22) Bond investors lend their money for a fixed period of time and receive interest.
Answer: True False
23) A collection of securities designed to meet an investment goal is called a portfolio.
Answer: True False
24) Call options on common stock are a form of equity.
Answer: True False
25) An option to purchase common stock is a type of derivative security.
Answer: True False
26) Bonds represent a lower level of risk than do stocks in the same company.
Answer: True False
27) Exchange traded funds are similar to mutual funds but are traded like stocks.
Answer: True False
28) Mutual funds invest in diversified portfolios of securities.
Answer: True False
29) Bond prices rise as interest rates decline.
Answer: True False
30) Bond interest and stock dividends are different ways of distributing a corporation's earnings to its owners.
Answer: True False
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
31) Which of the following is an example of a tangible asset?
A) real estate B) stocks C) mutual funds D) bonds
Answer: A
32) Which of the following would be the least liquid investment?
A) put options B) money market mutual funds
C) stocks D) real estate
Answer: D
33) Which of the following investments represents partial ownership of a corporation?
A) commercial
paper
B) common stocks C) bonds D) mutual funds
Answer: B
34) Investors seeking a diversified, professionally managed portfolio of securities can purchase shares of
A) convertible securities. B) mutual funds.
C) insurance policies. D) preferred stock.
Answer: B
35) The major difference between mutual funds and exchange traded funds (ETFs) is
A) ETFs are actively managed.
B) ETFs can be bought or sold at their current price at any time during normal trading hours.
C) mutual fund portfolios are always based on one of the major market indexes.
D) ETFs invest in broadly diversified portfolios of securities.
Answer: B
36) One reason that passively managed mutual funds have grown in popularity relative to actively managed
mutual funds is that
A) active funds are too diversified. B) passive fund returns are always higher.
C) passive fund expense ratios are lower. D) active fund returns mimic a market index.
Answer: C
37) Over the past decade, passively managed index funds have
A) grown quite a lot. B) attracted almost 100% of investment dollars.
C) almost disappeared as a fund type. D) declined in popularity.
Answer: A
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
38) Briefly describe three advantages of investing in mutual funds or exchange traded funds.
Answer: The investor does not need to spend a great deal of time researching individual securities. Small
investors easily achieve diversification by investing indirectly in a broad portfolio of securities. The
funds are managed by professionals who presumably have expertise in making investment decisions.
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
39) Earning a high rate of return with little or no risk is a realistic investment goal.
Answer: True False
40) Under current tax laws, most taxpayers will pay a lower tax rate on capital gains than on dividends.
Answer: True False
41) Investors can postpone or avoid income taxes by investing through Registered Retirement Savings Plans.
Answer: True False
42) Under current laws, a couple filing jointly with a total income of $75,000 would pay a 15% tax on capital gains.
Answer: True False
43) To qualify for long-term capital gains rates, a stock must be held for at least 12 months.
Answer: True False
44) Registered Retirement Savings Plans (RRSPs) allow individuals to defer taxes on the plan contributions until
the funds are withdrawn from the retirement plan.
Answer: True False
45) Contributions to a TFSA are not tax deductible, but subsequent earnings and withdrawals are tax free.
Answer: True False
46) The taxes and tax credits are different for eligible dividends and non-eligible dividends in Canada.
Answer: True False
47) The average tax rate is the rate a person pays on their next dollar of income.
Answer: True False
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
48) Which of the following represent investment goals?
I. saving for major expenditures such as a house or education
II. sheltering income from taxes
III. increasing current income
IV. saving funds for retirement
A) I and IV only B) III and IV only C) I, III and IV only D) I, II, III and IV
Answer: D