Finance 20 MCQs

Three years ago Mary decided to invest in a mutual fund that had a favorable 10 year track record. Over the past three years her mutual fund investment has lost money. It is fair to say that Mary's expected return was higher than her __________ return. 
A. time adjusted
B. realized
C. variable
D. compound annual




Question 2 of 20 5.0 Points
On the expected risk-return scale, __________ are considered to have low risk and low return, and __________ are considered to have high-risk, high return. 
A. warrants; common stocks
B. common stocks; Treasury bills
C. options; corporate bonds
D. Treasury bills; financial futures



Question 3 of 20 5.0 Points
John frequently changes his asset weighting and individual securities. We would describe his portfolio investment strategy as: 
A. opportunistic.
B. uncertain.
C. efficient.
D. active.



Question 4 of 20 5.0 Points
From the standpoint of U.S. investors, it is useful to think of the global investment environment in terms of a triad of choices. The triad is: 
A. Europe, Asia, and emerging markets.
B. North America, Europe, and Asia.
C. developed, lesser developed, and emerging.
D. English speaking, Spanish speaking, and all other.



Question 5 of 20 5.0 Points
Up until the 1990s, the most important institutional investors were pension funds and corporate raiders. During the 1990s, the primary institutional buying force in the stock market was: 
A. money market funds.
B. insurance companies.
C. mutual funds.
D. brokerage firms.



Question 6 of 20 5.0 Points
Investment professionals consider the Treasury __________ to be the benchmark, risk-free security. 
A. fund
B. bond
C. bill
D. obligation



Question 7 of 20 5.0 Points
An investor who purchases a corporate bond will pay the underlying bond price plus an extra amount that represents: 
A. par value discount.
B. accrued interest.
C. call premium.
D. administrative expense.






Question 8 of 20 5.0 Points
In a practice common among issuers of municipal bonds (60 percent of issuers in 2002), a lower interest rate is obtained through the use of: 
A. insurance.
B. ratings.
C. revenue bonds.
D. tax equivalent yield.



Question 9 of 20 5.0 Points
Preferred stock is known as a hybrid security because it combines features of both __________ and __________ instruments. 
A. equity; fixed income
B. equity; common stock
C. money market; fixed income
D. common stock; derivative



Question 10 of 20 5.0 Points
Stocks and bonds would be classified as __________ assets. 
A. real
B. indirect
C. personal
D. financial



Question 11 of 20 5.0 Points
John has just invested in several stocks with high price/earnings multiples. What characteristic is John MOST LIKELY to expect from these stocks in the next several years? 
A. High dividends
B. High growth
C. High book value
D. High prices



Question 12 of 20 5.0 Points
An essential difference between an option and a futures contract is that the buyer of an option contract has: 
A. more liquidity.
B. enhanced transferability.
C. limited liability.
D. less variability.



Question 13 of 20 5.0 Points
Investing in options (equity puts and calls) can involve high risk because the very nature of option investing is a battle between leverage and: 
A. premium.
B. time decay.
C. liquidity.
D. momentum.



Question 14 of 20 5.0 Points
The shares of closed-end investment companies are fixed after the initial public offering, and they subsequently: 
A. trade in secondary markets like any other stock.
B. trade for a premium to their net asset value.
C. pay no dividends, but can be split.
D. remain at constant value until redeemed.



Question 15 of 20 5.0 Points
Open-ended mutual funds are commonly classified by research firms such as Morningstar based on their __________ and __________. 
A. intent; net asset value
B. holdings; diversity
C. history; size
D. objectives; investment style



Question 16 of 20 5.0 Points
A recent trend in open-end mutual funds is to offer investors different classes of shares in the same fund. The primary distinguishing factor between these share classes is the: 
A. net asset value.
B. holding period.
C. fee structure.
D. redemption process.



Question 17 of 20 5.0 Points
While investors tend to select stock mutual funds based on total return, the way a fund chooses to make distributions can be an important factor when it comes to the issue of: 
A. risk profile.
B. cash flow.
C. tax efficiency.
D. operating expenses.



Question 18 of 20 5.0 Points
Exchange traded funds (ETFs) are similar to index mutual funds in that they: 
A. are passive portfolios.
B. are traded on exchanges throughout the day.
C. can be bought on margin.
D. have front-end loads.







Question 19 of 20 5.0 Points
The chief function of a capital market is to: 
A. provide capital for government expenditures.
B. allocate resources efficiently.
C. track economic growth.
D. allow investors to generate returns.



Question 20 of 20 5.0 Points
In a short sale, the investor is selling shares that have been: 
A. previously purchased.
B. borrowed.
C. newly issued.
D. overvalued.