Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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Part 1: Main Idea
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1.
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The difference between savings and investments is that
a. | savings earn money while investments do not | b. | investments earn
money while savings do not | c. | savings are investments that are put to
use | d. | investments are savings that are put to use |
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2.
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An institution that helps to bring savers, borrowers, and financial assets
together is a
a. | financial intermediary | b. | financial market | c. | primary
market | d. | secondary market |
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3.
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One of the biggest advantages of a mutual fund is that it
a. | specializes in the stock of companies on the Dow Jones Industrial
Average | b. | is traded on the NASDAQ rather than the New York Stock Exchange | c. | allows individuals
without a lot of money to own a variety of financial assets | d. | allows individuals
to move investments from money markets to capital markets |
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4.
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The two categories used to classify financial asset markets are
a. | time and resalability | b. | time and risk | c. | resalability and
diversity | d. | risk and diversity |
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5.
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Before choosing among investment options, an investor should
a. | hire a financial analyst | b. | consult a stockbroker | c. | determine an
investment objective | d. | read a financial
newspaper |
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6.
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One helpful guideline for investing is that
a. | the longer you have to invest, the more risk you can take | b. | the less time you
have to invest, the more risk you should take | c. | you should invest in stocks before paying off
credit card debt | d. | if you have a low income, you must worry about tax liability
first |
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7.
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One investment that is considered almost risk free is
a. | common stock | b. | preferred stock | c. | corporate
bonds | d. | U.S. government bonds |
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8.
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Diversification means that an investor
a. | diverts all his or her funds to corporate bonds | b. | makes several
different types of investments to minimize risk | c. | invests in stock from a variety of
corporations | d. | buys stock on several stock exchanges in case one
crashes |
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9.
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In general, people put money in risky investments because
a. | they can take a tax deduction if they lose money | b. | such investments
often earn the greatest profits | c. | no other investments are available at the
time | d. | they receive bad advice from a financial analyst |
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10.
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Stock prices are determined by
a. | the ruling of the Securities and Exchange Commission | b. | price fixing by
workers at the stock exchanges | c. | the valuation made by corporate
auditors | d. | the market forces of supply and demand |
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11.
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The interest rate that a bondholder receives every year until the bond matures
is called the
a. | bond rating | b. | coupon rate | c. | mature
value | d. | par value |
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12.
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Bonds that are issued by state and local governments are called
a. | internal bonds | b. | investment bonds | c. | junk
bonds | d. | municipal bonds |
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13.
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The biggest risk associated with long-term CDs is
a. | losing out on interest if rates go up | b. | loss of principal if the bank
fails | c. | loss of investment if the stock market fails | d. | embezzlement of
funds that are left in the account too long |
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14.
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When a borrower fails to pay back a car loan, the bank
a. | charges compound interest | b. | seizes the borrower's
house | c. | files criminal charges | d. | repossesses the
car |
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15.
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It is most appropriate to invest in the stock market when you need
a. | to earn a lot and have a long time to do so | b. | to earn a lot and
have a short time to do so | c. | to earn a small amount but cannot risk your
investment | d. | to earn a small amount but you have no money to risk |
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16.
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Two issues that play a role in choosing the right investments to meet a
financial goal are
a. | time and interest | b. | time and income | c. | income and
liquidity | d. | interest and liquidity |
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17.
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In general, investments with high rates of return
a. | are not resalable | b. | do not keep up with
inflation. | c. | have low risk | d. | have high risk |
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18.
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Investors commonly maximize returns and limit risks by
a. | buying futures | b. | choosing government bonds | c. | diversifying
investments | d. | investing in CDs |
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19.
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Many of the companies listed on NASDAQ are
a. | traditional manufacturers | b. | headquartered overseas | c. | not-for-profit
enterprises | d. | involved in technology |
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20.
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Which of the following is a stock index based on the stocks of 30 major
companies?
a. | Dow Jones Industrial Average | b. | Hang Seng index | c. | NASDAQ
composite | d. | Standard & Poor's 500 |
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21.
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Stock indexes are best at
a. | predicting how fast stock prices will rise | b. | providing an overall
view of the stock market's health | c. | pinpointing the hot new stocks to
buy | d. | warning investors when to sell their stocks |
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22.
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What advantage do most municipal bonds have over other investments?
a. | FDIC insurance | b. | shorter maturity dates | c. | higher par
value | d. | tax-free interest |
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23.
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Financial intermediaries are essential to the financial system because
they
a. | put up the money for personal and commercial loans | b. | provide the
financial assets to secure loans | c. | bring together savers and borrowers who might
not otherwise connect | d. | act as go-betweens for corporations dealing
with the government |
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24.
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Compound interest is better for savers than simple interest because it is
a. | paid more frequently than simple interest | b. | calculated so that
all previously paid interest also earns interest | c. | easier to calculate than simple
interest. | d. | not taxable because that would be double taxation. |
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25.
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Which of the following is a banking financial intermediary?
a. | credit union | b. | finance company | c. | mutual
fund | d. | pension fund |
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26.
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You would be most likely to invest in the stock market if you were saving
for
a. | the prom | b. | a vacation | c. | retirement | d. | a car |
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27.
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The most important thing to consider when saving for emergencies is
a. | rate of return | b. | deposit insurance | c. | taxation | d. | liquidity |
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28.
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When an investor wants to withdraw money from a CD before the maturity
date,
a. | the bank will refuse to allow it | b. | the bank will reduce the coupon
rate | c. | he or she will lose interest and perhaps some of the principal | d. | he or she can
withdraw partial funds without penalty |
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29.
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Which generalization is true of the Dow Jones Industrial Average in 1956?
a. | It listed many computer companies. | b. | It listed several steel
companies. | c. | It listed several fast food companies. | d. | It listed several
banks. |
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30.
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Which generalization is true of the Dow Jones Industrial Average in 2006?
a. | It listed many oil companies. | b. | It listed many car
companies. | c. | It listed several technology companies. | d. | It listed several
clothing companies. |
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