Prelims

Question 1

[TRUE OR FALSE] Inflation brings about an increase in the purchasing power of the monetary unit.

Answer 1

FALSE

Question 2

[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.

Answer 2

FALSE

Question 3

[TRUE OR FALSE] Investment requires saving or minimizing current consumption to be able to set aside a certain amount periodically.

Answer 3

TRUE

Question 4

[TRUE OR FALSE] Investment always carries a degree of risk, and there is no guaranteed profit in any form of investment.

Answer 4

TRUE

Question 5

[TRUE OR FALSE] The higher the standard deviation, the higher the risk.

Answer 5

TRUE

Question 6

[TRUE OR FALSE] Collecting copper coins, especially those produced a hundred years ago cannot be considered an investment.

Answer 6

FALSE

Question 7

[TRUE OR FALSE] The primary goal of investment is to preserve capital, and any potential return is purely secondary.

Answer 7

FALSE

Question 8

[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.

Answer 8

TRUE

Question 9

[TRUE OR FALSE] Saving money in a bank account is considered an investment because it provides a return on the deposited funds.

Answer 9

TRUE

Question 10

[TRUE OR FALSE] Investment typically involves the allocation of money or resources with the expectation of generating future income or capital appreciation.

Answer 10

TRUE

Question 11

Real asset investments involving land or buildings.

Answer 11

Real Estate

Question 12

Physical assets such as gold, silver, or other tangible investments.

Answer 12

Precious Metals

Question 13

Companies that operate in multiple countries and whose stocks can be bought as international investments.

Answer 13

Multinational Corporations

Question 14

A short term debt security issued by companies, often used for financing short-term liabilities.

Answer 14

Commercial Papers

Question 15

Bonds that can be converted into a predetermined number of shares of the issuing company’s stock.

Answer 15

Convertible Bonds

Question 16

Interest-bearing time deposits offered by banks, typically negotiable and with a fixed maturity.

Answer 16

Negotiable Certificate of Deposit

Question 17

Debt instruments issued by the government with a maturity of more than one year.

Answer 17

Treasury Bonds

Question 18

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.

Answer 18

Options

Question 19

A type of equity share that represents ownership in a corporation and entitles the holder to vote at shareholder meetings.

Answer 19

Ordinary Shares

Question 20

Securities that grant existing shareholders the right to purchase additional shares of a company at a discounted price before the public offering.

Answer 20

Rights

Question 21

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

Answer 21

c. Default Risk

Question 22

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

Answer 22

a. Purchasing Power Risk

Question 23

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

Answer 23

c. All of the above

Question 24

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

Answer 24

d. Risk tolerance, investment goals, and time horizon

Question 25

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

Answer 25

c. Making investment decisions based solely on emotion or short-term market fluctuations

Question 26

Which of the following risks is not diversifiable?

a. Management risk
b. Interest rate risk
c. Purchasing power risk
d. Default risk

Answer 26

c. Purchasing power risk

Question 27

Which of the following risks is considered unsystematic?

a. Purchasing power risk
b. Management risk
c. Interest rate risk
d. Market risk

Answer 27

b. Management risk

Question 28

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

Answer 28

b. Risk-taker

Question 29

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

Answer 29

b. Liquidity buffer

Question 30

Factors in choosing investment alternatives include:

a. Taxes
b. All of these
c. Rate of return
d. Risk

Answer 30

b. All of these

Question 31

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%

Answer 31

a. Stock B: SD = 6%; E(R) = 10%

Question 32

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

Answer 32

a. To generate potential returns and grow wealth over time

Question 33

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%

Answer 33

c. Asset C: E(R) = 9%; SD = 12%

Question 34

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

Answer 34

c. The popularity of the investment among friends and family

Question 35

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

Answer 35

c. Current Yield