Practice Test

Chapter 13


1.       Mutual funds range from very conservative to extremely speculative investments.

          A)      True

          B)      False


2.       Preferred stock represents the most basic form of corporate ownership.

          A)      True

          B)      False


3.       The nationwide average increase is just over 7 percent for real estate investments.

          A)      True

          B)      False


4.       Although useful for many things, the Internet cannot be used to monitor the value of stock, bond, and mutual fund investments.

          A)      True

          B)      False


5.       Which one of the following is not a true statement?

          A)      Most mutual funds invest in stocks, bonds, and other securities.

          B)      Diversification provided by a mutual fund reduces risk.

          C)      The goals of one mutual fund investor may differ from those of another.

          D)      Since mutual fund managers are professionals, there is no need to evaluate

a mutual fund.

E)      Mutual fund investments range from very conservative to very speculative investments.


6.       An example of ____________ risk occurs when an investment does not keep up with prices that are increasing in the overall economy.

          A)      market

          B)      interest

          C)      inflation

          D)      business failure

          E)      current


7.       Which of the following investments offers the least liquidity?

          A)      bank accounts

          B)      government bonds

          C)      real estate

          D)      common stock

          E)      preferred stock


8.       Jack Masters earns $40,000 a year. His monthly expenses total $2,100. What is the minimum amount of money that Mr. Masters should set aside in an emergency fund?

          A)      $2,100

          B)      $4,200

          C)      $6,300

          D)      $8,400

          E)      $10,000


9.       A type of investment that combines and invests the funds of many investors and manages it with a professional manager is called a(n)

          A)      NOW account.

          B)      securities exchange.

          C)      certificate of deposit.

          D)      mutual fund.

          E)      option fund.


10.     Which of the following is not a true statement?

A)      Professionals and specialists in one field may not be qualified to provide the type of advice required to develop a thorough financial plan.

B)      The Institute of Certified Financial Planners in Denver allows people who have passed their examination to use the designation Certified Financial Planner.

C)      The American College in Bryn Mawr, Pennsylvania, allows individuals to use the designation Chartered Financial Consultant if they complete the necessary requirements.

          D)      Most true financial planners help people achieve their financial goals.

          E)      All stockbrokers are certified as financial planners.


11.     A decrease in the value of stocks, bonds, or other investments may cause investors to experience ____________ risk.

          A)      inflation

          B)      interest rate

          C)      business failure

          D)      market

          E)      income


12.     Nationwide real estate values increase by ____________ percent a year.

          A)      1

          B)      3

          C)      7

          D)      10

          E)      15


13.     Under current tax laws, capital losses are

          A)      simply lost.

          B)      first used to offset capital gains.

          C)      first used to reduce your last year's tax amount.

          D)      first used to offset dividend income.

          E)      first used to offset interest and rental income.


14.     When a bondholder loses money because interest rates in the economy increase, it is an example of ____________ risk.

          A)      market

          B)      interest rate

          C)      inflation

          D)      business failure

          E)      current


15.     An investor can make money on a common stock investment by

          A)      waiting for the corporation to repurchase the stock.

          B)      waiting for the stock's value to increase and then selling it.

          C)      waiting for the stock's value to decrease and then selling it.

          D)      waiting for the stock to reach the maturity date.

          E)      converting the common stock to preferred stock.


16.     Which of the following is not a true statement?

A)      No one is going to make you save the money you need to start an investment program.

          B)      To be useful, investment objectives must be specific and measurable.

          C)      Investment goals must be tailored to the particular financial needs of the


D)      Because investment objectives deal with the future, it is useless to plan more than five years in the future.

E)      A long-term investment objective involves a time period of five years or more.


17.     Which of the following investments offers the least amount of growth potential?

          A)      corporate bonds

          B)      government bonds

          C)      mutual funds

          D)      options

          E)      real estate


18.     After graduating from a community college, you obtain a job as a medical records technician. Your monthly salary is $2,000. Your monthly expenses are 80% of your salary. If you put aside 15% of your monthly available income, what would be your balance in a savings account after 20 years with the following terms and interest?


                   (1) Years 1 to 8 yielded 5%

                   (2) Years 9 to 12 yielded 7%

                   (3) Years 13 to 17 yielded 3%

                   (4) Years 18 to 20 yielded 6%


          A)      $24,339.02

          B)      $23,544.07

          C)      $21,978.86

          D)      $18,254.27

          E)      $21,905.12


19.     The maturity dates for most bonds range between ____________ years.

          A)      0 to 5

          B)      5 to 20

          C)      10 to 20

          D)      1 to 30

          E)      15 to 40


20.     A true financial planner has had at least two years of training in securities, insurance, taxes, real estate, and estate planning and has passed a rigorous examination.

          A)      True

          B)      False

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