Review Chapter 1 _ 6 - Chapter 1 UNDERSTANDING INVESTMENTS...

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Chapter 1 UNDERSTANDING INVESTMENTS True-False Questions 1. Investors always seek to minimize their risk of investing. 2. Both 401(k) plans and IRAs are self-directed retirement plan. 3. The two major considerations in investing are return and timing. 4. Risk is defined as the possibility of loss. 5. The minimum actual return necessary to induce investors to invest is known as the expected return. 6. Investors unwilling to assume risk should be satisfied with the rate of inflation as their investment return. 7. Security analysts are typically employed only at brokerage houses. 8. Due to the Internet, institutional investors have gained in importance. Multiple Choice Questions 1. Stocks and bonds would be classified as: a. real assets b. indirect assets c. personal assets d. financial assets 2. The investment professionals that arrange the sale of new securities are called: a. arbitragers b. traders c. investment bankers d. specialists 3. Investment professionals whose jobs may depend on their performance relative to the market are the:
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a. registered representatives b. security analysts c. investment bankers d. portfolio managers 4. Most financial advisors are registered with the Securities and Exchange Commission as: a. registered representatives. b. registered investor advisors. c. registered financial planners. d. registered securities consultants. 5. A Chartered Financial Analyst designation is a (an) a. SEC-approved and awarded designation. b. certification of a successful investing record. c. professional designation awarded for meeting recognized standards of conduct and competency. d. professional designation awarded by the brokerage industry. 6. Underlying all investments is the tradeoff between: a. expected return and actual return b. low risk and high risk c. actual return and high risk d. expected return and risk 7. Most investors are risk averse which means: a. they will assume more risk only if they are compensated by higher expected return. b. they will always invest in the investment with the lowest possible risk.
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c. they actively seek to minimize their risks. d. they avoid the stock market due to the high degree of risk. 8. Which of the following would be considered a risk-free investment? a. gold b. equity in a house c. high-grade corporate bonds d. U.S. Treasury bills 9. Security analysis is most concerned with: a. analysis of the overall securities market and its direction. b. valuation and analysis of individual securities. c. purchasing securities at the best price. d. determination of the investor’s required return. 10. In general, the ex ante risk-return tradeoff a. slopes upward. b. slopes downward c. is flat d. is impossible to determine. 11. International investing:
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This note was uploaded on 06/02/2011 for the course FINA 3331 taught by Professor Staff during the Spring '08 term at Texas A&M University, Corpus Christi.

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Review Chapter 1 _ 6 - Chapter 1 UNDERSTANDING INVESTMENTS...

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