Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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The
main advantage of diversification as an investment policy is that it a. | makes investing
more risky. | b. | reduces the risk involved in
investing. | c. | increases the yield of investments. | d. | reduces the
effects of inflation on investments. | | |
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2.
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Municipal
bonds, or munis, a. | pay higher interest
rates than most bonds. | b. | are usually tax exempt. | c. | are often risky
investments. | d. | are backed by the full faith and credit of the U.S.
government. | | |
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3.
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Which
stock market is most likely to list a large U.S. company with a long history of
profitability? a. | FTSE | c. | NASDAQ | b. | AMEX | d. | NYSE | | | | |
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4.
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Which
of the following are retirement accounts? a. | mutual funds | c. | 401K | b. | passbook savings | d. | life insurance | | | | |
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5.
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Why
are mutual funds a wise investment? a. | Your money is invested in one very profitable
stock. | b. | Your money is invested in a wide variety of stocks and/or
bonds. | c. | Your money is guaranteed to earn a fixed rate of
interest. | d. | Your money is guaranteed to grow faster than the rate of
inflation. | | |
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6.
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Which
of the following offers the highest yield potential? a. | equities | c. | government
bonds | b. | passbook savings | d. | corporate bonds | | | | |
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7.
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The
Efficient Market Hypothesis argues that a. | investors can beat the market by studying business trends
carefully. | b. | investors should not invest in stocks. | c. | investors cannot out
perform the market because information is widely available. | d. | investors should buy
low and sell high. | | |
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8.
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Which
of the following offers the highest liquidity? a. | Individual Retirement Account | c. | passbook savings | b. | 401k | d. | corporate
bonds | | | | |
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9.
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Which
statement best describes the relationship between risk and yield? a. | As risk goes
down, yield usually goes down. | b. | As risk goes down, yield usually goes
up. | c. | As risk goes up,
yield usually goes down. | d. | There is no relationship between risk and
yield. | | |
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10.
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Most stocks
in the United States are traded on the a. | New York Stock Exchange. | c. | American Stock Exchange. | b. | over-the-counter
market. | d. | regional stock
exchanges. | | | | |
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