GEB 3006 ACTUAL UPDATED Exam
Questions and CORRECT Answers
The key to successful investing is asset class allocation, diversification, and appropriate use of
taxable, tax deferred and tax free accounts. - CORRECT ANSWER - True
Assume a student has 4 individual stocks worth $2,500 each. In this case: - CORRECT
ANSWER - The student is not adequately diversified.
Which type of investment provides an ownership in the company? - CORRECT
ANSWER - Equity investment.
The total return on a stock is the total of the: - CORRECT ANSWER - Dividend yield and
capital gain yield.
A stock pays a quarterly dividend of $1.00/share. The stock trades at $100 per share, and has a
book value of $50 per share.
What is the annual dividend yield? - CORRECT ANSWER - 4%
What type of stock has greater risk and often does not pay dividends? - CORRECT
ANSWER - Small cap stocks.
If a company's earnings do not vary much with the economy, it would be called a ____ stock. -
CORRECT ANSWER - Defensive
The risks of the overall market that can't be diversified by adding more stocks to a portfolio is
called _____ risk. - CORRECT ANSWER - Systematic or market
Average returns should always be used when evaluating stock performance since they are more
accurate than geometric returns. - CORRECT ANSWER - False
,Over the long term, which asset class provided the highest rate of return? - CORRECT
ANSWER - Stocks
The historical equity risk premium or excess market return for stocks over risk free investments
is _____. - CORRECT ANSWER - 4% - 6%
The returns on Real Estate Investment Trusts (REITs) is in the same range of returns as ______.
- CORRECT ANSWER - Stocks
The US stock market is essentially a ___________ market. - CORRECT ANSWER -
Large cap
A stock with a beta of 2.0 would be a _______ stock. - CORRECT ANSWER - High risk
Assume a bond with a 4% coupon.
If interest rates move up, then which type of bond would have the greatest sensitivity to the
change in interest rates? - CORRECT ANSWER - 30 year bond.
For long term investments, a 30 year old should have about ___ invested in equity securities. -
CORRECT ANSWER - 80%
Which type of mutual fund would maintain a reasonably appropriate allocation of stocks and
bonds for your age? - CORRECT ANSWER - Targeted retirement date fund.
If interest rates decrease, the price of a bond will: - CORRECT ANSWER - Increase
Which of the following is NOT an attribute of mutual funds? - CORRECT ANSWER -
Guaranteed returns
, If an investment advisor is acting as a fiduciary, then he or she is obligated to offer you financial
products that are in your best interest. This means that fiduciaries are NOT likely to offer you
"load" funds or mutual funds with high fees since these types of funds provide high commissions
to the advisor and are not usually in your best interest. - CORRECT ANSWER - True
Most professional portfolio managers can't beat the returns of index funds over the long term. -
CORRECT ANSWER - True
The best predictor of future mutual fund performance is: - CORRECT ANSWER - The
expense ratio
Assume you are 30 years old and have 80% of your 401-K in equity securities. In the event of a
20% drop in the stock market you should: - CORRECT ANSWER - Maintain your
appropriate ratio of stocks for your age which may mean allocating more money to stocks
One can reduce the risk of out living your savings by starting to save early in life rather than in
your 40s and 50s. - CORRECT ANSWER - True
If you can limit annual withdrawals from your 401-K to no more than ____, then your money
should last forever. - CORRECT ANSWER - 4%
When calculating the amount a person can withdraw from their 401-K, it is best to use a
__________ annuity which will allow the individual to increase their payment each year for
inflation. - CORRECT ANSWER - Growing
Which of the following statements is TRUE with respect to Exchange Traded Funds (ETFs)? -
CORRECT ANSWER - ETFs generally track some benchmark index
Social Security estimates that once the assets of the Social Security Trust Fund are depleted, they
could continue to pay _____ of current benefits with the cash collected from payroll taxes each
year. - CORRECT ANSWER - 79%
Questions and CORRECT Answers
The key to successful investing is asset class allocation, diversification, and appropriate use of
taxable, tax deferred and tax free accounts. - CORRECT ANSWER - True
Assume a student has 4 individual stocks worth $2,500 each. In this case: - CORRECT
ANSWER - The student is not adequately diversified.
Which type of investment provides an ownership in the company? - CORRECT
ANSWER - Equity investment.
The total return on a stock is the total of the: - CORRECT ANSWER - Dividend yield and
capital gain yield.
A stock pays a quarterly dividend of $1.00/share. The stock trades at $100 per share, and has a
book value of $50 per share.
What is the annual dividend yield? - CORRECT ANSWER - 4%
What type of stock has greater risk and often does not pay dividends? - CORRECT
ANSWER - Small cap stocks.
If a company's earnings do not vary much with the economy, it would be called a ____ stock. -
CORRECT ANSWER - Defensive
The risks of the overall market that can't be diversified by adding more stocks to a portfolio is
called _____ risk. - CORRECT ANSWER - Systematic or market
Average returns should always be used when evaluating stock performance since they are more
accurate than geometric returns. - CORRECT ANSWER - False
,Over the long term, which asset class provided the highest rate of return? - CORRECT
ANSWER - Stocks
The historical equity risk premium or excess market return for stocks over risk free investments
is _____. - CORRECT ANSWER - 4% - 6%
The returns on Real Estate Investment Trusts (REITs) is in the same range of returns as ______.
- CORRECT ANSWER - Stocks
The US stock market is essentially a ___________ market. - CORRECT ANSWER -
Large cap
A stock with a beta of 2.0 would be a _______ stock. - CORRECT ANSWER - High risk
Assume a bond with a 4% coupon.
If interest rates move up, then which type of bond would have the greatest sensitivity to the
change in interest rates? - CORRECT ANSWER - 30 year bond.
For long term investments, a 30 year old should have about ___ invested in equity securities. -
CORRECT ANSWER - 80%
Which type of mutual fund would maintain a reasonably appropriate allocation of stocks and
bonds for your age? - CORRECT ANSWER - Targeted retirement date fund.
If interest rates decrease, the price of a bond will: - CORRECT ANSWER - Increase
Which of the following is NOT an attribute of mutual funds? - CORRECT ANSWER -
Guaranteed returns
, If an investment advisor is acting as a fiduciary, then he or she is obligated to offer you financial
products that are in your best interest. This means that fiduciaries are NOT likely to offer you
"load" funds or mutual funds with high fees since these types of funds provide high commissions
to the advisor and are not usually in your best interest. - CORRECT ANSWER - True
Most professional portfolio managers can't beat the returns of index funds over the long term. -
CORRECT ANSWER - True
The best predictor of future mutual fund performance is: - CORRECT ANSWER - The
expense ratio
Assume you are 30 years old and have 80% of your 401-K in equity securities. In the event of a
20% drop in the stock market you should: - CORRECT ANSWER - Maintain your
appropriate ratio of stocks for your age which may mean allocating more money to stocks
One can reduce the risk of out living your savings by starting to save early in life rather than in
your 40s and 50s. - CORRECT ANSWER - True
If you can limit annual withdrawals from your 401-K to no more than ____, then your money
should last forever. - CORRECT ANSWER - 4%
When calculating the amount a person can withdraw from their 401-K, it is best to use a
__________ annuity which will allow the individual to increase their payment each year for
inflation. - CORRECT ANSWER - Growing
Which of the following statements is TRUE with respect to Exchange Traded Funds (ETFs)? -
CORRECT ANSWER - ETFs generally track some benchmark index
Social Security estimates that once the assets of the Social Security Trust Fund are depleted, they
could continue to pay _____ of current benefits with the cash collected from payroll taxes each
year. - CORRECT ANSWER - 79%
