Managing Risk
Stock A has a present market value of $30.00. The purchase price was $20.00. What is the nominal rate of return? (4-3)
a. 15%
b. 50%
c. 33%
d. 75%
b. 50%
Investing (as opposed to “saving”) usually carries all of the following characteristics except…. (4-1)
a. Long-term
b. Less Liquid
c. Higher expected returns
d. Low or no risk
d. Low or no risk
Which of the following should be considered before investing? (4-2)
a. High-interest debt you carry
b. Current emergency fund balance
c. Neither of these
d. Both of these
d. Both of these
If a stock you buy is $50 per share and pays $2 per year in total dividends; what is the dividend yield of the stock? (4-3)
a. 2%
b. 4%
c. 8%
d. Can’t determine
b. 4%
If you gave Ford Motor Company $1,000 and they promised to pay you income of 5% each year and give you your $1,000 back in November 2050, you’d have purchased: (4-3)
a. Company stock
b. A short term government bond
c. A mid term corporate international bond
d. A long term corporate domestic bond
d. A long term corporate domestic bond
Stocks or equities are classified in a variety of ways. Stocks in healthcare, technology and industrial are classified by? (4-3)
a. Geography
b. Size
c. Sector
d. Future Growth v. Current Value
c. Sector
What is NOT a way that stocks make money? (4-3)
a. Increase in share price
b. Fixed interest payment
c. Pay dividends
d. All of the above
b. Fixed interest payment
When investing, you want to find an investment with a return that is (4-1)
a. Lower than the rate of inflation
b. Higher than all other investments in the previous year
c. Higher than the risk-free rate
d. Positively correlated with your other investments
c. Higher than the risk-free rate
Diversification means to have a _____ of investments in your portfolio? (4-2)
a. Random number
b. Stock account
c. Narrow selection
d. Wide variety
d. Wide variety
The percentage of your portfolio in stocks/bonds is known as your (4-1)
a. Diversification
b. Asset Allocation
c. Risk Tolerance
d. Asset Classes
b. Asset Allocation
Two investments that may produce a similar rate of return over time but perform “opposite” of one another would be said to be _____________? (Another way of saying this is that when Inv A is up, Inv B is down; when Inv A is down, Inv B is up…) (4-1)
a. Positively Correlated
b. Negatively Correlated
c. Diverse
d. No correlation
b. Negatively Correlated
When comparing two similar investments and their rates of return, what might be something to consider when judging the risk of the investments? (4-1)
a. Dividends
b. Risk-free rate of return
c. Standard Deviation
d. Geographic region of the company
c. Standard Deviation
A good investment portfolio should have (4-1)
a. Stocks from only one company.
b. A full-time manager.
c. Assets that are positively correlated.
d. Assets that are negatively correlated.
d. Assets that are negatively correlated.
You might view a stock investment that has a historical return of 5% differently when you know that the ______________ rate is also 5%. (4-1)
a. Risk-free
b. Correlation
c. Diversification
d. Allocation
a. Risk-free
Abbey was thinking about investing and was wondering what is different about mutual funds and ETFs. You tell her that one of the big differences between mutual funds and ETFs is that ETFs (4-4)
a. Offer diversification
b. Can change in price during market trading hours
c. Are priced once per day when the market closes
d. Are much more costly than mutual funds.
b. Can change in price during market trading hours
By _____________ you can reduce the risk in your portfolio. (4-2)
a. Diversifying your portfolio
b. Buying stocks that issue dividends
c. Having positively correlated assets
d. None of these would reduce risk
a. Diversifying your portfolio
Delphina was looking for advice on beginning investments. You tell her about putting in a fixed amount of money each month. This is known as? (4-2)
a. Rebalance
b. An Index
c. Dollar Cost Average
d. Average Allocation
c. Dollar Cost Average
Troy is just beginning to invest his money. You recommend buying shares of an asset portfolio that is actively managed and has a low minimum investment. What is your recommendation? (4-4)
a. Mutual Funds
b. Stocks
c. Bonds
d. Certificates of Deposit
a. Mutual Funds
Which of the following best describes an "index mutual fund" (or an index ETF)? (4-4)
a. A pooled investment fund that is actively managed by a professional with the goal of outperforming its related index.
b. A group of stocks in a pooled investment that tracks the performance of a specific market index.
c. The top 500 US domestic companies.
d. A way of categorizing the names of companies in a pooled investment.
b. A group of stocks in a pooled investment that tracks the performance of a specific market index.
To purchase stocks that are traded on a stock exchange, you need a broker. (4-2)
a. True
b. False
c. Depends. A broker is not needed when purchasing stock online.
d. Depends. A broker is needed when the stock trade is over $10,000.
a. True