[SOURCE] Midterms

Question 1

[TRUE OR FALSE] An individual can prepare for his retirement by making small investments during his productive years.

Answer 1

TRUE

Question 2

[TRUE OR FALSE] Diversification of investment should always be avoided.

Answer 2

FALSE

Question 3

[TRUE OR FALSE] There are different forms of investments and one’s choice depends on his risk tolerance.

Answer 3

TRUE

Question 4

[TRUE or FALSE] If money has a time value, then the future value will always be more than the original amount invested.

Answer 4

TRUE

Question 5

[TRUE or FALSE] Unless otherwise stated, exact interest method is used in computing simple interest.

Answer 5

FALSE

Question 6

[TRUE or FALSE] Simple interest involves three factors, which are time, rate, and principal.

Answer 6

TRUE

Question 7

[TRUE or FALSE] Exact interest method provides more simple interest than the ordinary interest method.

Answer 7

FALSE

Question 8

[TRUE or FALSE] If the nominal rate is 24% and interest is compounded every 3 months, the interest rate per compounding period is 8%.

Answer 8

FALSE: 6%

Question 9

[TRUE or FALSE] Compound interest yields considerably higher interest than simple interest because the investor is earning interest on the interest.

Answer 9

TRUE

Question 10

[TRUE or FALSE] If compounding is done semiannually, then nominal rate is half the interest rate per compounding period.

Answer 10

FALSE

Question 11

This refers to the process of defining investment objectives, adopting and executing strategies to optimize results considering the risk involved, and evaluating performance periodically.

Answer 11

Investment Management

Question 12

Risk that arises from the possibility that firms may go bankrupt.

Answer 12

Default risk

Question 13

Risk that arises from the variability in return caused by the forced sale of bond instruments.

Answer 13

Callability risk

Question 14

Investment which entails less risk but smaller rewards.

Answer 14

Defensive investment

Question 15

This reflects the possibility of loss due to adverse changes in the relative values of world currencies.

Answer 15

Purchasing power risk

Question 16

Refers to annual income an investment is expected to generate divided by its current market price.

Answer 16

Current yield

Question 17

Refers to how investable funds are allocated between the different investment items.

Answer 17

Investment Mix

Question 18

Short term promissory notes issued by the national government.

Answer 18

Treasury bills

Question 19

Brings about a a decrease in the purchasing power of a monetary unit.

Answer 19

Inflation

Question 20

Refers to putting away money in a risky endeavor.

Answer 20

Investing

Question 21

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

Answer 21

c. liquidity buffer

Question 22

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)

Answer 22

c. I/(RT)

Question 23

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

Answer 23

a. The type of investment or loan

Question 24

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

Answer 24

b. Interest calculated on both the initial principal and any accumulated interest

Question 25

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

Answer 25

a. Monthly