Module 6 Quiz Flashcards
Which of the following rights do owners of common stock normally have?
I. Voting rights
II. Dividend rights
III. Preemptive rights
I. Voting rights
II. Dividend rights
III. Preemptive rights
Returns from common stock are in the form of _____.
Dividends and capital appreciation
Which of these assets is considered the most liquid?
Money market mutual funds
A general disclosure of the annual operating expenses of a mutual fund is represented by _____.
An expense ratio
Which of the following is NOT a type of systematic risk?
Event
Which of the following types of debt is issued by municipalities?
Revenue bonds
A general risk component representing the variability of a stock’s total return as it directly relates to overall movements in the general economy is known as _____.
Systematic risk
A privately held company may go public through _____.
Making an initial public offering (IPO)
Leslie purchased a 10-year bond with an annual coupon rate of 4.75% paid semiannually. The bond has a current market price of $1,035. What is the bond’s yield to maturity (YTM)?
4.32%
2 P/YR, END mode, C ALL
1035, +/-, PV
1000, FV
23.75, PMT (4.75% x 1000 / 2)
10, downshift, N (20 compounding periods)
Solve for I/YR = 4.3154
Which of these is a disadvantage of investing in real estate?
Illiquidity
Which of these is the risk that can be eliminated with a well-diversified portfolio?
Unsystematic risk
Jason wants to purchase a bond that will provide him a steady income with low default risk. As a result, he wishes to purchase an investment-grade bond through his stockbroker. Among these choices, what would be the lowest bond rating by Standard & Poor’s that would still be considered investment grade?
BBB
Which of the following is least likely to be considered a constraint when preparing an investment policy statement?
Risk tolerance
Business risk is a type of _____.
Unsystematic risk that includes the firm’s ability to make a profit
Each of these is an advantage of investing in mutual funds except _____.
High portfolio turnover
Jordan and Pat, ages 45 and 43 respectively, would like to diversify their portfolio. They are considering real estate as a possible alternative. Which of these investments would offer the couple the opportunity to participate indirectly in the real estate market?
Real estate investment trust (REIT)
Mike owns a corporate bond that is currently trading at $992. The annual interest (coupon) payment is $35 per year. What is the current yield of the bond?
3.53%
$35/$922
An effective investment policy statement should accomplish all of these except _____.
Guarantee the portfolio will achieve a positive rate of return
Which one of these would be identified as a threat when developing a SWOT analysis for a client?
Inflation may be increasing in the coming years
Which of the following is NOT one of the three main investment mutual fund objectives?
Asset allocation
Which of the following statements about bond pricing is CORRECT?
If a bond is issued when interest rates are at 5%, and interest rates increase to 6%, the bond would then be selling at a premium
Which of these is an advantage of investing in mutual funds?
Diversification
Nefeli has earned 9% on her five-year investment to buy a car. She is in a 22% federal and a 3% state marginal income tax bracket. The inflation rate has averaged 2.4% over the past five years. What is her tax- and inflation-adjusted return?
4.25%
Tax-adjusted return: 0.09 x (1 - 0.25) = 0.0675 = 6.75%
Tax- and inflation-adjusted return:
[{0.0675 + 1) / 1.024] - 1 = (1.0675 / 1.024) - 1 = 1.0425 - 1 = 0.0425 = 4.25%
Fund T has an average return of 7.5% and a beta of 1.1. Fund W has an average return of 6.8% and a beta of 0.9. Which fund should you purchase and why?
Fund W because it has a higher risk-adjusted return
Fund T: 7.5 / 1.1 = 6.82%
Fund W: 6.8 / 0.9 = 7.56%
