Question 1

Common stock investments that do not pay dividends are likely to provide relatively low total returns.

Accepted Answer

Common stock investments that do not pay dividends offer the opportunity for higher stock appreciation, which in itself usually provides the needed total returns required by investors in these investments.

Question 2

Finding high income (yield)and growth in the same investment is a relatively standard practice.

Accepted Answer

There is generally a trade-off between high income and growth in the same investment. It is rare to find both in the same investment.

Question 3

Silver is an example of a financial asset.

Accepted Answer

Silver is considered a physical or tangible asset because it is a precious metal that has physical properties and can be held in the form of coins, bars, or jewelry. Financial assets, on the other hand, are intangible assets such as stocks, bonds, or bank deposits.

Question 4

Real estate may be favored by investors in high tax brackets.

Accepted Answer

Real estate investments can provide tax benefits such as deductions for property taxes, mortgage interest, and depreciation. These benefits can be even more advantageous for investors in higher tax brackets.

Question 5

An aggressive portfolio might include real assets.

Accepted Answer

Real assets, such as real estate or commodities, are often included in aggressive portfolios as they have the potential to provide high returns but also come with a higher level of risk.

Question 6

Risk is not correlated with return in the capital markets.

Accepted Answer

In general, risk is positively correlated with return in the capital markets. This means that investors who take on more risk are typically rewarded with higher potential returns. However, this relationship is not always consistent or predictable, and there are always exceptions to the rule.

Question 7

Those who engage in short-term market tactics are considered traders.

Accepted Answer

Traders are individuals who engage in short-term buying and selling of financial assets in order to make a profit.

Question 8

Liquidity refers to how little the sales price of an asset has decreased from its cost.

Accepted Answer

Liquidity refers to the ease of buying or selling an asset without causing a significant change in its price. It is not related to the cost or decrease in price of the asset.

Question 9

The "Stocks,Bonds,Bills and Inflation Yearbook" is an annual reference book publishing return data on a variety of securities.The data shows that the large company category had a negative return in only one decade and that was the 1930's.

Accepted Answer

The "Stocks, Bonds, Bills, and Inflation Yearbook" indicates that the large company category experienced a negative return only during the 1930s, primarily due to the Great Depression.

Question 10

A lack of immediate liquidity cannot be justified even if there is an opportunity for large gains.

Accepted Answer

The lack of liquidity can be justified by the unusual opportunities presented by high gains in investments like real estate and collectibles, and the potential tax benefits of high write-offs and depreciation, despite the higher transaction costs of these investments.

Question 11

Dividends and long-term capital gains are now taxed at the same maximum rate.

Accepted Answer

In 2021, both dividends and long-term capital gains are taxed at a maximum rate of 20%.

Question 12

Common stock is a good example of an investment that lacks liquidity.

Accepted Answer

Common stock is generally considered a liquid investment because it can be easily bought and sold on the stock market.

Question 13

Retirement questions should be asked 5-10 years before retirement.

Accepted Answer

Retirement questions should be asked 40-45 years before retirement when there is sufficient time to plan for your retirement.

Question 14

In the financial world,risk is defined as variability of returns.

Accepted Answer

This statement is true. Risk is generally measured as the degree of uncertainty or variation in expected returns. High variability of returns generally means a higher risk.

Question 15

A public utility is likely to appeal to an income oriented,conservative investor.

Accepted Answer

Public utilities, such as electric or water companies, are often seen as stable and reliable investments that generate steady income through regular dividends. This makes them attractive to conservative investors who prioritize income over growth and are willing to accept lower risk in exchange for predictable returns.

Question 16

A share in a money market fund is an indirect equity claim.

Accepted Answer

A share in a money market fund is not an equity claim, it is considered a debt instrument. Money market funds invest in short-term, low-risk debt securities such as Treasury bills, commercial paper, and certificates of deposit. Therefore, owning a share in a money market fund represents a debt instrument rather than an equity claim.

Question 17

Technical analysis is based on market indicators and charting to determine buy and sell decisions.

Accepted Answer

Technical analysis involves studying market indicators and charts to make informed investment decisions. Therefore, the statement is true.

Question 18

Investors desiring to assume low risks would probably invest in short-term securities.

Accepted Answer

Short-term securities are generally considered to be less risky than long-term securities as they mature in a shorter period of time and are less susceptible to changes in interest rates and market fluctuations. Therefore, investors who desire low risks are likely to invest in short-term securities.

Question 19

Real estate is a good example of an investment that lacks liquidity.

Accepted Answer

Real estate investments typically cannot be quickly bought or sold, making them less liquid than some other types of investments like stocks or mutual funds.

Question 20

Real assets tend to be more liquid than financial assets.

Accepted Answer

Financial assets, such as stocks and bonds, are generally more liquid than real assets, such as real estate and commodities.

Quiz 1: The Investment Setting