FP 120 Week 4 Quiz – in class

Instructions

Complete the Week 4 Quiz.

Submit your responses in a Microsoft® Word® document to the Assignment Files tab

Week 4

4.1 Concept: Why you should establish an investment program

1. A valid long-term investment goal is

1. Saving $5,000 per year for 40 years for retirement
2. Spending less than $500 per month for housing
3. Accumulating $3,000 in a savings account over the next 18 months
4. Using credit cards less in the next six months

2. A valid short-term investment goal is

1. Saving $5,000 per year for 40 years of retirement
2. Spending less than $500 per month for housing
3. Accumulating $3,000 in a savings account over the next 12 months
4. Using credit cards less in the next six months

4.2 Concept: Safety, risk, income, growth and liquidity effects on your investment program

3. As people approach retirement, which of the following holds true for most?

1. Their choices of investments do not change.
2. They choose more conservative investments.
3. They choose more risky investments.
4. They move all their money into certificates of deposit.

4. When choosing an investment, you should consider risk. The four primary risk components are

1. Business failure, inflation, buying power, stock
2. Buying power, inflation, interest rate, market
3. Inflation, interest rate, business failure, market
4. Market, bond, stock, inflation

5. If your main focus is to have your investments increase in value, you are most concerned with

1. Income
2. Growth
3. Liquidity
4. Market risk

4.3 Concept: Reducing investment risk

6. The process of spreading your assets among several different types of investments to lessen risk is called

1. Asset allocation
2. Asset combination
3. Asset investments
4. Asset returns

7. If you need access to your funds in two years or less, which of the following investments would be least appropriate?

1. Cash
2. Certificates of deposit
3. Short-term government bonds
4. Stocks and mutual funds

4.4.A  Concept: Bonds

8. A U.S. government security issued in minimum units of $100 with 30-year maturities is called a

1. Treasury bill
2. Treasury note
3. Treasury bond
4. Savings bond

9. Why do investors purchase corporate bonds?

1. Dividend income
2. Repayment at maturity
3. Repayment at maturity and a possible increase in value
4. Dividend income and repayment at maturity

4.4.B Concept: Stocks

10. If you want to compare two companies, you should use

1. Divided yield
2. Price per share
3. Price-earnings ratio
4. Net income

11. Ethan wants to purchase some stock for the first time. Which of the following is correct?

1. He should use an online broker to get specific advice about purchasing stock.
2. His purchase price will exactly equal the number of shares he purchases times the price per share and is known in advance.
3. If he uses a market order, he can lock in the price at which he wants to buy the stock.
4. His commission should be lower at an online broker than at a full-service broker.

4.4.C Concept: Mutual Funds and ETF’s

12. Many mutual funds charge a commission every time they are purchased by investors. These are called

Text Location: p. 428, Difficulty: Medium, Question from: Test bank

1. Load funds
2. Closed-end funds
3. Exchange-traded funds
4. Open-end funds
5. Which of the following types of stock funds invests in the same companies included in the Standard & Poor’s 500 stock index?

1. Equity income funds
2. Growth funds
3. Index funds
4. International funds

4.4. D Concept: 401(k), and IRA’s

14. Julian’s annual contributions to his retirement are not tax-deductible, but his earnings accumulate tax-free. He is investing in a

1. 401(k) plan
2. Regular IRA
3. Roth IRA
4. SEP plan

15. Money in a 401(k) grows in what way

1. Tax-free
2. Tax-exempt
3. Tax-deferred
4. Taxable

4.5 Concept: Retirement planning strategy

16. If you start a new job and are offered the opportunity to participate in the company’s 401(k) or 403(b) retirement plan, which of the following decisions can affect your financial future?

1. Participating in the retirement account to reduce income taxes
2. Participating in the retirement account to take advantage of the employer’s matching contributions
3. Basing your actual choice of investments on your age, how long before you retire, and your tolerance for risk
4. All of these decisions would have a financial impact.

17. When planning for retirement

1. A mortgage should not affect your financial planning.
2. Investments should be evaluated to determine whether their income can help cover living expenses.
3. Keeping your current, large house will be cheaper to maintain than to move to a smaller house.
4. Life insurance should be avoided.

4.6 Concept: Wills and estate planning

18. Jacob is updating his estate planning and wants to set up the legal document to leave everything to his wife. He is writing a(n)

1. Guardian will
2. Simple will
3. Stated amount will
4. Traditional marital will

19. A legal arrangement that helps manage the assets of your estate for your benefit or that of your beneficiaries is called a

1. Formal will
2. Trust
3. Guardian
4. Holographic will

20. What is the difference between a will and a living will?

1. A will is used to distribute your property after your death; a living will allows you to specify, in writing, your health care preferences for the time when you no longer have the capacity to provide consent.
2. A living will terminates if you become incompetent, while a will continues in force even if you become incapacitated.
3. A will describes your preferences regarding treatment if you are faced with a serious accident or illness; a living will specifies what physicians are allowed to treat you.
4. A living will appoints someone to act on your behalf in financial or medical matters; a will specifies how your assets will be distributed on your death.