Chapter 1

Question 1

The return on common stocks comes from either two sources

Answer 1

Dividends and capital gains

Question 2

Short-term investments generally rank high compared with other investment vehicles, But low relative to capital losses because of changing interest rates

Answer 2

False

Question 3

For federal tax purposes, annual “operating income” derived from Real Estate investments would be considered

Answer 3

Capital gains

Question 4

When does adventures of long-term capital gains is that despite preferential rates, “Paper Gaines”, Those unrealized, are taxed at that Federal level even though an investor still owns the stock

Answer 4

True

Question 5

According to the text, a NOW Account is:

Answer 5

Simply a checking account that pays interest, No legal minimum balance

Question 6

One attraction of series EE savings bonds is that investors need not report the interest earned on their Federal tax returns until the bonds are redeemed

Answer 6

False

Question 7

Home ownership is the most popular investment vehicle

Answer 7

False

Question 8

The lowest risk investment vehicle, most analysts would agree, it’s probably the ____

Answer 8

Us “ treasury EE bonds”

Question 9

In the diagram for the investment process included in chapter 1, the broken lines are shown to illustrate

Answer 9

That financial institutions can participate in the financial markets

Question 10

Three most popular investments:

Answer 10

Short term investment vehicles, residential real estate, and common stocks

Question 11

Notes are _____, and bonds are ___

Answer 11

Short-term, long-term

Question 12

An I-bond is a

Answer 12

Inflation adjusted bond, Doesn’t double in value

Question 13

EE bonds advantages:

Answer 13

Principal protected, exempt from state and local taxes, Deferred for federal taxes, safest, Easy to purchase

Question 14

Debt is

Answer 14

Simply a loan obligation to borrower to make periodic interest payments and to repay the full amount of the loan by some future date

Question 15

Equity

Answer 15

Represent ongoing ownership in a business or property

Question 16

Risk

Answer 16

The certainty surrounding the return that if particular investment will generate

Question 17

Short-term investments

Answer 17

Savings instruments with lives of one year or less. Used to warehouse idol funds and providing liquidity

Question 18

Common stock

Answer 18

Equity investments that represent ownership in incorporation

Question 19

Fixed income securities

Answer 19

Investments that makes fixed cash payments at regular intervals

Question 20

Mutual funds

Answer 20

Companies that pull money from many different investors and invest funds in a diversified portfolio of securities

Question 21

Derivatives

Answer 21

Securities that are neither death nor equity but are structured to exhibit the characteristics of the underlying assets from which they derive their value

Question 22

Dividends

Answer 22

Quarterly payments the corporation makes to its shareholders

Question 23

Capital gains

Answer 23

Results from selling the stock or an assets, at a price that exceeds its original purchase price

Question 24

EE bonds

Answer 24

Issued by the US treasury, savings bonds, earn a fixed rate of interest, compounded semiannually for 30 years. Risk-free

Question 25

Treasury bills

Answer 25

Issued by the US treasury, issued weekly, matures in one year

Question 26

Primary market

Answer 26

The market in which new issues of securities are sold to investors

Question 27

Secondary market

Answer 27

The market in which securities are treated after they have been issued

Question 28

Dealer market

Answer 28

Made up of the NASDAQ market and the OTC market

Question 29

Broker market

Answer 29

Consists of national and regional “ securities exchanges”

Question 30

Value

Includes three services

Answer 30

Radiant and reports, selection and opinion, summary and index

Question 31

Securities held by brokerage services are said to be held in

Answer 31

Street name