GEB 3006 FINAL EXAM QUESTIONS & ANSWERS
True - Answer -The key to successful investing is asset class allocation, diversification,
and appropriate use of taxable, tax deferred and tax free accounts.
The student is not adequately diversified. - Answer -Assume a student has 4 individual
stocks worth $2,500 each. In this case:
equity investment - Answer -Which type of investment provides an ownership in the
company?
Dividend yield and capital gain yield. - Answer -The total return on a stock is the total of
the:
4% - Answer -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?
Small cap stocks. - Answer -What type of stock has greater risk and often does not pay
dividends?
Defensive - Answer -If a company's earnings do not vary much with the economy, it
would be called a ____ stock.
Systematic or market - Answer -The risks of the overall market that can't be diversified
by adding more stocks to a portfolio is called _____ risk.
False - Answer -Average returns should always be used when evaluating stock
performance since they are more accurate than geometric returns.
stocks - Answer -Over the long term, which asset class provided the highest rate of
return?
4% - 6% - Answer -The historical equity risk premium or excess market return for
stocks over risk free investments is _____.
stocks - Answer -The returns on Real Estate Investment Trusts (REITs) is in the same
range of returns as ______.
large cap - Answer -The US stock market is essentially a ___________ market.
high risk - Answer -A stock with a beta of 2.0 would be a _______ stock.
30 year bond - Answer -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?
80% - Answer -For long term investments, a 30 year old should have about ___
invested in equity securities.
Targeted retirement date fund. - Answer -Which type of mutual fund would maintain a
reasonably appropriate allocation of stocks and bonds for your age?
Increase - Answer -If interest rates decrease, the price of a bond will:
Guaranteed returns - Answer -Which of the following is NOT an attribute of mutual
funds?
True - Answer -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.
True - Answer -Most professional portfolio managers can't beat the returns of index
funds over the long term.
The expense ratio - Answer -The best predictor of future mutual fund performance is:
Maintain your appropriate ratio of stocks for your age which may mean allocating more
money to stocks - Answer -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:
True - Answer -One can reduce the risk of out living your savings by starting to save
early in life rather than in your 40s and 50s.
4% - Answer -If you can limit annual withdrawals from your 401-K to no more than
____, then your money should last forever.
Growing - Answer -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.
ETFs generally track some benchmark index - Answer -Which of the following
statements is TRUE with respect to Exchange Traded Funds (ETFs)?
79% - Answer -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.
True - Answer -The key to successful investing is asset class allocation, diversification,
and appropriate use of taxable, tax deferred and tax free accounts.
The student is not adequately diversified. - Answer -Assume a student has 4 individual
stocks worth $2,500 each. In this case:
equity investment - Answer -Which type of investment provides an ownership in the
company?
Dividend yield and capital gain yield. - Answer -The total return on a stock is the total of
the:
4% - Answer -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?
Small cap stocks. - Answer -What type of stock has greater risk and often does not pay
dividends?
Defensive - Answer -If a company's earnings do not vary much with the economy, it
would be called a ____ stock.
Systematic or market - Answer -The risks of the overall market that can't be diversified
by adding more stocks to a portfolio is called _____ risk.
False - Answer -Average returns should always be used when evaluating stock
performance since they are more accurate than geometric returns.
stocks - Answer -Over the long term, which asset class provided the highest rate of
return?
4% - 6% - Answer -The historical equity risk premium or excess market return for
stocks over risk free investments is _____.
stocks - Answer -The returns on Real Estate Investment Trusts (REITs) is in the same
range of returns as ______.
large cap - Answer -The US stock market is essentially a ___________ market.
high risk - Answer -A stock with a beta of 2.0 would be a _______ stock.
30 year bond - Answer -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?
80% - Answer -For long term investments, a 30 year old should have about ___
invested in equity securities.
Targeted retirement date fund. - Answer -Which type of mutual fund would maintain a
reasonably appropriate allocation of stocks and bonds for your age?
Increase - Answer -If interest rates decrease, the price of a bond will:
Guaranteed returns - Answer -Which of the following is NOT an attribute of mutual
funds?
True - Answer -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.
True - Answer -Most professional portfolio managers can't beat the returns of index
funds over the long term.
The expense ratio - Answer -The best predictor of future mutual fund performance is:
Maintain your appropriate ratio of stocks for your age which may mean allocating more
money to stocks - Answer -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:
True - Answer -One can reduce the risk of out living your savings by starting to save
early in life rather than in your 40s and 50s.
4% - Answer -If you can limit annual withdrawals from your 401-K to no more than
____, then your money should last forever.
Growing - Answer -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.
ETFs generally track some benchmark index - Answer -Which of the following
statements is TRUE with respect to Exchange Traded Funds (ETFs)?
79% - Answer -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.
