[SOURCE] Midterms Flashcards
[TRUE OR FALSE] An individual can prepare for his retirement by making small investments during his productive years.
TRUE
[TRUE OR FALSE] Diversification of investment should always be avoided.
FALSE
[TRUE OR FALSE] There are different forms of investments and one’s choice depends on his risk tolerance.
TRUE
[TRUE or FALSE] If money has a time value, then the future value will always be more than the original amount invested.
TRUE
[TRUE or FALSE] Unless otherwise stated, exact interest method is used in computing simple interest.
FALSE
[TRUE or FALSE] Simple interest involves three factors, which are time, rate, and principal.
TRUE
[TRUE or FALSE] Exact interest method provides more simple interest than the ordinary interest method.
FALSE
[TRUE or FALSE] If the nominal rate is 24% and interest is compounded every 3 months, the interest rate per compounding period is 8%.
FALSE: 6%
[TRUE or FALSE] Compound interest yields considerably higher interest than simple interest because the investor is earning interest on the interest.
TRUE
[TRUE or FALSE] If compounding is done semiannually, then nominal rate is half the interest rate per compounding period.
FALSE
This refers to the process of defining investment objectives, adopting and executing strategies to optimize results considering the risk involved, and evaluating performance periodically.
Investment Management
Risk that arises from the possibility that firms may go bankrupt.
Default risk
Risk that arises from the variability in return caused by the forced sale of bond instruments.
Callability risk
Investment which entails less risk but smaller rewards.
Defensive investment
This reflects the possibility of loss due to adverse changes in the relative values of world currencies.
Purchasing power risk
Refers to annual income an investment is expected to generate divided by its current market price.
Current yield
Refers to how investable funds are allocated between the different investment items.
Investment Mix
Short term promissory notes issued by the national government.
Treasury bills
Brings about a a decrease in the purchasing power of a monetary unit.
Inflation
Refers to putting away money in a risky endeavor.
Investing
This refers to the amount of cash that an investor must have to take focus of unexpected decline in cash dividends.
a. investable cash
b. the whole investment
c. liquidity buffer
d. investment in stocks
c. liquidity buffer
If you want to calculate the principal amount (P) when you know the interest (I), the interest rate (R), and the time period (T), which formula should you use?
a. I/(PT)
b. I = PRT
c. I/(RT)
d. I/(PR)
c. I/(RT)
Which of the following factors does NOT affect the amount of simple interest earned on an investment or loan?
a. The type of investment or loan
b. The time period
c. The interest rate
d. The principal amount
a. The type of investment or loan
What is compound interest?
a. Interest paid monthly
b. Interest calculated on both the initial principal and any accumulated interest
c. Interest paid annually
d. Interest calculated only on the initial principal
b. Interest calculated on both the initial principal and any accumulated interest
Which compounding frequency typically results in the highest amount of interest earned on an investment over time?
a. Monthly
b. Annually
c. Quarterly
d. Semi-annually
a. Monthly
