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Question 1 of 30
1. Question
What is the initial margin requirement set by the Federal Reserve, if an investor purchases stock on margin?
Correct
The Federal Reserve has at present set the initial margin requirement at 50%. Stock exchanges and brokerage houses will set a maintenance margin requirement, with maintenance margin being the minimum equity an investor must have for a margin position.
Incorrect
The Federal Reserve has at present set the initial margin requirement at 50%. Stock exchanges and brokerage houses will set a maintenance margin requirement, with maintenance margin being the minimum equity an investor must have for a margin position.
Question 2 of 30
2. Question
In case of margin calls, how should the investors deal with the situation?
I. Investors should raise the equity by selling the assets.
II. Investors should buy few assets at the earliest.
III. Investors should raise the equity by depositing cash.
IV. Investors should do some investment elsewhere.
Correct
When a stock or portfolio declines a great deal in price, the result will be a margin call. Margin calls indicate that the equity in the account has dropped beneath the margin requirement. Investors will have to increase their equity by either selling assets or depositing cash or securities.
Incorrect
When a stock or portfolio declines a great deal in price, the result will be a margin call. Margin calls indicate that the equity in the account has dropped beneath the margin requirement. Investors will have to increase their equity by either selling assets or depositing cash or securities.
Question 3 of 30
3. Question
Identify the individuals who have the authority to represent someone else before IRS:
I. Certified public accountants
II. Enrolled agents
III. Financial planners
IV. Attorneys
Correct
The only individuals who have the authority to represent someone else before the IRS are certified public accountants, attorneys, and enrolled agents.
Incorrect
The only individuals who have the authority to represent someone else before the IRS are certified public accountants, attorneys, and enrolled agents.
Question 4 of 30
4. Question
What is the punishable fine for criminal fraud for a corporation?
Correct
Criminal fraud is also known as tax evasion, and it is a felony punishable by fines of up to $250,000 for an individual and $500,000 for a corporation.
Incorrect
Criminal fraud is also known as tax evasion, and it is a felony punishable by fines of up to $250,000 for an individual and $500,000 for a corporation.
Question 5 of 30
5. Question
A group of people that are joined together for a particular purpose are called:
Correct
An association is a group of people that are joined together for a particular purpose.
Incorrect
An association is a group of people that are joined together for a particular purpose.
Question 6 of 30
6. Question
Identify the assets that may be amortized:
I. Furniture
II. Patents
III. Copyrights
IV. Goodwill
Correct
An amortization is used only for intangible assets that have a definite life. Patents and copyrights are common examples of assets that may be amortized.
Incorrect
An amortization is used only for intangible assets that have a definite life. Patents and copyrights are common examples of assets that may be amortized.
Question 7 of 30
7. Question
Who decides the child support payments?
Correct
Child support payments will be established by the courts, and will be based on a ratio of each parent’s income, the percentage of time the child spends with each parent, and the amount of alimony.
Incorrect
Child support payments will be established by the courts, and will be based on a ratio of each parent’s income, the percentage of time the child spends with each parent, and the amount of alimony.
Question 8 of 30
8. Question
What is a measure of absolute dispersions?
Correct
The coefficient of variation is a measure of relative dispersions (unlike standard deviation, which is the measure of absolute dispersions). The coefficient of variation can be calculated by dividing the standard deviation by the mean.
Incorrect
The coefficient of variation is a measure of relative dispersions (unlike standard deviation, which is the measure of absolute dispersions). The coefficient of variation can be calculated by dividing the standard deviation by the mean.
Question 9 of 30
9. Question
Identify the major composite performance measures:
I. Treynor Index
II. Sharpe Index
III. Jensen Index
IV. Jassy Index
Correct
The major composite performance measures are the Treynor index, the Sharpe index, and the Jensen index. These indices are used to see whether a given stock actually beat the market.
Incorrect
The major composite performance measures are the Treynor index, the Sharpe index, and the Jensen index. These indices are used to see whether a given stock actually beat the market.
Question 10 of 30
10. Question
Which theory strives to understand the relationship between portfolio risk and correlation?
Correct
Portfolio theory strives to understand the relationship between portfolio risk and correlation.
Incorrect
Portfolio theory strives to understand the relationship between portfolio risk and correlation.
Question 11 of 30
11. Question
Which ratio is the relative measure of the risk-adjusted performance of a portfolio based on market risk?
Correct
The Treynor ratio, meanwhile, is the relative measure of the risk-adjusted performance of a portfolio based on market risk, and is more appropriate for using on diversified portfolios.
Incorrect
The Treynor ratio, meanwhile, is the relative measure of the risk-adjusted performance of a portfolio based on market risk, and is more appropriate for using on diversified portfolios.
Question 12 of 30
12. Question
A series of bonds that have their maturity dates spread out over a period of time are called?
Correct
A bond ladder is a series of bonds that have their maturity dates spread out over a period of time. This reduces interest rate risk and makes cash available more often.
Incorrect
A bond ladder is a series of bonds that have their maturity dates spread out over a period of time. This reduces interest rate risk and makes cash available more often.
Question 13 of 30
13. Question
In which type of strategy, investors buy stocks and keep them because they believe that active management only drives up transaction costs without really contributing to a portfolio?
Correct
In the investment strategy known as buy and hold, investors buy stocks and keep them because they believe that active management only drives up transaction costs without really contributing to a portfolio. Unlike a passive investing strategy, in which asset allocation percentages are maintained by rebalancing the portfolio, the buy and hold strategy does not include periodically rebalancing the portfolio.
Incorrect
In the investment strategy known as buy and hold, investors buy stocks and keep them because they believe that active management only drives up transaction costs without really contributing to a portfolio. Unlike a passive investing strategy, in which asset allocation percentages are maintained by rebalancing the portfolio, the buy and hold strategy does not include periodically rebalancing the portfolio.
Question 14 of 30
14. Question
Time deposits with specified dates of maturity are called?
Correct
Certificates of deposit, also known as CDs, are time deposits with specified dates of maturity. A certificate of deposit may be either negotiable or nonnegotiable.
Incorrect
Certificates of deposit, also known as CDs, are time deposits with specified dates of maturity. A certificate of deposit may be either negotiable or nonnegotiable.
Question 15 of 30
15. Question
The interest acquired through the US Treasury bills is subjected to which type of tax?
Correct
US Treasury bills are issued by the federal government and are sold in denominations of $1,000 to $1,000,000 and have maturity periods of three to twelve months. These treasury bills are usually sold at a discount. The interest acquired through them is subject to federal income tax, but not state or local tax.
Incorrect
US Treasury bills are issued by the federal government and are sold in denominations of $1,000 to $1,000,000 and have maturity periods of three to twelve months. These treasury bills are usually sold at a discount. The interest acquired through them is subject to federal income tax, but not state or local tax.
Question 16 of 30
16. Question
Identify the kinds of US savings bonds:
I. Series E
II. Series EE
III. Series F
IV. Series FF
Correct
There are a few kinds of US government savings bonds. The Series E bond was established to encourage more saving; it was offered in small denominations, at a discount, and paid no interest. The Series EE bond replaced the Series E, adding a variable rate of interest that allowed investors to benefit from rising interest rates. The interest on E and EE bonds is not taxable until they either reach maturity or are cashed in.
Incorrect
There are a few kinds of US government savings bonds. The Series E bond was established to encourage more saving; it was offered in small denominations, at a discount, and paid no interest. The Series EE bond replaced the Series E, adding a variable rate of interest that allowed investors to benefit from rising interest rates. The interest on E and EE bonds is not taxable until they either reach maturity or are cashed in.
Question 17 of 30
17. Question
When does the listed stock option expire?
Correct
All listed stock options expire on the Saturday after the third Friday of the expiration month. American stock options may be exercised at any point, though European options can only be exercised at the date of expiration.
Incorrect
All listed stock options expire on the Saturday after the third Friday of the expiration month. American stock options may be exercised at any point, though European options can only be exercised at the date of expiration.
Question 18 of 30
18. Question
Identify the types of REITs:
I. Equity REITs
II. Hybrid REITs
III. Secured REITs
IV. Mortgage REITs
Correct
There are three basic types of REITs: equity REITs, which acquire ownership interests in commercial, industrial, and residential properties; mortgage REITs, which lend the funds for construction and mortgages; and hybrid REITs, which are a combination of the other two types.
Incorrect
There are three basic types of REITs: equity REITs, which acquire ownership interests in commercial, industrial, and residential properties; mortgage REITs, which lend the funds for construction and mortgages; and hybrid REITs, which are a combination of the other two types.
Question 19 of 30
19. Question
Risks that only affect a particular business or industry, and therefore can be avoided through diversification are called:
Correct
Systematic risks affect the entire market and therefore cannot be avoided through diversification. Systematic risk can be determined by beta when calculating risk for a diversified portfolio. Unsystematic risks, then, are those that only affect a particular business or industry, and therefore can be avoided through diversification.
Incorrect
Systematic risks affect the entire market and therefore cannot be avoided through diversification. Systematic risk can be determined by beta when calculating risk for a diversified portfolio. Unsystematic risks, then, are those that only affect a particular business or industry, and therefore can be avoided through diversification.
Question 20 of 30
20. Question
What is Umbrella insurance policy?
Correct
An umbrella insurance policy is designed to provide coverage in addition to that provided by a basic liability policy. Umbrella policies can usually only be taken out when the insured has an underlying basic liability policy.
Incorrect
An umbrella insurance policy is designed to provide coverage in addition to that provided by a basic liability policy. Umbrella policies can usually only be taken out when the insured has an underlying basic liability policy.
Question 21 of 30
21. Question
Identify the plan which is the combination of preferred provider organisation and health maintenance organisation:
Correct
A point-of-service plan is a hybrid of the HMO and the PPO: these resemble HMOs for network services and PPOs for non-network services. Point-of-service plans may be either open-ended HMOs, in which is the insured has the option to visit doctors outside the network, or gatekeeper PPOs, in which the customer selects a primary care physician who is responsible for determining whether the customer needs to go outside the network for care.
Incorrect
A point-of-service plan is a hybrid of the HMO and the PPO: these resemble HMOs for network services and PPOs for non-network services. Point-of-service plans may be either open-ended HMOs, in which is the insured has the option to visit doctors outside the network, or gatekeeper PPOs, in which the customer selects a primary care physician who is responsible for determining whether the customer needs to go outside the network for care.
Question 22 of 30
22. Question
Identify the types of inabilities in disability income insurance:
I. The inability to engage in one’s own occupation.
II. The inability to engage in any occupation.
III. The inability to engage in an occupation for which one has been trained or educated.
IV. The inability due to an injury that is not debilitating.
Correct
There are four types of disability in current policies: the inability to engage in one’s own occupation; the inability to engage in an occupation for which one has been trained or educated; the inability to engage in any occupation; and a reduction in income due to disability.
Incorrect
There are four types of disability in current policies: the inability to engage in one’s own occupation; the inability to engage in an occupation for which one has been trained or educated; the inability to engage in any occupation; and a reduction in income due to disability.
Question 23 of 30
23. Question
How are the premium and the period related to each other in long term care policy?
Correct
The duration of a long-term care policy is influenced by the elimination period and the maximum benefit period. The premium will increase proportionally to the maximum benefit period and inversely proportional to the elimination period.
Incorrect
The duration of a long-term care policy is influenced by the elimination period and the maximum benefit period. The premium will increase proportionally to the maximum benefit period and inversely proportional to the elimination period.
Question 24 of 30
24. Question
In which type of life insurance policy, the policy owner is allowed to choose the investments to which the savings element will be directed?
Correct
In a variable life insurance policy, the policy owner is allowed to choose the investments to which the savings element will be directed. There is no guaranteed cash value or crediting rate in a policy of this kind. Investments will be held in separate accounts that resemble mutual funds but are classified as different.
Incorrect
In a variable life insurance policy, the policy owner is allowed to choose the investments to which the savings element will be directed. There is no guaranteed cash value or crediting rate in a policy of this kind. Investments will be held in separate accounts that resemble mutual funds but are classified as different.
Question 25 of 30
25. Question
What are the choices given to the owner who has the nonforfeiture option of a life insurance policy?
I. The owner may want to surrender for cash.
II. The owner may want to purchase an annuity to provide income for life or over a specified period.
III. The owner may want to buy a reduced amount of paid-up permanent.
IV. The owner may want to invest the same amount of extended term insurance.
Correct
The nonforfeiture option of a life insurance policy gives the owner a few choices concerning how to use the policy’s cash value. The owner may want to surrender for cash; that is, withdraw the cash value of the policy. Or, the owner may want to purchase an annuity to provide income for life or over a specified period. Additionally, the owner may want to buy a reduced amount of paid-up permanent insurance. This gives the owner a zero-premium policy of a reduced amount. Finally, the owner may want to buy the same amount of extended term insurance.
Incorrect
The nonforfeiture option of a life insurance policy gives the owner a few choices concerning how to use the policy’s cash value. The owner may want to surrender for cash; that is, withdraw the cash value of the policy. Or, the owner may want to purchase an annuity to provide income for life or over a specified period. Additionally, the owner may want to buy a reduced amount of paid-up permanent insurance. This gives the owner a zero-premium policy of a reduced amount. Finally, the owner may want to buy the same amount of extended term insurance.
Question 26 of 30
26. Question
What is the effect of positive net present value on shareholder’s wealth?
Correct
Net present value, meanwhile, is the amount of cash flow, expressed in terms of present value, that a project will generate after repaying invested capital and the required rate of return on that capital. When NPV is positive, shareholder wealth increases.
Incorrect
Net present value, meanwhile, is the amount of cash flow, expressed in terms of present value, that a project will generate after repaying invested capital and the required rate of return on that capital. When NPV is positive, shareholder wealth increases.
Question 27 of 30
27. Question
What is the age group considered for the consolidation phase of life cycle?
Correct
In the consolidation phase, individuals will have paid off all of their loans and funded the education of their children, but will need to keep saving for retirement. Individuals are usually in the consolidation phase between the ages of 40 and 60.
Incorrect
In the consolidation phase, individuals will have paid off all of their loans and funded the education of their children, but will need to keep saving for retirement. Individuals are usually in the consolidation phase between the ages of 40 and 60.
Question 28 of 30
28. Question
Identify the functions of ECN:
I. ECN matches orders for buyers and sellers
II. ECN makes the process of trading time-taking and cumbersome
III. ECN facilitates trading by displaying the bid/ask prices for the securities
IV. ECN executes transactions on behalf of the buyers and sellers
Correct
ECNs facilitate trading by displaying the optimal bid/ask prices for the same securities, and then automatically execute the transaction on behalf of the buyers and sellers. ECNs greatly reduce the time it takes to match orders for buyers and sellers. In addition to serving retail investors, ECNs also facilitate trading for institutional investors.
Incorrect
ECNs facilitate trading by displaying the optimal bid/ask prices for the same securities, and then automatically execute the transaction on behalf of the buyers and sellers. ECNs greatly reduce the time it takes to match orders for buyers and sellers. In addition to serving retail investors, ECNs also facilitate trading for institutional investors.
Question 29 of 30
29. Question
Identify the types of hazards:
I. Economic hazard
II. Physical hazard
III. Morale hazard
IV. Moral hazard
Correct
There are three types of hazards: physical hazards are physical properties (like volatility) that increase hazard; moral hazards are qualities in individuals (like dishonesty) that increase the risk of loss; and morale hazards are the dangers that one faces by being indifferent to risk.
Incorrect
There are three types of hazards: physical hazards are physical properties (like volatility) that increase hazard; moral hazards are qualities in individuals (like dishonesty) that increase the risk of loss; and morale hazards are the dangers that one faces by being indifferent to risk.
Question 30 of 30
30. Question
What are the available options for the division of business and/or house in case of divorce settlement?
I. One spouse may keep the house or business by buying out the other’s interest
II. The business/home may be kept sealed without any proceedings
III. Both spouses may continue to own the business/home
IV. The business/home may be sold and the proceeds can be divided
Correct
There are three available options when dividing a business and/or house: one spouse may keep the house or business by buying out the other’s interest; both spouses may continue to own the business/home; or the business/home may be sold and the proceeds divided.
Incorrect
There are three available options when dividing a business and/or house: one spouse may keep the house or business by buying out the other’s interest; both spouses may continue to own the business/home; or the business/home may be sold and the proceeds divided.