Investment Planning
Exam Review
Course Introduction
Investment Planning is a comprehensive course that introduces students to the principles, processes, and strategies involved in creating and managing investment portfolios. The course covers key topics such as risk and return analysis, asset allocation, investment vehicles, portfolio diversification, and the impact of economic and market factors on investment decisions. Students learn how to assess investor profiles, set financial goals, and develop investment policies tailored to individual or institutional needs. Real-world case studies and simulations provide practical experience in evaluating stocks, bonds, mutual funds, and alternative investments. By the end of the course, students will have a solid foundation in prudent investment planning and the skills necessary to construct and manage effective investment plans.
Recommended Textbook
Fundamentals of Investing 11th Edition by
Lawrence J. Gitman
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15 Chapters
1588 Verified Questions
1588 Flashcards
Source URL: https://quizplus.com/study-set/3353
Page 2
Chapter 1: The Investment Environment
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76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/66605
Sample Questions
Q1) The primary risk associated with a short-term investment is
A) purchasing power risk.
B) default risk.
C) interest rate risk.
D) economic risk.
Answer: A
Q2) Short-term investments generally provide liquidity, safety, and a high rate of return.
A)True
B)False
Answer: False
Q3) Banks and insurance companies are examples of institutional investors.
A)True
B)False
Answer: True
Q4) Land and buildings are examples of real property investments.
A)True
B)False
Answer: True
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Chapter 2: Securities Markets and Transactions
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95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/66606
Sample Questions
Q1) Federal securities laws are designed to protect financial institutions.
A)True
B)False
Answer: False
Q2) The NYSE has listing requirements that include a minimum
I.number of outstanding shares.
II.amount of pre-tax earnings.
III.market value of publicly held shares.
IV.number of shareholders owning 100 shares or more.
A) I and IV only
B) I, II and III only
C) II, III and IV only
D) I, II, III and IV
Answer: D
Q3) A market maker brings together buyers and sellers in an auction market.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Investment Information and Securities Transactions
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114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/66607
Sample Questions
Q1) Descriptive information might include estimates of future demand for a company's products and future stock prices.
A)True
B)False
Answer: False
Q2) Investment advisors are legally responsible for losses incurred by their clients.
A)True
B)False Answer: False
Q3) Which one of the following indexes is the most comprehensive measure of financial market performance?
A) NYSE composite
B) DJIA
C) Wilshire 5000
D) Value Line composite
Answer: C
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Page 5
Chapter 4: Return and Risk
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108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/66608
Sample Questions
Q1) The yield is the rate of return that causes a project to have a zero net present value.
A)True
B)False
Q2) The difficulty many investors experienced in selling mortgage based securities during the financial crisis of 2009 is an example of A) business risk.
B) credit risk.
C) market risk.
D) liquidity risk.
Q3) An ordinary annuity is defined as an annuity for which the cash flows occur at the beginning of each year or payment period.
A)True
B)False
Q4) Most investors are risk-seeking.
A)True
B)False
Q5) Which types of risk can not be avoided by carefully researching a company's business prospects and financial statements.
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Chapter 5: Modern Portfolio Concepts
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96 Verified Questions
96 Flashcards
Source URL: https://quizplus.com/quiz/66609
Sample Questions
Q1) Which of the following represent systematic risks?
I.the president of a company suddenly resigns
II.the economy goes into a recessionary period
III.a company's product is recalled for defects
IV.the Federal Reserve unexpectedly changes interest rates
A) I, II and IV only
B) II and IV only
C) I and III only
D) I, II and III only
Q2) Explain the relationship between correlation, diversification, and risk reduction.
Q3) Beta is the slope of the best fit line for the points with coordinates representing the ________ and the ________ for each one of several years.
A) rate of return; level of risk for an individual security
B) rate of inflation; rate of return for an individual security
C) risk level of a stock; market rate of return
D) market rate of return; security's rate of return
Q4) A beta of 0.5 means that a stock is half as risky the overall market.
A)True
B)False
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Chapter 6: Common Stocks
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116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/66610
Sample Questions
Q1) Which of the following will tend to increase transaction costs?
A) Buying or selling fewer than 100 shares at a time.
B) Buying or selling shares through an on-line broker.
C) Buying or selling more than 1000 shares in a single trade.
D) Buying or selling at times when volume is high and the exchanges are busy.
Q2) Treasury stock is a means of increasing the number of shares outstanding.
A)True
B)False
Q3) Companies with strong earnings but limited growth opportunities
A) do not generally pay any dividends.
B) are called blue-chip stocks.
C) generally pay high dividends.
D) are speculative stocks.
Q4) Transaction costs can significantly reduce the rate of return on stock investments.
A)True B)False
Q5) A bear market similar to that of 2000-03 generally occurs once every decade. A)True B)False
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Chapter 7: Analyzing Common Stocks
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106 Verified Questions
106 Flashcards
Source URL: https://quizplus.com/quiz/66611
Sample Questions
Q1) The debt to equity ratio should be approximately the same across all industrial sectors.
A)True
B)False
Q2) Which one of the following is a leverage measure?
A) times interest earned
B) net working capital
C) return on equity
D) net profit margin
Q3) If a company rewards executives with stock options, core earnings will be lower than net income.
A)True
B)False
Q4) A lending institution would prefer that a firm have a ________ debt-equity ratio and a ________ times interest earned ratio.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower
Q5) Briefly describe and discuss both industry analysis and fundamental analysis.
Page 9
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Chapter 8: Stock Valuation
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102 Verified Questions
102 Flashcards
Source URL: https://quizplus.com/quiz/66612
Sample Questions
Q1) William is the type of stock market investor who focuses on factors such as a company's book value, debt load, return on equity, and cash flow.In searching for stock investments, he looks at a company's historical performance and attempts to find undervalued stocks.This information indicates that Sam is the type of investor known as A) a growth investor.
B) a premium investor.
C) an earnings investor.
D) a value investor.
Q2) The common stock of Peachtree Paper, Inc., is currently selling for $40 a share.A dividend of $2.00 per share was just paid.You are estimating that this dividend will grow at a constant rate of 10%.
(a)Using the constant growth DVM model, what is your required rate of return if $40 is a reasonable trading price? (Show all work.)
(b)If Peachtree Papers is a new company that produces a relatively unknown product, is the constant growth model a good valuation method for a potential investor to use?
Justify your answer.
Q3) How can you determine the current value of a non-dividend paying stock?
Q4) Explain how the time value of money concept is used in stock valuation.
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Page 10
Chapter 9: Market Efficiency, Behavioral Finance, and Technical Analysis
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112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/66613
Sample Questions
Q1) The tendency of investors to take greater risks after a large loss and fewer risks after a large gain can be attributed to
A) overconfidence.
B) the "house money" effect.
C) loss aversion.
D) representativeness.
Q2) Investors who live in cities with NFL teams should be especially happy when their team wins the Super Bowl.
A)True
B)False
Q3) Which of the following accurately reflect appropriate investment guidelines?
I.always invest in last year's best performing mutual fund
II.trade frequently to increase your investment returns
III.sell losing stocks unless you are willing to buy them at the current price
IV.take corrective action when so indicated
A) I and II only
B) III and IV only
C) I, III and IV only
D) I, II, III and IV
Q4) Explain why technical analysts use charts so extensively.
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Chapter 10: Fixed-Income Securities
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118 Verified Questions
118 Flashcards
Source URL: https://quizplus.com/quiz/66614
Sample Questions
Q1) As investors approach retirement age, they should hold more bonds and less stock.
A)True
B)False
Q2) Bond ratings are an important element of the bond market.Explain what bond ratings are, who issues the ratings, and what the ratings mean to the average investor.
Q3) Which type of risk is based on the financial integrity of a bond issuer?
A) liquidity risk
B) call risk
C) business risk
D) interest rate risk
Q4) If a bond rating moves from a BB to a BBB rating
A) the bond will still be classified as junk.
B) it must also move from a Ba to a Baa rating.
C) the market yield on the bond will rise.
D) the market price of the bond will rise.
Q5) What are the major factors that affect the price of convertible bonds?
Q6) Discuss at least three differences between investing in stocks and investing in bonds.
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Chapter 11: Bond Valuation
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112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/66615
Sample Questions
Q1) A down-sloping yield curve indicates that interest rates are about to rise.
A)True
B)False
Q2) Which of the following statements concerning bonds are correct?
I.Municipal bond interest is federally tax-free.
II.Bond yields are related to bond ratings.
III.General obligation bonds yield more than revenue bonds.
IV.At the time of issue, callable bonds have higher yields than noncallable bonds.
A) I and III only
B) II and IV only
C) I, II and IV only
D) I, II and III only
Q3) There is normally an indirect relationship between the coupon rate of a bond and the bond's yield.
A)True
B)False
Q4) A steep yield curve is generally considered a bullish sign for bonds.
A)True
B)False
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Chapter 12: Mutual Funds: Professionally Managed Portfolios
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113 Verified Questions
113 Flashcards
Source URL: https://quizplus.com/quiz/66616
Sample Questions
Q1) Value funds seek stocks
I.with low dividend yields.
II.with potential for growth.
III.with low P/E ratios.
IV.of newly discovered firms.
A) I and III only
B) II and III only
C) II, III and IV only
D) I, II, III and IV
Q2) To participate in an automatic investment plan, investors must allow the investment company to have access to a bank account or their paycheck.
A)True
B)False
Q3) What are some of the advantages of investing through mutual funds? Name at least three.
Q4) Mutual funds rank second only to banks as being the largest financial intermediary in the United States.
A)True
B)False
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Chapter 13: Managing Your Own Portfolios
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109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/66617
Sample Questions
Q1) Investors who wish to minimize the effect of taxes on their investment returns should try to avoid
A) dividend paying stocks.
B) short-term capital gains.
C) long-term capital gains.
D) municipal bonds.
Q2) Utility stocks are often suitable for low-risk, current-income-oriented portfolios.
A)True
B)False
Q3) The holding period return calculation for a portfolio time-weights portfolio additions and deletions in accordance with the number of months they were in the portfolio.
A)True
B)False
Q4) A rational investor will require the same return from a corporate security as from a government security.
A)True
B)False
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15
Chapter 14: Options: Puts and Calls
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115 Verified Questions
115 Flashcards
Source URL: https://quizplus.com/quiz/66618
Sample Questions
Q1) Warrants are options that are attached to bond issues to make the bonds more attractive to investors.
A)True
B)False
Q2) A put has fundamental value as long as
A) the market price of the underlying financial asset has a positive value.
B) the market price of the underlying financial asset is less than the strike price.
C) the strike price of the put is greater than the time premium of the put.
D) the strike price of the put is less than the market value of the underlying asset.
Q3) ETF options are settled in
A) cash.
B) ETF shares.
C) share of the companies in the index.
D) the writer has the choice of settling in either cash or ETF shares.
Q4) If you expect the price of a security to decline, you could buy a call to protect your financial position.
A)True
B)False
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16
Chapter 15: Commodities and Financial Futures
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96 Verified Questions
96 Flashcards
Source URL: https://quizplus.com/quiz/66619
Sample Questions
Q1) Which of the following statements concerning futures are correct?
I.Investors in financial futures can earn both dividend income from the underlying security as well as the potential capital gain from the futures contract.
II.The return on a futures contract is computed by dividing the net difference between the sale and the purchase price of the contract by the amount of the margin deposit.
III.It is very easy to lose your entire investment in a futures contract in a very short period of time due to the volatility of the futures market and also the use of leverage.
IV.Conservative investors tend to purchase one futures contract as a means of increasing the return on their portfolio while maintaining minimal risk.
A) I and II only
B) II and III only
C) I, II and IV only
D) I, II and III only
Q2) Briefly discuss futures options.What are they, and what advantage do they offer an investor?
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