question 6

Banks and insurance companies are examples of institutional investors.

Accepted Answer

A) True 
 B)False

Question 7

A major function of investment banking firms is

Accepted Answer

A)   assisting businesses when they issue shares and bonds.
B)   providing financial planning services to wealthy individuals.
C)   developing investment strategies to neutralise risk.
D)   providing loans to investors.

Question 8

Monitoring and restructuring your investments is called

Accepted Answer

A)   portfolio management.
B)   diversification.
C)   valuation.
D)   financial planning.

Question 9

Tax planning

Accepted Answer

A)   guides investment activities to maximise after- tax returns over the long term for an acceptable level of risk.
B)   is primarily done by individuals with incomes below $200,000.
C)   ignores the source of income and concentrates solely on the amount of income.
D)   is limited to reviewing income for the current year and determining how to minimise current taxes.

Question 10

Institutional investors are individuals who invest indirectly through financial institutions.

Accepted Answer

A) True 
 B)False

Question 11

Managed funds invest in diversified portfolios of securities.

Accepted Answer

A) True 
 B)False

Question 12

In selecting investments consistent with your goals, you should consider

Accepted Answer

A)   risks, returns, and taxes.
B)   rates of return and taxes only.
C)   annual dividends and taxes only.
D)   the pre- tax rate of return only.

Question 13

Bond prices rise as interest rates decline.

Accepted Answer

A) True 
 B)False

Question 14

The value of a derivative security is based on the value of an underlying security.

Accepted Answer

A) True 
 B)False

Question 15

You should spend money on housing, clothing and basic insurance before investing.

Accepted Answer

A) True 
 B)False

Question 16

Since 1900, the average annual return on savings accounts has been higher than the return on stocks.

Accepted Answer

A) True 
 B)False

Question 17

Liquidity is the ability to convert an investment into cash quickly with little or no loss of value.

Accepted Answer

A) True 
 B)False

Question 18

Earning a high rate of return with little or no risk is a realistic investment goal.

Accepted Answer

A) True 
 B)False

Question 19

In the financial markets, individuals are net suppliers of funds.

Accepted Answer

A) True 
 B)False

Question 20

Explain the differences between shares, bonds, and options.

Accepted Answer

Shares are equity securities and represe...

Exam 1: The Investment Environment

The government is generally

Correct AnswerverifiedShow Answer

The value of a derivative security is based on the value of an underlying security.

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A major function of investment banking firms is

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Monitoring and restructuring your investments is called

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Liquidity is the ability to convert an investment into cash quickly with little or no loss of value.

Correct AnswerverifiedShow Answer

Debt represents funds loaned in exchange for

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Banks and insurance companies are examples of institutional investors.

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Bond prices rise as interest rates decline.

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Explain the differences between shares, bonds, and options.

Correct AnswerverifiedShares are equity securities and represe...View AnswerShow Answer

In the financial markets, individuals are net suppliers of funds.

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You should spend money on housing, clothing and basic insurance before investing.

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Investment in a professionally managed pool of assets such as a managed fund is an example of

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Bonds represent a lower level of risk than shares in the same company.

Correct AnswerverifiedShow Answer

Managed funds invest in diversified portfolios of securities.

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Since 1900, the average annual return on savings accounts has been higher than the return on stocks.

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In selecting investments consistent with your goals, you should consider

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Which of the following economic conditions is most difficult to identify?

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Tax planning

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Institutional investors are individuals who invest indirectly through financial institutions.

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Earning a high rate of return with little or no risk is a realistic investment goal.

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Shares are equity securities and represe...
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