Question 1

Selling options on stock you already own

Accepted Answer

A)   is illegal under federal law.
B)   cannot benefit you financially.
C)   is called a covered call strategy.
D)   is not a very good idea.E) B) and D)
F) B) and C)

Question 2

An investor purchases a call option for $5 per share in a stock currently selling for $24 per share. The exercise price is $30 per share. On the day the option expires, the stock is selling for $29 per share. What will the investor do? What is the investor's total gain or loss?

Accepted Answer

A)   Exercise the option; total gain $500
B)   Allow the option to expire; total gain $500
C)   Allow the option to expire; total loss $500
D)   Exercise the option; total loss $100E) A) and B)
F) All of the above C

Question 3

________ increase risk while ________ decrease risk in a portfolio.

Accepted Answer

A)   Stocks; bonds
B)   Bonds; mutual funds
C)   Bonds; REITs
D)   Mutual funds; stocksE) C) and D)
F) A) and B)

Question 4

If your portfolio currently consists of common stock in three companies, you could increase your diversification by all of the following, except

Accepted Answer

A)   selling one of the companies and putting the money in a bond.
B)   selling one of the companies and putting the money in a REIT.
C)   buying another stock.
D)   selling one of the companies and putting the money in the other two.E) A) and B)
F) B) and D) D

Question 5

In a portfolio, stocks and bonds are

Accepted Answer

A)   different in risk and return.
B)   not highly correlated.
C)   highly correlated.
D)   Both A and B are correct.E) A) and B)
F) A) and C)

Question 6

When investing outside the United States, stocks are typically ________ U.S.-based stocks.

Accepted Answer

A)   as volatile as
B)   less volatile than
C)   more volatile than
D)   more stable thanE) B) and D)
F) B) and C)

Question 7

A portfolio can reduce risk when its

Accepted Answer

A)   investments do not move in tandem.
B)   investments move in tandem.
C)   returns of individual investments are similar.
D)   investments are from similar industries.E) A) and B)
F) All of the above

Question 8

Over time, you should change the composition of your investment portfolio in response to change in your

Accepted Answer

A)   market expectations.
B)   investment goals.
C)   life circumstances.
D)   All of the above.E) B) and C)
F) A) and C)

Question 9

A good asset allocation plan changes over time. How does it change from mid-life to retirement?

Accepted Answer

The plan should move...

Question 10

Individuals in an early stage of their careers can take ________ investment risk than those in the retirement stage.

Accepted Answer

A)   less
B)   greater
C)   equal
D)   reducedE) B) and C)
F) A) and D)

Question 11

Which of the following is a true statement about diversification?

Accepted Answer

A)   It will increase your overall portfolio risk.
B)   It will increase your portfolio volatility.
C)   It will decrease the number of investments in your portfolio.
D)   It will reduce overall risk and volatility in your portfolio.E) A) and B)
F) A) and C)

Question 12

To reduce your investment risk, you should select stocks whose returns exhibit a ________ positive correlation rather than a ________ positive correlation.

Accepted Answer

A)   high; high
B)   low; high
C)   high; low
D)   low; lowE) None of the above
F) A) and B)

Question 13

An investor purchases 100 shares of stock for $20 per share. The stock has now risen in price to $44 per share. To cover potential losses, the investor purchases a put option for a premium of $300 with an exercise price of $42 per share. The stock falls to $28 per share, and the investor exercises the option and sells the shares at $42 per share. Ignoring brokerage commissions and taxes, what would be the investor's return from the stock?

Accepted Answer

A)   120%
B)   110%
C)   95%
D)   70%E) None of the above
F) A) and B)

Question 14

List two considerations that affect your asset allocation decision.

Accepted Answer

Your stage in life, your degre...

Question 15

Investors who are 30 to 50 years old tend to focus their allocation on ________ because they can afford the risk.

Accepted Answer

A)   life insurance
B)   stocks
C)   bonds
D)   a houseE) All of the above
F) A) and D)

Question 16

Asset allocation is the process of dividing money across financial assets that include all of the following, except

Accepted Answer

A)   stocks.
B)   bonds.
C)   mutual funds.
D)   All of the above can be used for asset allocation.E) All of the above
F) B) and C)

Question 17

One way to reduce your diversification costs is to invest in various mutual funds.

Accepted Answer

A) True 
 B)False

Question 18

During the financial crisis in 2008-2009, General Electric's share price dropped significantly. This was because of the

Accepted Answer

A)   business risk.
B)   market risk.
C)   exchange risk.
D)   interest rate risk.E) C) and D)
F) A) and B)

Question 19

If you anticipate strong economic market conditions, you may want to

Accepted Answer

A)   shift more funds to bonds.
B)   shift more funds to stocks.
C)   allocate more to cash.
D)   shift more funds to bond mutual funds.E) A) and B)
F) A) and C)

Question 20

The stocks, bonds, and mutual funds that an investor owns comprise his/her ________.

Accepted Answer

portfolio

Exam 18: Asset Allocation

Selling options on stock you already own

Correct Answer
verified

An investor purchases a call option for $5 per share in a stock currently selling for $24 per share. The exercise price is $30 per share. On the day the option expires, the stock is selling for $29 per share. What will the investor do? What is the investor's total gain or loss?

Correct Answer
verified
C

increase risk while decrease risk in a portfolio.

Correct Answer
verified

If your portfolio currently consists of common stock in three companies, you could increase your diversification by all of the following, except

Correct Answer
verified
D

In a portfolio, stocks and bonds are

Correct Answer
verified

When investing outside the United States, stocks are typically ________ U.S.-based stocks.

Correct Answer
verified

A portfolio can reduce risk when its

Correct Answer
verified

Over time, you should change the composition of your investment portfolio in response to change in your

Correct Answer
verified

A good asset allocation plan changes over time. How does it change from mid-life to retirement?

Correct Answer
verified
The plan should move...
View Answer

Individuals in an early stage of their careers can take ________ investment risk than those in the retirement stage.

Correct Answer
verified

Which of the following is a true statement about diversification?

Correct Answer
verified

To reduce your investment risk, you should select stocks whose returns exhibit a positive correlation rather than a positive correlation.

Correct Answer
verified

Correct Answer
verified

List two considerations that affect your asset allocation decision.

Correct Answer
verified
Your stage in life, your degre...
View Answer

Investors who are 30 to 50 years old tend to focus their allocation on ________ because they can afford the risk.

Correct Answer
verified

Asset allocation is the process of dividing money across financial assets that include all of the following, except

Correct Answer
verified

One way to reduce your diversification costs is to invest in various mutual funds.

Correct Answer
verified

During the financial crisis in 2008-2009, General Electric's share price dropped significantly. This was because of the

Correct Answer
verified

If you anticipate strong economic market conditions, you may want to

Correct Answer
verified

The stocks, bonds, and mutual funds that an investor owns comprise his/her ________.

Correct Answer
verified
portfolio

Exam 18: Asset Allocation

Selling options on stock you already own

Correct AnswerverifiedShow Answer

An investor purchases a call option for $5 per share in a stock currently selling for $24 per share. The exercise price is $30 per share. On the day the option expires, the stock is selling for $29 per share. What will the investor do? What is the investor's total gain or loss?

Correct AnswerverifiedC

________ increase risk while ________ decrease risk in a portfolio.

Correct AnswerverifiedShow Answer

If your portfolio currently consists of common stock in three companies, you could increase your diversification by all of the following, except

Correct AnswerverifiedD

In a portfolio, stocks and bonds are

Correct AnswerverifiedShow Answer

When investing outside the United States, stocks are typically ________ U.S.-based stocks.

Correct AnswerverifiedShow Answer

A portfolio can reduce risk when its

Correct AnswerverifiedShow Answer

Over time, you should change the composition of your investment portfolio in response to change in your

Correct AnswerverifiedShow Answer

A good asset allocation plan changes over time. How does it change from mid-life to retirement?

Correct AnswerverifiedThe plan should move...View AnswerShow Answer

Individuals in an early stage of their careers can take ________ investment risk than those in the retirement stage.

Correct AnswerverifiedShow Answer

Which of the following is a true statement about diversification?

Correct AnswerverifiedShow Answer

To reduce your investment risk, you should select stocks whose returns exhibit a ________ positive correlation rather than a ________ positive correlation.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

List two considerations that affect your asset allocation decision.

Correct AnswerverifiedYour stage in life, your degre...View AnswerShow Answer

Investors who are 30 to 50 years old tend to focus their allocation on ________ because they can afford the risk.

Correct AnswerverifiedShow Answer

Asset allocation is the process of dividing money across financial assets that include all of the following, except

Correct AnswerverifiedShow Answer

One way to reduce your diversification costs is to invest in various mutual funds.

Correct AnswerverifiedShow Answer

During the financial crisis in 2008-2009, General Electric's share price dropped significantly. This was because of the

Correct AnswerverifiedShow Answer

If you anticipate strong economic market conditions, you may want to

Correct AnswerverifiedShow Answer

The stocks, bonds, and mutual funds that an investor owns comprise his/her ________.

Correct Answerverifiedportfolio

Correct Answer
verified

Correct Answer
verified
C

increase risk while decrease risk in a portfolio.

Correct Answer
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Correct Answer
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D

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
The plan should move...
View Answer

Correct Answer
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Correct Answer
verified

To reduce your investment risk, you should select stocks whose returns exhibit a positive correlation rather than a positive correlation.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Your stage in life, your degre...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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portfolio