FNCE 2820 Test with Questions with Verified
Answers | Already Passed
How is risk measured with investing? - ✔✔Standard deviation
Pooled investments - ✔✔funds in a portfolio from many individual investors that are
aggregated for the purposes of investment
Passive investing - ✔✔buying and holding investments with minimal portfolio turnover
Active investing - ✔✔buying and selling investments based on their short-term performance,
attempting to beat average market returns
Investment allocation - ✔✔involves dividing your investments among different assets, such
as stocks, bonds, and cash.
Investment rebalancing - ✔✔selling some assets in your portfolio and buying others to help
maintain your target asset allocation
Tax efficiency - ✔✔choosing the right investments and the right accounts to hold those
investments
Investing in equities - ✔✔• Ownership in the company• Voting rights• Right to dividends•
Residual claim to pro-rata distribution of assets in the event of a corporate liquidation
(residual)• Limited liability as shareholder (limited to investment)• Growth asset• Higher
expected total return over time (unlimited upside)• Higher price volatility (price could go to
zero)• Ordinary dividends taxed as ordinary income (Qualified and Unqualified)• Sale of stock is
a capital gain/loss
, Investing in Equities Pros - ✔✔growth assets
higher expected total return than fixed income
equities offer inflation hedge
dividend income
gains taxed at capital gain rates
Investing in Equities Cons - ✔✔market volatility
may challenge clients risk tolerance
stock could go to zero
lower systematic income than fixed income
Bond Characteristics - ✔✔higher, fixed percentage dividend, preference over common
stockholder, typically non-voting shares
Equity characteristics - ✔✔no maturity date
some preferred stock is participating
some preferred stock is convertible
What relationship does bond prices have with interest rates - ✔✔inverse
US government bonds and agency securities - ✔✔Treasury Bills (under one year in duration)-
Treasury Notes (two to ten years in duration)- Treasury Bonds (ten to thirty years in duration)•
Treasury Inflation Protected Securities (TIPS)- Pays fixed interest rate based on adjusted
principal, which is linked to moves in the consumer price index- At maturity, the investor gets
inflation-adjusted principal
municipal bonds - ✔✔General obligation - Guaranteed by the taxation ability of a
municipality- Revenue Bonds - Backed by the revenue generated by a specific project- Interest
on municipal debt is exempt from Federal income taxes
Answers | Already Passed
How is risk measured with investing? - ✔✔Standard deviation
Pooled investments - ✔✔funds in a portfolio from many individual investors that are
aggregated for the purposes of investment
Passive investing - ✔✔buying and holding investments with minimal portfolio turnover
Active investing - ✔✔buying and selling investments based on their short-term performance,
attempting to beat average market returns
Investment allocation - ✔✔involves dividing your investments among different assets, such
as stocks, bonds, and cash.
Investment rebalancing - ✔✔selling some assets in your portfolio and buying others to help
maintain your target asset allocation
Tax efficiency - ✔✔choosing the right investments and the right accounts to hold those
investments
Investing in equities - ✔✔• Ownership in the company• Voting rights• Right to dividends•
Residual claim to pro-rata distribution of assets in the event of a corporate liquidation
(residual)• Limited liability as shareholder (limited to investment)• Growth asset• Higher
expected total return over time (unlimited upside)• Higher price volatility (price could go to
zero)• Ordinary dividends taxed as ordinary income (Qualified and Unqualified)• Sale of stock is
a capital gain/loss
, Investing in Equities Pros - ✔✔growth assets
higher expected total return than fixed income
equities offer inflation hedge
dividend income
gains taxed at capital gain rates
Investing in Equities Cons - ✔✔market volatility
may challenge clients risk tolerance
stock could go to zero
lower systematic income than fixed income
Bond Characteristics - ✔✔higher, fixed percentage dividend, preference over common
stockholder, typically non-voting shares
Equity characteristics - ✔✔no maturity date
some preferred stock is participating
some preferred stock is convertible
What relationship does bond prices have with interest rates - ✔✔inverse
US government bonds and agency securities - ✔✔Treasury Bills (under one year in duration)-
Treasury Notes (two to ten years in duration)- Treasury Bonds (ten to thirty years in duration)•
Treasury Inflation Protected Securities (TIPS)- Pays fixed interest rate based on adjusted
principal, which is linked to moves in the consumer price index- At maturity, the investor gets
inflation-adjusted principal
municipal bonds - ✔✔General obligation - Guaranteed by the taxation ability of a
municipality- Revenue Bonds - Backed by the revenue generated by a specific project- Interest
on municipal debt is exempt from Federal income taxes
