Module 6

Question 1

Which of the following types of debt is issued by municipalities?

Answer 1

Revenue bonds

Question 2

Leslie purchased a 10-year bond with an annual coupon rate of 4.75% paid semiannually. The bond has a current market price of $1,035. What is the bond’s yield to maturity (YTM)?

Answer 2

4.45%

Set calculator for 2 P/YR, END mode, C ALL

PV = −1,035, FV = 1,000, PMT = 23.75 (4.75% × 1,000 / 2), 10, DOWNSHIFT, N (20 compounding periods), Solve for I/YR = 4.3154, or 4.32%

Question 3

inflation Hedge

Answer 3

disadvantage of investing in real estate

Question 4

Jason wants to purchase a bond that will provide him a steady income with low default risk. As a result, he wishes to purchase an investment-grade bond through his stockbroker. Among these choices, what would be the lowest bond rating by Standard & Poor’s that would still be considered investment grade?

Answer 4

BBB

Question 5

least likely to be considered a constraint when preparing an investment policy statement

Answer 5

Risk tolerance

Question 6

Three advantages of investing in mutual funds

Answer 6

pooling of funds.
professional management.
diversification.

high portfolio turnover. is not an advantage
A mutual fund with a high turnover rate could subject the owner to short-term capital gains that are subject to ordinary income tax rates rather than long-term capital gains rates.

Question 7

A threat when developing a SWOT analysis for a client.

Answer 7

Unrealistic goals for the amount of saving and investing.

Question 8

What are the three main possible objectives for a mutual fund?

Answer 8

Striving for income, capital appreciation, or capital preservation. Asset allocation refers to how assets are invested and is relevant regardless of a mutual fund’s objective.

Question 9

Mortgage-backed securities (MBSs) are:

Answer 9

Pools of mortgages are put together to create an MBS.

Question 10

Fund T has an average return of 7.5% and a beta of 1.1. Fund W has an average return of 6.8% and a beta of 0.9. Which fund should you purchase and why?

Answer 10

Fund W because it has a higher risk-adjusted return.

Question 11

Standard deviation

Answer 11

a measurement of dispersion around the mean and is a reliable measurement of variability. The larger the dispersion, the greater the risk and the greater the potential for gains.

Question 12

A statement concerning the buy-and-hold investment strategy

Answer 12

This strategy of buying and holding investments minimizes transaction costs in the buying and selling of securities.

a classic passive investment strategy that minimizes transaction costs and ensures that investors can participate in any upswings in the market. This strategy does not guarantee that the investor will have positive returns over the long term.

Question 13

For which of the following investors would U.S. Treasury bills be most appropriate?

Answer 13

Jack and Krissy, ages 65 and 63, conservative risk tolerance, need for liquidity and safety of principal

Question 14

Fred has the following amounts on deposit at the same bank.

Account	Ownership	Balance
Savings	Fred	$200,000
Traditional IRA	Fred	$300,000
CD	Joint w/spouse	$400,000
How much FDIC insurance coverage does Fred have for his accounts at the bank?

Answer 14

$650,000

Each category of ownership (e.g., individual, joint, or retirement account) in the same institution is subject to a separate limit of $250,000. Fred has $200,000 of coverage on his individual savings account, $250,000 of coverage on the traditional IRA, and $200,000 of coverage on the joint account, for a total of $650,000.