Question 1

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An investment fund that uses more complex investment strategies to generate returns for their wealthy or institutional investors is a(n) __________.

• exchange-traded fund
• hedge fund
• mutual fund
• index fund

Question 2

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Ashlee's friend owes her $100, but he cannot pay it back today. Instead, Ashlee's friend promises to pay her $120 in one year to account for the time value of money.

That extra $20 represents the __________.

• discount
• interest
• pricing
• present value

Question 3

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Select the statement that correctly explains the relationship between interest rates and present or future value.

• Assuming other variables stay the same, if the interest rate increases, the future value of an investment decreases.
• The interest rate and the present value of an investment are directly related.
• Assuming other variables stay the same, if the interest rate increases, the present value of an investment decreases.
• Assuming other variables stay the same, if the interest rate decreases, the present value of an investment decreases.

Question 4

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Which of the following accurately describes an inverted yield curve?

• A negatively sloping curve that may indicate that the economy is about to enter a period of inflationary growth.
• A negatively sloping curve that may be an indication that the economy is about to enter a period of contraction.
• A positively sloping curve that indicates that investors are uncertain about the direction of the economy.
• A positively sloping curve that may indicate that the economy is about to enter a deflationary period.

Question 5

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You would like to have $10,000 in an account after eight years' time.

If the account earns 2.5% compounded interest yearly, how much would you have to deposit today?

• $9,765
• $8,333
• $9,464
• $8,207

Question 6

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Select the statement that is true of preferred stock.

• Preferred stock can be converted into common stock.
• Preferred stock does not change in value.
• Preferred stockholders have a degree of control over corporate policy.
• Preferred stock has less protection than common stock if a company goes bankrupt.

Question 7

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Select the best definition of an annuity-due.

• An annuity whose payments are made at the beginning of the period
• An annuity that has matured
• An annuity whose payments are made at the end of the period
• An annuity whose payments can be made at any point during the period

Question 8

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Rochelle wants to buy a bond, but she wants to avoid interest rate risk. She also prefers to receive a payment every three months instead of the traditional six months.

What type of bond should she buy?

• Government
• Fixed-rate
• Zero-coupon
• Floating-rate

Question 9

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Select the true statement about default risk.

• It is the risk that the bond's price will fall below its par value.
• Bondholders have a degree of legal protection against default risk, but it is not comprehensive.
• Default risk relates to a bond's periodic coupon payments, but not to its maturity payment.
• Bondholders are guaranteed to be repaid in full if a company enters bankruptcy.

Question 10

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Which descriptor relates to the market-based approach for valuing corporations?

• Involves the average cost of a unit of company income
• Considers the weighted average cost of capital
• Considered the truest estimate
• Involves an analysis of risk