RINKESH NAME: PATEL
ID:109-00-4386
UNVA FINA 523 PERSONAL FINANCIAL ADVISING
Final - EXAM spring 2011
1. DOWN LOAD THE WORD FILE
2. ANSWER PROBLEMS. Total Points = 126 A=113, B = 101, C = 88
3. SAVE IT and Email it to: [e-mail] or
[e-mail]
4. Use the last page to record your answers.
1) Lavon has his money invested into an asset that has averaged the following returns
the last three years: +22%, -8%, +13%. Most likely what type of asset is he invested
in?
A) Corporate bonds
B) Income producing Real Estate
C) Gold coins
D) Common stock
2) You have just recently started your investment activities for retirement. You were
happy to learn from your broker that your investor's account balance would be insured
for up to $500,000 through the ________ in the event their brokerage firm goes
bankrupt.
A) FDIC
B) FSLIC
C) NCUA
D) SIPC
E) FTC
3) The net income of the firm is $4 million dollars. The firm will pay $500,000 in
dividends to the preferred shareholders. There are currently 1 million shares of
common stock outstanding. What are the earnings per share for this firm?
A) $4.00
B) $3.50
C) $4.50
D) None of the above are correct
4) What could possibly happen if you sell a bond before the maturity date?
A) You could have a capital gain.
B) You could have a capital loss.
C) You could break even with the price you paid for the bond.
D) All of the above are correct.
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E) Both A and C are correct.
5) When comparing which mutual fund to invest in, which of the following would be
important to consider?
A) Load
B) Net Asset Value
C) Expense ratio
D) All of the above are correct
E) Both A and C are correct.
6) To be eligible for Social Security benefits, you receive one credit for every $1,050 in
wages that you earn, up to 4 credits per year. How many total credits do you need to
qualify for benefits?
A) 4
B) 20
C) 30
D) 40
7) The first step in estate planning is to choose your heirs and what they will receive.
Answer: True or FALSE
8) Suppose that immediately after graduation you invested $3,000 each year for 10
years and nothing thereafter. You earn 10% on this money. Which of the following is
closest to the amount of money you would you have on deposit when you retired in 40
years (30 years after the deposits stopped)?
A) $47,812
B) $523,482
C) $834,295
D) $1,327,777
9) Tran purchased a house for a rental property for $100,000 five years ago. During the
time he owned this rental, his net rent was a total of $4,000. He just sold the property
for $120,000. What was his average annual return on this investment?
A) 4.0%
B) 4.8%
C) 24%
D) Not enough information available.
10) Zippo Mutual Fund is one of your best performers. It just announced a year-end
distribution of $3.50 per share in capital gains and $1.50 in dividends. Assuming the
NAV increased from $29.50 to $33.50, calculate your total annual return?
A) 30.51%
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B) 26.87%
C) 16.95%
D) 14.93%
E) None of the above
11) You believe that the stock of MoabBikes will soon fall from its current price of $25
per share. You short 1000 shares with your broker who has a 50% margin requirement.
The price falls to $15 per share, but not before it pays a $5 dividend. Your commissions
and other charges totaled $50. What was your total profit?
A) $5.00
B) $2,450
C) $2,500
D) $4,950
E) None of the above
12) You have determined that you will need to accumulate $1,000,000 in your
retirement account in order to cover your inflation-adjusted shortfall. How much money
would you have to put into a tax-deferred retirement account every year if you plan on
retiring in 40 years? Assume a 8% average return on this account and there is nothing
in the account today.
A) $1,458
B) $3,860
C) $5,957
D) $8,444
13) You purchased 100 shares of Quantex at $150 per share for a total investment of
$15,000. The stock had a 3 for 1 split (after your purchase). How many shares do you
now own and how much is your original investment worth now (after the split)?
A) 100 shares and $150 dollars
B) 300 shares and $15,000 dollars
C) 100 shares and $45,000 dollars
D) 300 shares and $45,000 dollars
E) None of the above
14) A married couple with 2 children and 5 grandchildren has an estate valued at $4
million. They decide to use gifts as a means to transfer some of their wealth to their
family now and lower the value of their estate. If for a five-year period the couple gives
the maximum tax-free gift to each of their children and grandchildren, the value of their
estate would be reduced to
A) $84,000.
B) $420,000.
C) $3,580,000.
D) $3,916,000.
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15) XYZ company issued bonds three years ago with a 7% coupon rate. Today, the
market rate of interest was lowered to 4%. What most likely will happen next?
A) XYZ company will lower the par value of their bonds.
B) XYZ company will lower the coupon rate of their bonds.
C) XYZ company will call their bonds in.
D) None of the above are correct.
16) What is a smart thing for married women to do regarding their personal financial
situation?
A) Make sure their plan recognizes that women live longer than men and that half of all
marriages end in divorce.
B) Be involved in decisions regarding their husband's employee benefits and retirement
plans.
C) See a financial planner about any specific concerns.
D) All of the above are correct.
E) Only A and C are correct.
17) Juan purchased shares in ABC Company for $5,000 three years ago. During these
three years he received $600 in dividends. He just sold the stock for $4,300. What
was his total return on this investment?
A) 2%
B) 12%
C) 14%
D) 26%
18) What are the disadvantages to the employee with 401k and 403b retirement plans?
A) It is harder to plan for retirement since you don't know for sure how much income you
can withdraw from the plan in advance.
B) Many employees are financially naive and don't make appropriate investment
choices inside the plan.
C) There is a 10% penalty for early withdrawals for employees under the age of 59.5
years old.
D) All of the above are correct
E) Both A and C are correct.
19) You have decided to borrow stock from your broker, sell it in the market, and then
(you hope) replace the borrowed shares when the price drops in the future. This is an
example of
A) Borrowed selling.
B) Selling short.
C) Reverse hedging.
D) IOU trading.
E) None of the above
20) You purchased 500 shares in a mutual fund for $20 NAV. You elected the Dividend
Reinvestment Plan and had all dividend and capital gains distributions reinvested in
additional shares. You just closed your account and sold 550 shares for $28 NAV.
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What was your total return on this investment?
A) 24%
B) 34%
C) 44%
D) 54%
21) When you got home after work, you saw on the News that the S&P was down by 20
points. Which of the following describes what happened to the stocks that you owned?
A) All of your stock's market prices declined by 20 points also.
B) Some of your stocks may have increased in market price.
C) Some of your stocks may have decreased in market price.
D) Both B and C are correct.
22) What challenges to personal financial planning does marriage present?
A) Setting common goals.
B) Establishing a common household budget.
C) Asset ownership and estate planning.
D) All of the above are correct.
E) Only B and C are correct.
23) The bond that you own does not pay any interest. Instead, it is sold at a "discount"
from its maturity value. This is a ________ bond.
A) No interest
B) Face discount
C) Growth
D) Zero coupons
E) None of the above
24) We may prepare a ________ to appoint someone to legally act on our behalf in the
event we become mentally incapacitated and a ________ to state our wishes in the
event of a terminal illness or injury.
A) Living will; common disaster clause
B) Durable power of attorney; living will
C) Last letter of instruction; living will
D) Living will; durable power of attorney
E) Durable power of attorney; last letter of instruction
25) Which of the following funds would be appropriate for your emergency funds or
liquid assets?
A) Growth fund
B) Bond fund
C) Money market fund
D) None of the above.
E) Both A and B are correct
26) You purchased an investment for $1,000 on which you earned $120 investment last
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year. The inflation rate during that time was 3%. What was your real rate of return?
A) 3%
B) 9%
C) 12%
D) 15%
E) None of the above
27) LaVon works for a company with a 401k plan. He currently earns $60,000 in gross
salary and contributes 10% of his gross salary into his 401k account. If his marginal tax
rate is 28%, how much income tax liability is he saving by participating in his 401k?
A) 0
B) $1,680
C) $6,000
D) $16,800
28) A ________ is an order that specifies a securities trade is to be made only at a
certain price or better.
A) Day order
B) Market order
C) Limit order
D) Take order
E) None of the above
29) The legal procedure that establishes the validity of a will, and then distributes the
assets of the estate including the payment of any taxes, is called ________.
A) Probate
B) Verification
C) Certification hearing
D) Establishment hearing
30) An attachment to a will that alters or amends a portion of the will is called a
________.
A) Proxy
B) Codicil
C) Letter of last instructions
D) Revocation
E) None of the above
31) If a company's stock is currently selling at 20 times earnings, and there are one
million of shares stock outstanding, and the net income of the firm is $3 million dollars
after paying preferred dividends, then what is the current market price of the stock?
A) $20
B) $40
C) $60
D) Not enough information available.
32) Living below your means deals with buying what you need versus buying what you
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want.
Answer: TRUE - False
33) Marj can also experience additional advantages with Treasury bonds, which is (are):
A) there is no default.
B) they can't be called in.
C) most interest is free of state and local taxes.
D) A and C
E) A, B, and C
34) Ali's appoints an executor in his will, who be responsible for ________.
A) Carrying out Ali's wishes
B) Acting under the durable power of attorney
C) Managing Ali's property until the estate is passed on to the heirs
D) Acting under the durable health care power of attorney
E) Both A and C
35) Which of the following starts off with the highest risk bond and ends with the lowest
risk bond?
A) Municipal, Corporate, Treasury, Junk
B) Corporate, Junk, Treasury, Municipal
C) Junk, Corporate, Municipal, Treasury
D) Corporate, Junk, Treasury, Municipal
36) Which of the following does a budget help you accomplish?
A) It allows you to not think about what you spend money on.
B) It allows you to live above your means.
C) It forces you to use restraint.
D) all of the above
E) None of the above
37) Choose the list that starts with the lowest P/E ratio and ends with the highest P/E
ratio.
A) Growth, blue-chip, defensive
B) Small cap, mid cap, large cap
C) Income, growth, speculative
D) Cyclical, defensive, income
38) If you are thirty years old and saving for retirement, which fund would be an
appropriate choice for your retirement portfolio?
A) International Fund
B) Balanced Fund
C) Index Fund
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D) All of the above are correct.
E) Both A and B are correct.
39) Your next-door neighbor, a kind, elderly lady, just discovered that her stock account
had been excessively traded in an inappropriate manner, mainly to generate excess
commissions. This is an example of ________.
A) Account theft
B) Black market trading
C) High turnover trading
D) Churning
E) None of the above
40) You recently purchased a stock for $25. It is now worth $35, and it paid a $5
dividend during the time you held it. What is your rate of return on this stock?
A) 60%
B) -20%
C) 43%
D) 40%
E) None of the above
41) Which of the following retirement plans are designed for Small Businesses?
A) SIMPLE plans
B) SEP-IRA plans
C) All of the above are correct.
D) Both A and B are correct.
E) 401k plans
42) What is the value of a $1,000 par value bond with a 12% annual coupon that will
mature in 5 years if the bond is currently priced to yield 10%?
A) $955.76
B) $1,000.00
C) $1,075.81
D) $1,158.52
E) None of the above
43) You want to start an educational IRA for your child. Suppose that you contribute
$500 each year to this account for 18 years, starting when he or she is born. If you can
earn 8% on the deposits, how much will be on deposit at the end of the 18th year?
A) $4,306.38
B) $17,581.05
C) $18,725.12
D) $3,682.89
E) None of the above
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44) A stock currently sells for $50 per share, and has a forecasted dividend of $6.00 per
share. There are currently 100,000 shares outstanding and the stock has a P/E ratio of
14.00. What is the dividend yield?
A) 10%
B) 12%
C) 24%
D) 28%
E) None of the above
45) What are the differences between an ETF and a mutual fund?
A) An ETF can be traded like a share of common stock
B) An ETF can be purchased on margin or sold short like a share of common stock
C) An ETF is less complicated concerning tax liability
D) All of the above are correct
E) Both A and C are correct
46) Insider trading is both unfair and illegal. This occurs when officers, directors, major
stockholders, or others trade securities while ________.
A) Intoxicated
B) In prison
C) In possession of illegal drugs
D) In possession of "material" nonpublic security information
E) Having relatives work for the firm whose stock they are trading
47) Debt is being marketed to adults as much as toys are to children. What are some of
the results of this?
A) People are encouraged to borrow more than they should.
B) Almost 60% of those aged 30 and under do not pay off their credit card bills every
month.
C) Students are limited in their capacity to obtain debt.
D) All of the above.
E) Only A and B.
48) Louis purchased $5,000 worth of stock three years ago and sold it today for $7,000.
He received no dividends from this investment. Inflation averaged 4% during the three
years he owned the stock. What was his average real return per year on this
investment?
A) 4%
B) 9.33%
C) 13.33%
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D) 40%
49) Under joint tenancy with the right of survivorship, two or more individuals share
ownership of the assets; when one of the owners dies that owner's share of the assets
becomes part of the deceased's estate and is distributed according to the deceased's
will.
Answer: TRUE - FALSE
50) The ________ risk premium is the additional investment return required to
compensate investors for risking that the issuer may not pay the interest or principal on
a security.
A) Liquidity
B) Default
C) Maturity
D) Cash conversion
E) None of the above
51) ComChip is a computer chip manufacturer. Its stock is selling at $50 per share and
earnings are $2.00 per share. Its book value is currently $40 per share. What is the
stock's P/E ratio?
A) 50.00
B) 45.80
C) 25.00
D) 27.78
E) None of the above
52) You are considering the purchase of one of two different bonds, a muni, which
currently yields 6%., and a corporate, which currently yields 10%. If you are trying to
maximize your return and you are in a 38% tax bracket, which of the following is true?
A) Buy the muni bond.
B) Buy the corporate bond.
C) You are indifferent between the muni and the corporate bond.
D) There is not enough information to determine which is better.
E) None of the above are true statements.
53) What type of plan can only be used for college and graduate school, and allows
contributions of up to $250,000?
A) College
B) Education
C) 529
D) 12b-4
E) None of the above
54) During the lifetime of Jack and his wife, they acquired assets individually and as
members of former marriages. During their marriage, they acquired more joint property,
but his wife left all of her estate to her children. Upon his wife's death, Jack would have
received the other half of their ________.
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A) Property owned as joint tenants with right of survivorship
B) Community property, if residents of a community property state
C) Property owned as tenants by the entirety
D) All of the above.
E) Only A and C.
55) Which lists mutual fund categories starting with the lowest risk and ending with the
highest risk?
A) Municipal bond fund, sector fund, growth fund, S&P500 Index fund
B) Money market fund, International fund, balanced fund, sector fund
C) Index fund, small cap fund, money market fund, Junk bond fund
D) Money market fund, Municipal bond fund, balanced fund, sector fund
56) You and a group of your friends have been discussing your portfolios at the
company water cooler. Your discussion has centered on how your stocks are moving
up or down in price relative to the market as a whole. Each stock's ________ is likely
the best measure of the relationship.
A) Relative index
B) Beta
C) Alpha
D) Delta
E) None of the above
57) Sherman has three bonds with a $1,000 par value that pay a 9 % coupon interest
rate. How much will he earn every six months?
A) $27
B) $ 90
C) $135
D) $202.50
E) $270
58) Lori Watts favors the traditional IRA over the new Roth IRA. What advantage do
you see for her at the present time?
A) The earnings are tax-deferred.
B) Contributions are probably fully tax deductible.
C) There really is none.
D) It saves tax money for education.
E) Both A and B
59) When the market rates of interest falls, the market price of bonds __________,
causing the current yield to _________, and the coupon rate will __________.
A) Falls, fall, fall
B) Rise, rise, rise
C) Falls, rise, not change
D) Rises, fall, not change
E) Falls, rise, change
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60) A ________ option provides payments over the life of both you and your spouse no
matter how long you live.
A) Single life annuity
B) Lump sum annuity
C) Joint and survivor annuity
D) Annuity for life
E) Combination annuity
61) Your required rate of return on company XYZ's preferred stock is 12%. There
preferred stock pays a fixed annual dividend of $4.00. What market price would you be
willing to pay for a share of XYZ preferred?
A) $4.00
B) $33.33
C) $48.00
D) $54.44
62) What are the biggest challenges facing retirees?
A) Inflation
B) Living a long time
C) Improper investment decisions
D) All of the above are correct
E) Both A and C are correct.
63) According to your textbook, when you are investing in gold, silver, gems and
collectibles you are actually ________.
A) Discreetly investing
B) Diversifying your investment portfolio
C) Hedging
D) Speculating
E) None of the above
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D
B
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D
D
TRUE
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B
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D
D
D
B
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D
B
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D
D
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D
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D
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D
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FALSE
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B
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D
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A
B
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B
C
C
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C
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A
B
40
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A
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A
D
13
55
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C