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Question 1 of 10
1. Question
Which of the following statements is true regarding Foreign stocks?
I. Foreign stocks present many unique opportunities for investors
II. Foreign stocks give the investor access to growth in emerging markets, which can be very valuable in stagnate domestic markets
III. Foreign stocks are also subject to currency risk due to being value in non-U.S. dollar denominations
IV. Volatility in the country in which the investor invested is a benefitCorrect
Foreign stocks
Foreign stocks present many unique opportunities for investors. Foreign stocks give the investor access to growth in emerging markets, which can be very valuable in stagnate domestic markets. Along with unique growth opportunities, unique challenges are also presented. Because foreign stocks are not registered with the Securities Exchange Commission, there is a certain lack of transparency as to the company’s operation that is not present in domestic stock markets. Foreign stocks are also subject to currency risk due to being value in non-U.S. dollar denominations. Volatility in the country in which the investor invested is also a risk.Incorrect
Foreign stocks
Foreign stocks present many unique opportunities for investors. Foreign stocks give the investor access to growth in emerging markets, which can be very valuable in stagnate domestic markets. Along with unique growth opportunities, unique challenges are also presented. Because foreign stocks are not registered with the Securities Exchange Commission, there is a certain lack of transparency as to the company’s operation that is not present in domestic stock markets. Foreign stocks are also subject to currency risk due to being value in non-U.S. dollar denominations. Volatility in the country in which the investor invested is also a risk. -
Question 2 of 10
2. Question
Which of the following statements is true regarding employee stock options?
I. Employee stock options are options to sell a security of a own company that are given to employees of the company
II. They are very similar to options bought and sold on major exchanges except that employee stock options are not tradable on exchanges
III. Employees must usually defer exercising for a set time of vesting
IV. Qualified plans are taxable upon receipt instead of redemptionCorrect
Employee stock options
Employee stock options are options to buy a security of a certain company that are given to employees of that company. They are very similar to options bought and sold on major exchanges except that employee stock options are not tradable on exchanges. Employees must usually defer exercising for a set time of vesting. Companies may issue employee stock options as a part of their retirement savings or as taxable bonus compensation. These retirement incentive plans are tax deferred until redemption. Nonqualified plans are taxable upon receipt instead of redemption.Incorrect
Employee stock options
Employee stock options are options to buy a security of a certain company that are given to employees of that company. They are very similar to options bought and sold on major exchanges except that employee stock options are not tradable on exchanges. Employees must usually defer exercising for a set time of vesting. Companies may issue employee stock options as a part of their retirement savings or as taxable bonus compensation. These retirement incentive plans are tax deferred until redemption. Nonqualified plans are taxable upon receipt instead of redemption. -
Question 3 of 10
3. Question
Which of the following statements is true regarding fundamental analysis?
I. Fundamental analysis is the method by which investors determine the value of equity securities using data gathered from the company’s investment
II. Information from the income statement, the balance sheet, and the statement of cash flows are analyzed to provide a clear picture of the company’s profitability, liquidity, and debt management
III. These fundamental numbers are assessed, and if they are found to be favorable, an investor will place a high valuation on the security, perhaps higher than the current market value
IV. This indicates to the investor that it is a good time to buy the stockCorrect
Fundamental analysis
Fundamental analysis is the method by which investors determine the value of equity securities using data gathered from the company’s financial statements. Information from the income statement, the balance sheet, and the statement of cash flows are analyzed to provide a clear picture of the company’s profitability, liquidity, and debt management. These fundamental numbers are assessed, and if they are found to be favorable, an investor will place a high valuation on the security, perhaps higher than the current market value. This indicates to the investor that it is a good time to buy the stock.Incorrect
Fundamental analysis
Fundamental analysis is the method by which investors determine the value of equity securities using data gathered from the company’s financial statements. Information from the income statement, the balance sheet, and the statement of cash flows are analyzed to provide a clear picture of the company’s profitability, liquidity, and debt management. These fundamental numbers are assessed, and if they are found to be favorable, an investor will place a high valuation on the security, perhaps higher than the current market value. This indicates to the investor that it is a good time to buy the stock. -
Question 4 of 10
4. Question
Which of the following statements is true regarding fundamental and technical analysis?
I. Fundamental and technical analyses are two methods that encourage the observation of trends when making investment decisions
II. Fundamental analysis focuses on the historical performance of the issuing company
III. Financial analysis uses balance sheets, income statements and various ratios to determine how a stock will perform
IV. Technical analysis requires the study of the company’s financial history rather than the company’s stockCorrect
Fundamental and technical analysis
Fundamental and technical analyses are two methods that encourage the observation of trends when making investment decisions. Fundamental analysis focuses on the historical performance of the issuing company. It takes into consideration the various financial records of a company in order to predict stock movement. Financial analysis uses balance sheets, income statements and various ratios to determine how a stock will perform. Technical analysis requires the study of the company’s stock rather than the company’s financial history. Technical analysts study the historical performance of a stock’s price and then create charts.Incorrect
Fundamental and technical analysis
Fundamental and technical analyses are two methods that encourage the observation of trends when making investment decisions. Fundamental analysis focuses on the historical performance of the issuing company. It takes into consideration the various financial records of a company in order to predict stock movement. Financial analysis uses balance sheets, income statements and various ratios to determine how a stock will perform. Technical analysis requires the study of the company’s stock rather than the company’s financial history. Technical analysts study the historical performance of a stock’s price and then create charts. -
Question 5 of 10
5. Question
Which of the following statements is true regarding open-ended investment companies?
I. The new money received from investors is invested in the director’s fund across the spectrum of their chosen investments
II. The director may then redeem those shares for the fund’s net asset value
III. Redemption is accomplished via the company purchasing shares back from the client
IV. Mutual funds are the most common type of open-ended investment companyCorrect
Open-ended investment companies
Open-ended investment companies are exchange traded funds companies that create investments based on their stated objective (usually a basket of stocks, commodities, bonds, or some combination thereof) and issues an unlimited number of shares to be purchased. The new money received from investors is invested in the company’s fund across the spectrum of their chosen investments. The investor may then redeem those shares for the fund’s net asset value. Redemption is accomplished via the company purchasing shares back from the client. Mutual funds are the most common type of open-ended investment company. For a low initial outlay of capital, investors have exposure to commodities, bonds, and stocks and benefit from diversification inherent to the fund.Incorrect
Open-ended investment companies
Open-ended investment companies are exchange traded funds companies that create investments based on their stated objective (usually a basket of stocks, commodities, bonds, or some combination thereof) and issues an unlimited number of shares to be purchased. The new money received from investors is invested in the company’s fund across the spectrum of their chosen investments. The investor may then redeem those shares for the fund’s net asset value. Redemption is accomplished via the company purchasing shares back from the client. Mutual funds are the most common type of open-ended investment company. For a low initial outlay of capital, investors have exposure to commodities, bonds, and stocks and benefit from diversification inherent to the fund. -
Question 6 of 10
6. Question
Which of the following statements is true regarding closed-ended investment companies?
I. Closed-ended investment companies are companies that are formed for the purpose of issuing a stock based on a basket of underlying assets
II. These assets consist of stocks, bonds, commodities, real estate, and any asset that can be securitized
III. Closed-ended investment companies must submit their fund to the public through an initial public offering
IV. There are an infinite number of shares in a closed-ended investment company fundCorrect
Closed-ended investment companies
Closed-ended investment companies are companies that are formed for the purpose of issuing a stock based on a basket of underlying assets. These assets consist of stocks, bonds, commodities, real estate, and any asset that can be securitized. After determining the amount of capital they need to raise, closed-ended investment companies must then submit their fund to the public through an initial public offering and all registrations required by the Securities Exchange Commission for an initial public offering. Unlike open-ended funds, there are a finite number of shares in a closed-ended investment company fund. They are traded like stocks on exchanges and valued similarly to stocks.Incorrect
Closed-ended investment companies
Closed-ended investment companies are companies that are formed for the purpose of issuing a stock based on a basket of underlying assets. These assets consist of stocks, bonds, commodities, real estate, and any asset that can be securitized. After determining the amount of capital they need to raise, closed-ended investment companies must then submit their fund to the public through an initial public offering and all registrations required by the Securities Exchange Commission for an initial public offering. Unlike open-ended funds, there are a finite number of shares in a closed-ended investment company fund. They are traded like stocks on exchanges and valued similarly to stocks. -
Question 7 of 10
7. Question
Which of the following statements is true regarding hedge funds?
I. Hedge funds are sole investments that seek high returns through the use of sophisticated investment management strategie
II. They tend to be very aggressively managed and use some combination of leverage, long/short strategies, and derivative contracts to generate the highest returns possible
III. This strategy also leads to higher-than- normal risk, and limits their investor pool to high-net-worth individuals and institutional investors
IV. Hedge funds are generally open to retail investors and lack liquidity due to minimum time commitments of the investors’ capitalCorrect
Hedge funds
Hedge funds are alternative investments that seek high returns through the use of sophisticated investment management strategies. They tend to be very aggressively managed and use some combination of leverage, long/short strategies, and derivative contracts to generate the highest returns possible. This strategy also leads to higher-than- normal risk, and limits their investor pool to high-net-worth individuals and institutional investors. Since those who invest in hedge funds are typically sophisticated and experienced investors, there is little regulation of hedge funds. High minimum investments also limit their investors to higher-net-worth individuals as well. Contrary to their moniker, hedge funds are generally not used to hedge risk, but to maximize returns. Hedge funds are not generally open to retail investors and lack liquidity due to minimum time commitments of the investors’ capital.Incorrect
Hedge funds
Hedge funds are alternative investments that seek high returns through the use of sophisticated investment management strategies. They tend to be very aggressively managed and use some combination of leverage, long/short strategies, and derivative contracts to generate the highest returns possible. This strategy also leads to higher-than- normal risk, and limits their investor pool to high-net-worth individuals and institutional investors. Since those who invest in hedge funds are typically sophisticated and experienced investors, there is little regulation of hedge funds. High minimum investments also limit their investors to higher-net-worth individuals as well. Contrary to their moniker, hedge funds are generally not used to hedge risk, but to maximize returns. Hedge funds are not generally open to retail investors and lack liquidity due to minimum time commitments of the investors’ capital. -
Question 8 of 10
8. Question
Which of the following statements is true regarding hedge funds?
I. Hedge funds are similar in structure to mutual funds, but they are dissimilar in that they are unregulated and thus have a wider array of investment options
II. Hedge funds are characteristically very safe but speculative, using purchases on margin, short sales, and other higher-risk investment strategies to aggressively make a profit
III. Hedge funds have very limited liquidity, often keeping investors’ money for at least one year
IV. Hedge funds have unlimited liquidity, often keeping investors’ money for at least three yearsCorrect
Hedge funds
Hedge funds are similar in structure to mutual funds, but they are dissimilar in that they are unregulated (because private) and thus have a wider array of investment options. Hedge funds are characteristically very risky and speculative, using purchases on margin, short sales, and other higher-risk investment strategies to aggressively make a profit. Hedge funds’ riskiness seems to contradict their name, since hedging is the reduction of risk—but the reason for the name is that, when hedge funds historically arose, one of their main purposes was to hedge against the risk of a bear market by selling short. Hedge funds have very limited liquidity, often keeping investors’ money for at least one year. For tax purposes, hedge funds will be arranged as limited partnerships, so that they will qualify as flow- through entities. The manager of the fund (or an affiliate) will be the general partner, and the investors will be limited partners.Incorrect
Hedge funds
Hedge funds are similar in structure to mutual funds, but they are dissimilar in that they are unregulated (because private) and thus have a wider array of investment options. Hedge funds are characteristically very risky and speculative, using purchases on margin, short sales, and other higher-risk investment strategies to aggressively make a profit. Hedge funds’ riskiness seems to contradict their name, since hedging is the reduction of risk—but the reason for the name is that, when hedge funds historically arose, one of their main purposes was to hedge against the risk of a bear market by selling short. Hedge funds have very limited liquidity, often keeping investors’ money for at least one year. For tax purposes, hedge funds will be arranged as limited partnerships, so that they will qualify as flow- through entities. The manager of the fund (or an affiliate) will be the general partner, and the investors will be limited partners. -
Question 9 of 10
9. Question
Which of the following statements is true regarding private equity?
I. Private equity consists of any equity which isn’t quoted on any public exchanges
II. Private investments might involve funding a private company to develop new technologies, or simply to be more successful in general
III. Private equity also might involve selling a private company for the sake of making it public
IV. Private equity often involves investors with enormous amounts of capitalCorrect
Private equity
Private equity consists of any equity which isn’t quoted on any public exchanges. Private investments might involve funding a private company to develop new technologies, or simply to be more successful in general. Private equity also might involve purchasing a public company for the sake of making it private. Private equity often involves investors with enormous amounts of capital.Incorrect
Private equity
Private equity consists of any equity which isn’t quoted on any public exchanges. Private investments might involve funding a private company to develop new technologies, or simply to be more successful in general. Private equity also might involve purchasing a public company for the sake of making it private. Private equity often involves investors with enormous amounts of capital. -
Question 10 of 10
10. Question
Which of the following statements is true regarding methods to determine the value of pooled investments?
I. Net asset value, sometimes referred to NAV, refers to the value of all underlying assets plus liabilities multiplied by outstanding shares
II. This is the most common valuation of mutual fund shares and usually the price point at which they trade
III. Exchange traded funds have a NAV because they are pooled investments based on a group of holdings, but they do not trade at that NAV
IV. Because exchange traded funds trade on exchanges similarly to stocks, they are valued based on supply, demand, and NAVCorrect
Methods to determine the value of pooled investments
Net asset value, sometimes referred to NAV, refers to the value of all underlying assets minus liabilities divided by outstanding shares. This is the most common valuation of mutual fund shares and usually the price point at which they trade. Exchange traded funds have a NAV because they are pooled investments based on a group of holdings, but they do not trade at that NAV. Because exchange traded funds trade on exchanges similarly to stocks, they are valued based on supply, demand, and NAV. Supply and demand may make that price higher than NAV (traded at a premium) or lower than NAV (traded at a discount).Incorrect
Methods to determine the value of pooled investments
Net asset value, sometimes referred to NAV, refers to the value of all underlying assets minus liabilities divided by outstanding shares. This is the most common valuation of mutual fund shares and usually the price point at which they trade. Exchange traded funds have a NAV because they are pooled investments based on a group of holdings, but they do not trade at that NAV. Because exchange traded funds trade on exchanges similarly to stocks, they are valued based on supply, demand, and NAV. Supply and demand may make that price higher than NAV (traded at a premium) or lower than NAV (traded at a discount).