Test Bank for Investments: Analysis and Management, 15th Edition by Jensen
Chapter 1: Understanding Investments
Multiple Choice
1. Which of the following is the best definition of wealth?
a. The sum of all current and future income
b. The total of all assets and all income
c. The total of assets and income less any liabilities
d. The sum of current income and the present value of future income
Ans: d
Difficulty: Moderate
Ref: Establishing a Framework for Investors
2. Gold coins would be classified as:
a. real assets.
b. indirect assets.
c. personal assets.
d. financial assets.
Ans: a
Difficulty: Easy
Ref: Establishing a Framework for Investors
3. Investments include:
a. only financial assets.
b. only marketable assets.
c. financial and real assets that are marketable or non-marketable.
d. only financial and real assets that are marketable.
Ans: c
Difficulty: Easy
Ref: Establishing a Framework for Investors
4. Retirement plans that guarantee a set amount of money each month are known as:
a. 401(k) plans.
b. self-directed plans.
c. defined-benefit plans.
d. defined-contribution plans.
Ans: c
Difficulty: Moderate
Ref: The Importance of Studying Investments
Chapter One 1
Understanding Investments
,5. The professionals that arrange the sale of new securities are called:
a. arbitragers.
b. traders.
c. investment bankers.
d. designated market makers.
Ans: c
Difficulty: Moderate
Ref: The Importance of Studying Investments
6. Stockbrokers earn their income from:
a. commissions and the difference between the buying and selling price.
b. commissions and fees.
c. salary and the difference between the buying and selling price.
d. arbitrage opportunities.
Ans: b
Difficulty: Moderate
Ref: The Importance of Studying Investments
7. Investment professionals who take companies public, arrange mergers and
acquisitions, and participate in municipal bond issues are:
a. registered representatives.
b. security analysts.
c. investment bankers.
d. portfolio managers.
Ans: c
Difficulty: Moderate
Ref: The Importance of Studying Investments
8. One reason for the declining importance of pension funds is the:
a. decrease in pension benefits for workers.
b. downsizing of U.S. companies.
c. significant increase in self-directed plans.
d. increasing number of federal regulations that restrict pension fund portfolios.
Ans: c
Difficulty: Difficult
Ref: The Importance of Studying Investments
Chapter One 2
Understanding Investments
,9. Most financial advisors are registered with the Securities and Exchange
Commission as:
a. registered representatives.
b. registered investment advisors.
c. registered financial planners.
d. registered securities consultants.
Ans: b
Difficulty: Moderate
Ref: The Importance of Studying Investments
10. A Chartered Financial Analyst designation is a(n)
a. SEC-approved and awarded designation.
b. certification of a successful investing record.
c. professional designation awarded for meeting recognized standards of conduct
and competency.
d. professional designation awarded by the brokerage industry.
Ans: c
Difficulty: Easy
Ref: The Importance of Studying Investments
11. Underlying all investments is the tradeoff between:
a. expected return and actual return.
b. low risk and high risk.
c. actual return and high risk.
d. expected return and risk.
Ans: d
Difficulty: Moderate
Ref: Understanding the Investment Process
12. Which of the following investment areas relies heavily on mathematical and
statistical models?
a. Security analysis
b. Portfolio management
c. Institutional investing
d. Retirement planning
Ans: b
Difficulty: Moderate
Ref: Structuring the Decision Process
Chapter One 3
Understanding Investments
, 13. Most investors are risk averse, which means they:
a. will assume more risk only if they are compensated by higher expected return.
b. will always invest in the investment with the lowest possible risk.
c. actively seek to minimize their risks.
d. avoid the stock market due to the high degree of risk.
Ans: a
Difficulty: Moderate
Ref: Understanding the Investment Process
14. Which of the following would be considered a risk-free investment?
a. Gold
b. Equity in a house
c. High-grade corporate bond
d. U.S. Treasury security
Ans: d
Difficulty: Easy
Ref: Understanding the Investment Process
15. Security analysis is most concerned with:
a. analysis of the overall securities market and its direction.
b. valuation and analysis of individual securities.
c. purchasing securities at the best price.
d. determination of the investor’s required return.
Ans: b
Difficulty: Moderate
Ref: Structuring the Decision Process
16. In general, the ex ante risk-return tradeoff:
a. slopes upward.
b. slopes downward.
c. is flat.
d. is impossible to determine.
Ans: a
Difficulty: Moderate
Ref: Understanding the Investment Process
Chapter One 4
Understanding Investments
Chapter 1: Understanding Investments
Multiple Choice
1. Which of the following is the best definition of wealth?
a. The sum of all current and future income
b. The total of all assets and all income
c. The total of assets and income less any liabilities
d. The sum of current income and the present value of future income
Ans: d
Difficulty: Moderate
Ref: Establishing a Framework for Investors
2. Gold coins would be classified as:
a. real assets.
b. indirect assets.
c. personal assets.
d. financial assets.
Ans: a
Difficulty: Easy
Ref: Establishing a Framework for Investors
3. Investments include:
a. only financial assets.
b. only marketable assets.
c. financial and real assets that are marketable or non-marketable.
d. only financial and real assets that are marketable.
Ans: c
Difficulty: Easy
Ref: Establishing a Framework for Investors
4. Retirement plans that guarantee a set amount of money each month are known as:
a. 401(k) plans.
b. self-directed plans.
c. defined-benefit plans.
d. defined-contribution plans.
Ans: c
Difficulty: Moderate
Ref: The Importance of Studying Investments
Chapter One 1
Understanding Investments
,5. The professionals that arrange the sale of new securities are called:
a. arbitragers.
b. traders.
c. investment bankers.
d. designated market makers.
Ans: c
Difficulty: Moderate
Ref: The Importance of Studying Investments
6. Stockbrokers earn their income from:
a. commissions and the difference between the buying and selling price.
b. commissions and fees.
c. salary and the difference between the buying and selling price.
d. arbitrage opportunities.
Ans: b
Difficulty: Moderate
Ref: The Importance of Studying Investments
7. Investment professionals who take companies public, arrange mergers and
acquisitions, and participate in municipal bond issues are:
a. registered representatives.
b. security analysts.
c. investment bankers.
d. portfolio managers.
Ans: c
Difficulty: Moderate
Ref: The Importance of Studying Investments
8. One reason for the declining importance of pension funds is the:
a. decrease in pension benefits for workers.
b. downsizing of U.S. companies.
c. significant increase in self-directed plans.
d. increasing number of federal regulations that restrict pension fund portfolios.
Ans: c
Difficulty: Difficult
Ref: The Importance of Studying Investments
Chapter One 2
Understanding Investments
,9. Most financial advisors are registered with the Securities and Exchange
Commission as:
a. registered representatives.
b. registered investment advisors.
c. registered financial planners.
d. registered securities consultants.
Ans: b
Difficulty: Moderate
Ref: The Importance of Studying Investments
10. A Chartered Financial Analyst designation is a(n)
a. SEC-approved and awarded designation.
b. certification of a successful investing record.
c. professional designation awarded for meeting recognized standards of conduct
and competency.
d. professional designation awarded by the brokerage industry.
Ans: c
Difficulty: Easy
Ref: The Importance of Studying Investments
11. Underlying all investments is the tradeoff between:
a. expected return and actual return.
b. low risk and high risk.
c. actual return and high risk.
d. expected return and risk.
Ans: d
Difficulty: Moderate
Ref: Understanding the Investment Process
12. Which of the following investment areas relies heavily on mathematical and
statistical models?
a. Security analysis
b. Portfolio management
c. Institutional investing
d. Retirement planning
Ans: b
Difficulty: Moderate
Ref: Structuring the Decision Process
Chapter One 3
Understanding Investments
, 13. Most investors are risk averse, which means they:
a. will assume more risk only if they are compensated by higher expected return.
b. will always invest in the investment with the lowest possible risk.
c. actively seek to minimize their risks.
d. avoid the stock market due to the high degree of risk.
Ans: a
Difficulty: Moderate
Ref: Understanding the Investment Process
14. Which of the following would be considered a risk-free investment?
a. Gold
b. Equity in a house
c. High-grade corporate bond
d. U.S. Treasury security
Ans: d
Difficulty: Easy
Ref: Understanding the Investment Process
15. Security analysis is most concerned with:
a. analysis of the overall securities market and its direction.
b. valuation and analysis of individual securities.
c. purchasing securities at the best price.
d. determination of the investor’s required return.
Ans: b
Difficulty: Moderate
Ref: Structuring the Decision Process
16. In general, the ex ante risk-return tradeoff:
a. slopes upward.
b. slopes downward.
c. is flat.
d. is impossible to determine.
Ans: a
Difficulty: Moderate
Ref: Understanding the Investment Process
Chapter One 4
Understanding Investments
