Question 1

______ mutual fund managers can consistently beat the market average.

Accepted Answer

A)   All
B)   No
C)   Relatively many
D)   Relatively few

Question 2

The benefit of a stock market to the economy is that it makes some people rich without making other people poor.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following tends to be least risky in its stock value when the economy is in a deep recession?

Accepted Answer

A)   an automobile manufacturer
B)   a homebuilder
C)   a high-end department store
D)   a utility company that supplies water to government buildings

Question 4

All of the following are U.S. stock price indexes, EXCEPT:

Accepted Answer

A)   the Dow Jones Industrial.
B)   the S&P 500.
C)   the NASDAQ Composite.
D)   the CPI.

Question 5

Which statement correctly describes the relationship between risk and return?

Accepted Answer

A)   Risk and return have no relationship.
B)   Risk and return have a positive relationship.
C)   Zero risk instruments have the highest returns.
D)   The lower the risk is, the higher the return is.

Question 6

Stocks are better than bonds:

Accepted Answer

A)   in the short run.
B)   because stocks have guaranteed returns.
C)   in the long run.
D)   because bonds are issued only by companies in financial distress.

Question 7

According to the efficient markets hypothesis,:

Accepted Answer

A)   everyone can outperform the stock market indexes.
B)   when one investor outperforms the stock market index, another investor must underperform.
C)   ordinary investors should always follow the advice of market geniuses like Warren Buffet.
D)   no investor can consistently outperform the stock market indexes.

Question 8

Which of the following investments would you expect to have the highest rate of return in the long run?

Accepted Answer

A)   real estate
B)   owning your own Major League Baseball franchise
C)   an index fund (such as the S&P 500) 
D)   art

Question 9

Warren Buffett will likely continue to beat the market, as he has done for the past few decades.

Accepted Answer

A) True 
 B)False

Question 10

A speculative bubble is when:

Accepted Answer

A)   assets are priced much higher than is warranted by the profitability of the assets.
B)   assets are priced much lower than is warranted by the profitability of the assets.
C)   assets prices are high and profits are even higher.
D)   market manipulation by dominant hedge funds bids up the market prices of assets.

Question 11

If your investment money is evenly divided among stocks in your investment portfolio, which of these four stock portfolios would suffer the most from an Adobe Systems bankruptcy?

Accepted Answer

A)   Adobe Systems
B)   Adobe Systems and Best Buy
C)   Adobe Systems, Nucor, and Wyeth
D)   Adobe Systems, Ashland, Baker Hughes, Bemis, BMC Software, CA Inc., Century Telephone, Dean Foods, Dover Corp., Eastman Kodak, EQT Corp., and Exxon Mobil

Question 12

Diversification:

Accepted Answer

A)   increases risk and return.
B)   decreases risk and return.
C)   increases risk.
D)   decreases risk.

Question 13

Stocks are a good investment if:
I. one is prepared to hold them for a while through market fluctuations.
II. one can buy them immediately after prices have fallen.
III. one is not averse to risk.

Accepted Answer

A)   I only
B)   I and II only
C)   I and III only
D)   I, II, and III

Question 14

Which statement is TRUE?

Accepted Answer

A)   One should avoid investing in bonds because they give lower returns than do stocks.
B)   If you need your money for something in 2 years, avoid putting it in stocks.
C)   Retirees should allocate more of their investments to stocks.
D)   Recent college graduates should allocate more of their money to bonds than to stocks.

Question 15

"A Random Walk Down Wall Street" claimed that the money and fame that went to stock-picking gurus were a sham and a waste.

Accepted Answer

A) True 
 B)False

Question 16

One important "secret" to picking stocks is to:

Accepted Answer

A)   find a highly respected fund manager to pick them for you.
B)   pick a lot of them.
C)   choose the best-performing stock and put the majority of your investments in that one stock.
D)   only invest in no-fee funds.

Question 17

The fact that the majority of stock mutual funds cannot outperform the stock market averages is consistent with:

Accepted Answer

A)   the no free lunch principle.
B)   the risk-return trade-off principle.
C)   the efficient markets hypothesis.
D)   the active trading hypothesis.

Question 18

Paying an expert to help pick stocks will likely yield better returns than most alternative strategies for stock selection.

Accepted Answer

A) True 
 B)False

Question 19

To diversify, a person who already holds stocks that move in the opposite direction of the stock market as a whole should:

Accepted Answer

A)   always buy more of the same stocks.
B)   buy stocks that move in the same direction of the stock market as a whole.
C)   buy stocks that have about the same expected returns as the stocks she already holds.
D)   sell all her stocks immediately.

Question 20

Which is consistent with the no free lunch principle?

Accepted Answer

A)   Risk and return are unrelated in financial investment.
B)   An asset that brings higher returns must come with higher risk.
C)   The best way to get rich is to invest in stocks.
D)   Investing in U.S. Treasury bills is the best advice in personal finance.

Exam 23: Stock Markets and Personal Finance

Which statement is TRUE?

Correct AnswerverifiedShow Answer

The benefit of a stock market to the economy is that it makes some people rich without making other people poor.

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis,:

Correct AnswerverifiedShow Answer

"A Random Walk Down Wall Street" claimed that the money and fame that went to stock-picking gurus were a sham and a waste.

Correct AnswerverifiedShow Answer

Which of the following tends to be least risky in its stock value when the economy is in a deep recession?

Correct AnswerverifiedShow Answer

The fact that the majority of stock mutual funds cannot outperform the stock market averages is consistent with:

Correct AnswerverifiedShow Answer

Warren Buffett will likely continue to beat the market, as he has done for the past few decades.

Correct AnswerverifiedShow Answer

Which statement correctly describes the relationship between risk and return?

Correct AnswerverifiedShow Answer

Stocks are a good investment if: I. one is prepared to hold them for a while through market fluctuations. II. one can buy them immediately after prices have fallen. III. one is not averse to risk.

Correct AnswerverifiedShow Answer

If your investment money is evenly divided among stocks in your investment portfolio, which of these four stock portfolios would suffer the most from an Adobe Systems bankruptcy?

Correct AnswerverifiedShow Answer

A speculative bubble is when:

Correct AnswerverifiedShow Answer

Diversification:

Correct AnswerverifiedShow Answer

______ mutual fund managers can consistently beat the market average.

Correct AnswerverifiedShow Answer

One important "secret" to picking stocks is to:

Correct AnswerverifiedShow Answer

Paying an expert to help pick stocks will likely yield better returns than most alternative strategies for stock selection.

Correct AnswerverifiedShow Answer

Stocks are better than bonds:

Correct AnswerverifiedShow Answer

Which is consistent with the no free lunch principle?

Correct AnswerverifiedShow Answer

All of the following are U.S. stock price indexes, EXCEPT:

Correct AnswerverifiedShow Answer

To diversify, a person who already holds stocks that move in the opposite direction of the stock market as a whole should:

Correct AnswerverifiedShow Answer

Which of the following investments would you expect to have the highest rate of return in the long run?

Correct AnswerverifiedShow Answer

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