Focus On Personal Finance 6th Edition By Jack Kapoor – Test Bank

Chapter 11 Investing Basics and Evaluating Bonds

1) Investment goals are always oriented to the future.

Answer: TRUE
Difficulty: 1 Easy
Page Ref: 350
Topic: Investment information; Time value of money – interest rates and inflation; Time value of money – number of periods; Investment goals
Learning Objective: 11-01 Explain why you should establish an investment program.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic

2) Short-term goals should be completed in 30 or fewer days.

Answer: FALSE
Explanation: Short-term goals should be completed within the next 12 months.
Difficulty: 1 Easy
Page Ref: 350
Topic: Investment information; Time value of money – interest rates and inflation; Time value of money – number of periods; Investment goals
Learning Objective: 11-01 Explain why you should establish an investment program.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic

3) A good rule of thumb is to limit consumer credit payments to 30% of your net (after-tax) income.

Answer: FALSE
Explanation: These payments should be limited to 20% of your net (after-tax) income.
Difficulty: 2 Medium
Page Ref: 350
Topic: Investment information; Time value of money – interest rates and inflation; Time value of money – number of periods; Investment goals
Learning Objective: 11-01 Explain why you should establish an investment program.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic

4) To help survive a financial crisis, it is important to establish a larger than usual emergency fund.

Answer: TRUE
Difficulty: 2 Medium
Page Ref: 362
Topic: Asset allocation and diversification; Investment psychology
Learning Objective: 11-03 Identify the factors that can reduce investment risk.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic

5) If you are unable to make your credit card payments, you should not contact your credit card company.

Answer: FALSE
Explanation: It is important to contact your credit card company if you are unable to make payments. Some lenders may be willing to work with you and lower your interest rate, reduce your monthly payment, or extend the time for repayment.
Difficulty: 2 Medium
Page Ref: 362
Topic: Asset allocation and diversification; Investment psychology
Learning Objective: 11-03 Identify the factors that can reduce investment risk.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic

6) From both a legal and ethical standpoint, you have an obligation to pay for credit purchases.

Answer: TRUE
Difficulty: 2 Medium
Page Ref: 350
Topic: Investment information; Time value of money – interest rates and inflation; Time value of money – number of periods; Investment goals
Learning Objective: 11-01 Explain why you should establish an investment program.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic

7) For many people, the easiest way to begin an investment program is to participate in an employer-sponsored retirement account — often referred to as a 401(k) or a 403(b).

Answer: TRUE
Difficulty: 2 Medium
Page Ref: 353
Topic: Investment information; Time value of money – interest rates and inflation; Time value of money – number of periods; Investment goals
Learning Objective: 11-01 Explain why you should establish an investment program.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic

8) Investments that earn a lower rate of interest will have a higher total dollar return than those that earn a high rate of interest.

Answer: FALSE
Explanation: Higher rates of return will lead to higher total dollar returns.
Difficulty: 2 Medium
Page Ref: 355
Topic: Investment information; Time value of money – interest rates and inflation; Time value of money – number of periods; Investment goals
Learning Objective: 11-01 Explain why you should establish an investment program.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic

9) An example of an investment with high risk is a government bond.

Answer: FALSE
Explanation: A government bond is a very safe (low risk) investment.
Difficulty: 1 Easy
Page Ref: 355
Topic: Investment choices and considerations; Investment risks and measures
Learning Objective: 11-02 Describe how safety, risk, income, growth, and liquidity affect your investment program.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic

10) The potential return on any investment should be directly related to the risk that the investor assumes.

Answer: TRUE
Difficulty: 2 Medium
Page Ref: 355-356
Topic: Investment choices and considerations; Investment risks and measures
Learning Objective: 11-02 Describe how safety, risk, income, growth, and liquidity affect your investment program.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic