cons 2304 final

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Virginia Tech *

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2304

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Finance

Date

Feb 20, 2024

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Chapter 12 quiz Life insurance is insurance that protects against financial losses resulting from death - true The largest potential financial loss resulting from premature death is lost income - true Married couples should integrate their life insurance plans and combine their life insurance needs in one policy on the life of one of the spouses - false A disadvantage of first-to-die life insurance policies is that the survivor will have no coverage after the death of the first person - true Once a life insurance policy is issued, the insurance company cannot refuse to pay a death benefit - true Cash dividends on life insurance policies are considered taxable as income by the IRS - false Adriana is financially responsible for her aged parents. She wants to provide income for her aged parents. She wants to provide income for her parents if she dies. Adriana earns $48,000 after taxes and believes that her parents could live on 60 percent of her current income. Her insurance multiple is 11.9. How much life insurance does Adriana need? $342,720 Marvin was widowed at age 38 when his children were 8 and 10 years of age. Assuming his deceased spouse was eligible for social security survivor’s benefits, how many years would Marvin be in the “blackout period?” 12 years A 10-year term life policy will cost ___ a 5-year renewable term policy during the early years of the 10-year period, other factors being equal - more than Lucas had a life insurance policy on his own life for $200,000 with a cash value of $200,000 with a cash value of $24,000. The $1,687 premium was due annually on June 1. However, Lucas was in the hospital from May 16 through June 3, and the life insurance premiums were not paid. Lucas’s brother realized that the premiums were not paid. Lucas’s brother realized that the premium had not been paid and sent the funds to the insurance company on June 11. Lucas died on June 24. Which of the following statements is true? Lucas’s beneficiary will receive $200,000. Which of the following is not characteristic of a cash-value life insurance policy? The beneficiary receives the sum of the face amount and the cash value. The life insurance policy in which death benefits last a lifetime but premiums are all paid after a specified time period is a(n) ___ life policy. - limited-pay whole With a ___ policy, if premiums drop below the amount necessary to cover the insurance protection and expenses, funds are removed from the cash-value account to cover the shortfall. - Universal life insurance. Chapter 13 quiz Systemic risk is easier to avoid than random risk - false Business-cycle and market-volatility risks are essentially the same - false Use of leverage will increase the rate of return on a capital gain and also will increase the rate of loss on a capital loss - true Portfolio diversification is the practice of selecting a collection of investments that have dissimilar risk-return characteristics - true Generally, older investors should have a larger proportion of their assets in bonds than younger investors - true

Is not part of the steps in the investment planning process - change asset allocations monthly Alexis and Maxwell have decided to invest their investment dollars: 40 percent in stocks, 30 percent in bonds, and 30 percent in cash equivalents. Over the past year, the market value of their bonds increased while the market value of their stocks declined. Using the asset allocation model, they should now - sell some of their bonds and buy more stocks If your time horizon is zero to five years and your portfolio consists of 35 percent cash, 40 percent bonds, and 25 percent stocks, you would be considered to have a ___ investment philosophy. Conservative Marc purchased 100 shares of LXM stock for $25 per share and sold this same stock two years later for $28 per share. He paid commissions of $50 when he purchased the stock and $55 when he sold the stock. No dividends were paid during the period he owned LXM. Marc's current income from this investment is ____, and his capital gains were ____. $0;$195 Maria purchased 100 shares of JAX stock for $30 per share and sold this same stock one year later for $29 per share. She paid commissions of $50 when she purchased the stock and $45 when she sold the stock. Dividends of $2 per share were paid during the year. The capital loss on the stock transaction was - $195. Joelle purchased 100 shares of PAC stock for $20 per share and sold this same stock one year later for $25 per share. Dividends of $2 per share were paid during the year. The total rate of return on this investment was - 28.50 percent ___ risk exists in situations that offer potential for gain as well as for loss - speculative Chapter 14 Quiz Value stocks often operate within industries that benefit from a slowing economy - false Market risk, also known as unsystematic risk, is the risk associated with the impact of the overall economy on securities markets - true The dividend reported in stock listings is the past year’s annual dividend - true If the investor fails to put up additional cash or securities to maintain a required level of equity in a margin account, the broker will sell the securities at the market price - true Corporate earnings are the profits of a company makes during a specific time period - true Owners of a corporation who want to raise more capital by issuing new securities but who also want to retain control of their company could issue - either preferred stock or bonds Benny is considering investing in Larkman, Inc. the current price of Larkman is $62 a share, the after-tax earnings are $37,900,000 and there are 13,000,000 outstanding shares of common stock. What is Larkman’s price/earnings ratio? - 21.3 Which of the following statements regarding the price/earnings ratio (P/E ratio) is false? P/E ratios for most corporations have ranged between 5 and 10 - True : P/E ratio is a measure of a stock’s relative price

- P/E ratios should be compared among firms in the same industry - A relatively low P/E ratio indicates that investors expect sluggish growth or an uncertain future Rupert purchased 100 shares of Clarke Corporation for $28 a share last year. Clarke Corporation stock currently sells for $30 a share and pays $.90 a share annually in cash dividends. What is the dividend yield on this stock? 3.0 percent Johnson and Grubb, Inc. has 26,000 shares of common stock outstanding with a market value of $78 a share. Johnson and Grubb’s total sales over the past year were $2,500,000. What is this company’s price-to-sales ratio? - .81 Maxwell Communications Corporation has after-tax earnings of $1,508,000 after paying $45,000 in dividends to its 10,000 preferred stockholders. If Maxwell has 500,000 common stockholders, its earnings per share are $3.02 If U.S. Treasury bills are earning 4 percent and the stock investment you are considering has a potential return of 10 percent, you would be paid a ___ percent return to take the additional risk of investing in the stock Chapter 15 Quiz The collection of securities and other investments owned by a mutual fund is called a(n) - portfolio The price of a mutual fund share excluding any transaction cost is its - net asset value Compute the net asset value for a share of a mutual fund with the following characteristics : market value of assets: 177,000,000 , market value of liabilities: 12,000,000 , number of shares outstanding: 7,250,000 - = 22.76 177,000,000−12,000,000 7,250,000 Mutual fund investors must pay federal income taxes on - ordinary income dividend distributions, capital gains distributions, capital gains from selling their shares Sylvia owns 100 shares of Maxima Growth mutual fund. In December she received a check for $50, payment of ordinary income dividend distributions and capital gains distributions. Sylvia also noticed in her daily newspaper listings that Maxima Growth is now worth $2 per share more than what she purchased it for at the beginning of the year. How much will Sylvia’s holdings in Maxima Growth add to her taxable income for the year assuming she decides not to sell the fund this year? $50 A group of mutual funds managed by the same investment company is called a - mutual fund family When you buy shares in a mutual fund you are trusting that the fund’s investment advisers share your investment objectives - true ___ invest in highly liquid, relatively safe securities with very short maturities - money market funds Of the following types of stock funds, ___ funds tend to be the least risky - growth and income

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Sean invested $10,000 in a mutual fund with a stated commission of 6 percent. If each share of the mutual fund has a net asset value of $27, how many shares would Sean be able to purchase? = 348.15 10,000·(1−.06) 27 Laura invested $4,000 in a mutual fund with a stated load of 6 percent. How much of her money was actually invested in shares of the mutual fund? $3,760 The return on an index fund is expected to exceed the market average- false Emerging market funds are volatile because the countries the stocks are in tend to be less stable politically - true Mutual funds are readily available to people saving for retirement through 401(k) plans and IRAs. - true Chapter 16 Quiz Juan traded a rental house he had purchased for $100,000 six years ago to Randy for a rental house worth $125,000. Juan will have to pay taxes this year $25,000 capital gain. False A speculator is someone who buys an asset in the hope that someone else will pay more for it in the near future. True A call option is an option contract that gives the option holder the right to sell the optioned asset from the option writer at the striking price. False Karen purchased a rental property in 1995 for $45,000. In 2005 she traded this property and $10,000 in cash for a rental property valued at $105,000. In 2014, Karen sold that property for $135,000. What was her taxable income when she sold the property in 2014? $80,000. Which of the following statements about options is not true? Options holders generally making money by buying or selling the underlying asset. Buying ___ is a way to immunize a conservative investor’s portfolio against severe price declines because safeguard profits. Puts ____ stocks are stocks that trade for less than $5 per share. Penny ____ are cultural artifacts that have value because of their beauty, age, scarcity, or popularity. Collectibles A disadvantage of real estate investment is financial risk, large initial investment, illiquidity Patrick invested $55,000 and borrowed $105,000 for an investment worth $160,000. What was the loan-to-value ratio? 66 percent. When an option writer does not own the asset, it is called a - naked option ___ is a repair expense for rental property rather than a capital improvement. Painting the kitchen. Chapter 17 Quiz Retirement is the time in life when the major sources of income change from earned income to employer-based retirement benefits, private savings and investments, income from Social Security and perhaps part-time employment - true

The more you save for your own retirement, the lower the proportion of your overall retirement income that will need to come from social security retirement benefits - true All of your employment income is subject to the Medicare tax -true If a Roth IRA has been in place for more than five years and you have reached age 59 ½, or the earnings have been used for qualified educational expenses or first-time homebuyer expenses, earnings are not taxed or penalized at withdrawal. - true Preforming a large number of calculations on the possible returns from a mix of combinations of investments in an overall portfolio is called - Monte Carlo analysis Your preferences for funeral and burial, obituary and location of important documents can best be communicated in your - letter of last instructions The person named in a will who identifies assets, collects any money due, pays off debts, liquidates assets, files final income tax and estate tax returns, and with the court’s permission distributes the balance of any remaining money and property to the beneficiaries is the - executor Which of the following people would receive an asset should the beneficiary die before the owner of the asset - contingent beneficiary A diversified portfolio that automatically shifts the asset mix away from equities and toward more conservative fixed-income investments as you approach the year of your retirement is called a(n) ___ fund - target-date retirement In which of the following is the retirement plan contribution for the employee dependent on the financial success of the employer? Profit-sharing A(n) ___ plan is a benefit plan through which the employer makes tax-deductible contributions of company stock into a trust; these contributions are then allocated into accounts for individual employees. - employee stock-ownership When one dies without a will, the judge who probates the estate has total control over the distribution of property - false