Prelims Flashcards
[TRUE OR FALSE] Inflation brings about an increase in the purchasing power of the monetary unit.
FALSE
[TRUE OR FALSE] XY Co.’s total peso return of PHP 10,000 more than AB Co.’s total peso return always indicates better performance than AB Co.’s.
FALSE
[TRUE OR FALSE] Investment requires saving or minimizing current consumption to be able to set aside a certain amount periodically.
TRUE
[TRUE OR FALSE] Investment always carries a degree of risk, and there is no guaranteed profit in any form of investment.
TRUE
[TRUE OR FALSE] The higher the standard deviation, the higher the risk.
TRUE
[TRUE OR FALSE] Collecting copper coins, especially those produced a hundred years ago cannot be considered an investment.
FALSE
[TRUE OR FALSE] The primary goal of investment is to preserve capital, and any potential return is purely secondary.
FALSE
[TRUE OR FALSE] The real rate of return is one of the components of the required return that refers to the return that investors require for allowing others to use their money for a given period of time.
TRUE
[TRUE OR FALSE] Saving money in a bank account is considered an investment because it provides a return on the deposited funds.
TRUE
[TRUE OR FALSE] Investment typically involves the allocation of money or resources with the expectation of generating future income or capital appreciation.
TRUE
Real asset investments involving land or buildings.
Real Estate
Physical assets such as gold, silver, or other tangible investments.
Precious Metals
Companies that operate in multiple countries and whose stocks can be bought as international investments.
Multinational Corporations
A short term debt security issued by companies, often used for financing short-term liabilities.
Commercial Papers
Bonds that can be converted into a predetermined number of shares of the issuing company’s stock.
Convertible Bonds
Interest-bearing time deposits offered by banks, typically negotiable and with a fixed maturity.
Negotiable Certificate of Deposit
Debt instruments issued by the government with a maturity of more than one year.
Treasury Bonds
A financial contract that gives the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price within a specified period.
Options
A type of equity share that represents ownership in a corporation and entitles the holder to vote at shareholder meetings.
Ordinary Shares
Securities that grant existing shareholders the right to purchase additional shares of a company at a discounted price before the public offering.
Rights
Which of the following risks arise from the possibility that firms may go bankrupt?
a. Purchasing Power Risk
b. Management Risk
c. Default Risk
d. Callability Risk
c. Default Risk
Which risk reflects the possibility of loss due to adverse changes in the relative values of world currencies?
a. Purchasing Power Risk
b. Callability Risk
c. Convertibility Risk
d. Default Risk
a. Purchasing Power Risk
Which of the following is a common risk associated with investing in emerging markets?
a. Currency risk
b. Political risk
c. All of the above
d. Market volatility
c. All of the above
When choosing among different investment alternatives, which of the following factors should be considered?
a. The investor’s favorite color
b. The current weather conditions
c. Historical performance only
d. Risk tolerance, investment goals, and time horizon
d. Risk tolerance, investment goals, and time horizon
Which of the following is a common investing mistake that investors should avoid?
a. Diversifying your investments across various asset classes
b. Regularly reviewing and adjusting your investment portfolio
c. Making investment decisions based solely on emotion or short-term market fluctuations
d. Seeking advice from financial professionals and experts
c. Making investment decisions based solely on emotion or short-term market fluctuations
Which of the following risks is not diversifiable?
a. Management risk
b. Interest rate risk
c. Purchasing power risk
d. Default risk
c. Purchasing power risk
Which of the following risks is considered unsystematic?
a. Purchasing power risk
b. Management risk
c. Interest rate risk
d. Market risk
b. Management risk
Mr. Philip, an investor, was faced with a choice between two investment alternatives: Investment A, Php 100,000 expected return with 80% certainty, or Investment B, Php 100,000 expected return with 75% certainty. What type of investor is Philip if he chose Investment B?
a. Conservative Investor
b. Risk-taker
c. Risk-neutral
d. Moderate Investor
b. Risk-taker
This refers to the amount of cash that an investor must have to take care of unexpected cash requirements.
a. Investment in stocks
b. Liquidity buffer
c. Investable cash
d. The whole investment
b. Liquidity buffer
Factors in choosing investment alternatives include:
a. Taxes
b. All of these
c. Rate of return
d. Risk
b. All of these
Addy is considering investing in stocks. Which is the less risky investment?
a. Stock B: SD = 6%; E(R) = 10%
b. Stock A: SD = 10%; E(R) = 10%
c. Stock D: SD = 20%; E(R) = 24%
d. Stock C: SD = 8%; E(R) = 12%
a. Stock B: SD = 6%; E(R) = 10%
What is a common reason for investing in financial assets?
a. To generate potential returns and grow wealth over time
b. To eliminate the need for financial planning
c. To preserve capital and avoid all risks
d. To maximize short-term spending
a. To generate potential returns and grow wealth over time
Considering the following four assets, which one would you pick if you are risk-averse?
a. Asset A: E(R) = 12%; SD = 15%
b. Asset B: E(R) = 15%; SD = 20%
c. Asset C: E(R) = 9%; SD = 12%
d. Asset D: E(R) = 15%; SD = 18%
c. Asset C: E(R) = 9%; SD = 12%
Which of the following is NOT typically an important consideration when evaluating different investment alternatives?
a. Tax implications
b. Diversification
c. The popularity of the investment among friends and family
d. Liquidity needs
c. The popularity of the investment among friends and family
Which refers to the annual income an investment is expected to generate divided by its current market price?
a. Savings
b. Inflation Rate
c. Current Yield
d. Yield
c. Current Yield
