49) In selecting investments consistent with your goals, you should consider
A) the pre-tax rate of return only. B) risks, returns, and taxes.
C) rates of return and taxes only. D) annual dividends and taxes only.
Answer: B
50) Alexandra purchased a stock one year ago at a price of $64 a share. In the past year, she has received four
quarterly dividends of $1.50 each. Today she sold the stock for $76 a share. Her capital gain per share is
A) $(6.00). B) $6.00. C) $18.00. D) $12.00.
Answer: D
51) A well- conceived investment policy statement will take into account
A) the types of investments the investor is willing to consider.
B) the investor's current age and economic situation.
C) the investor's preference for frequent or infrequent trading.
D) all of the above.
Answer: D
52) New investors with small amounts to invest should
A) invest all of their money in one high- quality stock.
B) avoid stock investments completely.
C) buy mutual funds or exchange traded funds (ETFs).
D) buy a portfolio of very low- priced stocks (penny stocks).
Answer: C
53) Research indicates that investors who monitor their portfolios less frequently
A) outperform those who hold investments for the long term and trade infrequently.
B) earn rates of return similar to those who hold investments for the long term and trade infrequently.
C) tend to invest in riskier assets.
D) are more highly educated and in higher income brackets than those who hold investments for the long
term and trade infrequently.
Answer: C
54)
Table 1.2 2020 (due April 15, 2021)
Tax rates Individual Returns Joint Returns
10% $0 to $9,525 $0 to $19,050
12% $9,526 to $38,700 $19,051 to $77,400
22% $38,701 to $82,500 $77,401 to $165,000
24% $82,501 to $157,500 $165,001 to $315,000
32% $157,501 to $200,000 $315,001 to $400,000
35% $200,001 to $500,000 $400,001 to $600,000
37% Over $500,000 Over $600,000
Josh earned $82,500 in taxable income, all from wages and interest, and files an individual tax return. What is
the amount of Josh's taxes for the year 2020? Round to the nearest dollar.
A) $12,285 B) $18,150 C) $14,090 D) $13,750
Answer: C
55) Tax planning
A) ignores the source of income and concentrates solely on the amount of income.
B) is primarily done by individuals with incomes below $200,000.
C) is limited to reviewing income for the current year and determining how to minimize current taxes.
D) guides investment activities to maximize after-tax returns over the long term for an acceptable level of
risk.
Answer: D
56) Investors seeking to increase their wealth as quickly as possible would invest in
A) government bonds and low- risk income
stocks.
B) corporate bonds and preferred stock.
C) smaller companies pursuing rapid growth. D) large company stocks with high dividends.
Answer: C
57) A person's marginal tax rate is the rate they pay
A) on the next dollar of income. B) only on earned income.
C) on all income. D) only on investment income.
Answer: A
58) During which period are stock returns typically the lowest?
A) during a recession B) 12 months after a recession
C) 6 months before a recession D) there is no discernible pattern
Answer: C
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
59) Discuss the relationship between stock prices and investors' beliefs about the business cycle.
Answer: Stock prices tend to anticipate the economic conditions that investors expect in the future. When they
believe that economic conditions will deteriorate and profits will decline, stock prices fall. When they
expect an improving economy and higher corporate profits, stock prices rise.
60) What are some of the important prerequisites to investing?
Answer: Before entering into risky investments, individuals need to provide for the necessities of life such as
housing, transportation, and taxes. They should have liquid assets available to meet unforeseen
emergencies such as job loss, auto repairs or dental treatments. They should also have insurance for
catastrophic events involving health or property.
61) Discuss the general investment philosophy and the types of investments preferred by investors in each phase
of the life cycle.
Answer:
Life Cycle Phase Philosophy Types of Investments
Young investors Growth Growth stocks, options, and
futures
Middle-aged investors Growth and income Higher quality stocks,
preferred stocks,
convertibles, high-grade
bonds, and mutual funds
Retired investors Preservation of capital Low risk stocks, short- term
and current income bonds, certificates of deposit
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.