Module 6 - Quiz Flashcards
Owners of common stock normally have which of the following rights?
1) Dividend rights
2) Voting rights
3) Both dividend and voting rights
3) Both dividend and voting rights
- Owners of common stock normally also have both dividend and voting rights.
Returns from common stock can be in the form of which one of the following?
1) Dividends only
2) Dividends and interest only
3) Interest only
4) Dividends and capital appreciation
4) Dividends and capital appreciation
- Common stock offer returns from dividends and capital appreciation.
Which one of the following assets is considered liquid?
1) Corporate bonds
2) Stable value funds
3) REITs
4) Money market funds
2) Stable value funds
- Stable value funds are considered to be a cash equivalent. Corporate bonds, REITs, and money market (mutual) funds are not easily sold, thus they are not liquid.
All of the following are advantages of investing in exchange-traded funds (ETFs) except
1) Only end of day pricing
2) Low expenses
3) Tax efficient
4) Stock, bond, and commodity ETFs are available
1) Only end of day pricing
- ETFs trade during market hours, just like stocks—mutual funds have end of day pricing.
Which one of the following is not a type of systematic risk?
1) Exchange rate
2) Interest rate
3) Event
4) Purchasing power
3) Event
- Exchange rate, interest rate, and purchasing power risks are all types of systematic risk. Use the acronym “PRIME” for remembering the types of systematic risk: purchasing power, reinvestment, interest rate, market, and exchange rate. Event risk, though having one of the beginning letters in PRIME, is unsystematic risk as it refers to an isolated event, not affecting the whole market (though may affect an industry).
Which one of the following types of debt is issued by municipalities?
1) CDs
2) Mortgage-backed securities
3) Revenue bonds
4) Savings bonds
3) Revenue bonds
- Revenue bonds are issued by municipalities and are backed by a specific project, such as a toll road or hospital.
> CDs are issued by banks and credit unions. Revenue bonds are issued by municipalities and are backed by a specific project, such as a toll road or hospital.
> MBS are issued by federal agencies, not state municipalities. Revenue bonds are issued by municipalities and are backed by a specific project, such as a toll road or hospital.
> Savings bonds are issued by the federal government. Revenue bonds are issued by municipalities and are backed by a specific project, such as a toll road or hospital.
T / F - ETFs are also called open-end investment companies, as mutual funds are.
False - ETFs are usually more tax efficient with lower expenses than mutual funds. Mutual funds are called open-end investment companies, not ETFs.
T / F - ETFs are usually more tax efficient with lower expenses than mutual funds.
True - ETFs are usually more tax efficient with lower expenses than mutual funds. Mutual funds are priced only once at the end of the day, while ETFs trade on secondary stock exchanges all day long.
T / F - ETFs are priced only once, at the end of each trading day.
False - ETFs are usually more tax efficient with lower expenses than mutual funds.
T / F - ETFs do not trade on stock exchanges; they are sold only directly through brokers.
False - ETFs are usually more tax efficient with lower expenses than mutual funds. Mutual funds are priced only once at the end of the day, while ETFs trade on secondary stock exchanges all day long.
A private company may become public through
1) A venture capitalist investing company
2) Selling the company
3) Making an initial public offering (IPO)
4) Passing control of the company to another family member
3) Making an initial public offering (IPO)
- The definition of going public is making an initial public offering (IPO), in which shares of the company are sold to investors, then traded on the secondary market. Venture capital investment, selling the company, and passing control do not constitute becoming public.
An investor has a bond with a duration of 7. If interest rates go up 1%, how much is the price of the bond expected to fall?
1) 1%
2) 5%
3) 7%
4) 14%
7% - The duration times the interest rate (7 × 1%) means the bond will fall about 7%.
Advantages of investing in real estate include all of the following except
1) Inflation hedge
2) Fixity
3) Leverage
4) Tax advantages
2) Fixity
- Fixity is a disadvantage, and the conversion of property to another use, such as converting a warehouse into apartments, is very costly.
A debt instrument issued with a maturity of one year or less is called a
1) Bond
2) Note
3) Money market instrument
4) Indenture
3) Money market instrument - A money market instrument is debt with a maturity of up to one year.
> A bond is a debt instrument with maturities up to 30 years.
> A note is a debt instrument with maturities between one and 10 years.
> An indenture is the legal document spelling out the terms of a bond issue. It is not a debt instrument.
Your client wants to invest in a 10-year, $1,000 corporate bond with a semiannual 4% coupon and states that she is able to buy the bond at a discount price of $970. What is the yield to maturity of this bond?
1) 2.34%
2) 3.74%
3) 4.37%
4) 8.45%
3) 4.37%
END mode
#p - 2x/yr
Solving for - YTM (I)
1000 FV (970) PV 20 PMT (4% coupon gives you $40 annual pmt / 2 = $20 pmts made semi-annually) 10 N I = 4.37
T / F - Fundamental analysis is less time consuming than technical analysis.
False - Fundamental analysis is more time consuming than technical analysis. As an overview, technical analysis finds market trends and anomalies, while fundamental analysis looks at company data and financial ratios.
T / F - Technical analysis looks only forward, while fundamental analysis looks forward and backward.
False - Technical analysis looks only backward, and fundamental analysis does look forward and backward. As an overview, technical analysis finds market trends and anomalies, while fundamental analysis looks at company data and financial ratios.
