Financial Planning
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Course Introduction
Financial Planning is a comprehensive course designed to provide students with the fundamental concepts and practical skills required to manage personal and organizational finances effectively. The course covers essential topics such as budgeting, savings strategies, investment options, risk management, retirement planning, tax considerations, and estate planning. Students will learn how to set financial goals, analyze financial statements, and make informed decisions to achieve financial stability and growth. Through real-world case studies and financial planning tools, the course prepares learners to develop tailored financial plans that align with various life stages and economic environments.
Recommended Textbook Essentials of Investments 8th Edition by Zvi Bodie
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22 Chapters
1830 Verified Questions
1830 Flashcards
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Page 2
Chapter 1: Investments: Background and Issues
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Sample Questions
Q1) __________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.
A) Active
B) Momentum
C) Passive
D) Market timing
Answer: C
Q2) Money Market securities are characterized by ________.
I.maturity less than one year
II.safety of the principal investment
III.low rates of return
A) I only
B) I and II only
C) I and III only
D) I, II and III
Answer: D
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Page 3
Chapter 2: Asset Classes and Financial Instruments
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85 Flashcards
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Sample Questions
Q1) June call and put options on King Books Inc are available with exercise prices of $30,$35 and $40.Among the different exercise prices,the call option with the _____ exercise price and the put option with the _____ exercise price will have the greatest value.
A) $40; $30
B) $30; $40
C) $35; $35
D) $40; $40
Answer: B
Q2) Which of the following mortgage scenarios will benefit the homeowner the most?
A) Adjustable rate mortgage when interest rate increases.
B) Fixed rate mortgage when interest rates falls.
C) Fixed rare mortgage when interest rate rises.
D) None of the above, as banker's interest will always be protected.
Answer: C
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Chapter 3: Securities Markets
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90 Flashcards
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Sample Questions
Q1) Specialists on the stock exchanges may do all of the following except _________.
A) They make a market in shares of the firms for which they specialize
B) They keep the limit order book
C) Use their privileged information to make speculative investments on their own account
D) Use their privileged information to make investments on behalf of clients of brokerage firms with which they do business
Answer: D
Q2) The approximate dollar value of trades on the NYSE in 2008 was
A) $75 billion
B) $100 billion
C) $125 billion
D) $150 billion
Answer: D
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Chapter 4: Mutual Funds and Other Investment Companies
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Sample Questions
Q1) A __________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.
A) commingled pool
B) unit trust
C) hedge fund
D) money market fund
Q2) The primary measurement unit used for assessing the value of one's stake in an investment company is ___________________.
A) Net Asset Value
B) Average Asset Value
C) Gross Asset Value
D) Total Asset Value
Q3) The ratio of trading activity of a portfolio to the assets of the portfolio,is called ____________.
A) the reinvestment ratio
B) the trading rate
C) the portfolio turnover
D) the tax yield
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Page 6
Chapter 5: Risk and Return: Past and Prologue
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Sample Questions
Q1) What is the geometric average return over one year if the quarterly returns are 8%,9%,5%,and 12%,respectively?
A) 8.00%
B) 8.33 %
C) 8.47%
D) 8.50 %
Q2) You put up $50 at the beginning of the year for an investment.The value of the investment grows 4% and you earn a dividend of $3.50.Your HPR was ____.
A) 4.00%
B) 3.50%
C) 7.00%
D) 11.00%
Q3) The arithmetic average of -11%,15% and 20% is ________.
A) 15.67%
B) 8.00%
C) 11.22%
D) 6.45%
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Chapter 6: Efficient Diversification
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Sample Questions
Q1) ____ percent of the variance is explained by this regression.
A) 12
B) 35
C) 4.05
D) 80
Q2) This stock has greater systematic risk than a stock with a beta of ___.
A) 0.50
B) 1.50
C) 2.00
D) 3.00
Q3) You are recalculating the risk of ACE stock in relation to the market index and you find the ratio of the systematic variance to the total variance has risen.You must also find that the ____________.
A) covariance between ACE and the market has fallen
B) correlation coefficient between ACE and the market has fallen
C) correlation coefficient between ACE and the market has risen
D) unsystematic risk of ACE has risen
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Chapter 7: Capital Asset Pricing and Arbitrage Pricing
Theory
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Sample Questions
Q1) Security X has an expected rate of return of 13% and a beta of 1.15.The risk-free rate is 5% and the market expected rate of return is 15%.According to the capital asset pricing model,security X is _________.
A) fairly priced
B) overpriced
C) underpriced
D) None of the above
Q2) In a simple CAPM world which of the following statements is/are correct?
I.All investors will choose to hold the market portfolio,which includes all risky assets in the world
II.Investors' complete portfolio will vary depending on their risk aversion
III.The return per unit of risk will be identical for all individual assets
IV.The market portfolio will be on the efficient frontier and it will be the optimal risky portfolio
A) I, II and III only
B) II, III and IV only
C) I, III and IV only
D) I, II, III and IV
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Page 9
Chapter 8: The Efficient Market Hypothesis
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Sample Questions
Q1) The tendency when the ______ performing stocks in one period are the best performers in the next and the current ________ performers are lagging the market later is called the reversal effect.
A) worst, best
B) worst, worst
C) best, worst
D) best, best
Q2) A day trade with an average stock holding period of under 8 minutes might be most closely associated with which trading philosophy?
A) EMH
B) Fundamental analysis
C) Strong form market efficiency
D) Technical analysis
Q3) Which of the following statements is/are correct?
A) If a market is weak form efficient it is also semi- and strong form efficient
B) If a market is semi-strong efficient it is also strong form efficient
C) If a market is strong form efficient it is also semi-strong but not weak form efficient
D) If a market is strong form efficient it is also semi- and weak form efficient
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Chapter 9: Behavioral Finance and Technical Analysis
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Sample Questions
Q1) Which of the following is not a sentiment indicator?
A) Confidence index
B) Short interest
C) Odd-lot trading
D) Put-call ratio
Q2) Which one of the following focuses more on past price movements of a firm's stock than on the underlying determinants of its future profitability?
A) Credit analysts
B) Fundamental analysts
C) Systems analysts
D) Technical analysts
Q3) The Cumulative Breadth for the first two days is ___.
A) -240
B) -50
C) 110
D) 250
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Chapter 10: Bond Prices and Yields
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Sample Questions
Q1) If you are holding a premium bond you must expect a _______ each year until maturity.If you are holding a discount bond you must expect a _______ each year until maturity.
A) capital gain; capital loss
B) capital gain; capital gain
C) capital loss; capital gain
D) capital loss; capital loss
Q2) Sinking funds are commonly viewed as protecting the _______ of the bond.
A) issuer
B) underwriter
C) holder
D) dealer
Q3) A coupon bond which pays interest of 4% annually,has a par value of $1,000,matures in 5 years,and is selling today at $785.The actual yield to maturity on this bond is
A) 7.2%
B) 8.8%
C) 9.1%
D) 9.6%
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Page 12
Chapter 11: Managing Bond Portfolios
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Sample Questions
Q1) A fixed income portfolio manager sets a minimum acceptable rate of return on the bond portfolio at 5% per year over the next 4 years.The portfolio is currently worth $10 million.One year later interest rates are at 6%.What is the portfolio value trigger point at this time that would require him to immunize the portfolio?
A) $12,155,063
B) $10,205,625
C) $9,627,948
D) $10,500,000
Q2) A 20-year maturity bond pays interest of $90 once per year and has a face value of $1,000.Its yield to maturity is 10%.Over the upcoming year,you expect interest rates to decline and that the yield to maturity on this bond will only be 8% a year from now.Using horizon analysis,the return you expect to earn by holding this bond over the upcoming year is _________.
A) 10.0%
B) 12.0%
C) 21.6%
D) 29.6%
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Page 13
Chapter 12: Macroeconomic and Industry Analysis
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Sample Questions
Q1) Supply side economics tends to focus on _______________.
A) government spending
B) price controls
C) monetary policy
D) increasing productive capacity
Q2) Which of the following is the rate at which the general level of prices for goods and services is rising?
A) The exchange rate
B) The gross domestic product growth rate
C) The inflation rate
D) The real interest rate
Q3) The stock price index and contracts and orders for non defense capital goods are
A) leading economic indicators
B) coincidental economic indicators
C) lagging economic indicators
D) leading and coincidental indicators respectively
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14
Chapter 13: Equity Valuation
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Sample Questions
Q1) At what P/E ratio would you expect ART to sell?
A) 8.33
B) 11.43
C) 14.29
D) 15.25
Q2) The free cash flow to the firm is $300 million in perpetuity,the cost of equity equals 14% and the WACC is 10%.If the market value of the debt is $1.0 billion,what is the value of the equity using the free cash flow valuation approach?
A) $1 billion
B) $2 billion
C) $3 billion
D) $4 billion
Q3) New-economy companies generally have higher _______ than old-economy companies.
A) book value per share
B) P/E multiples
C) profits
D) asset values
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) Refer to the financial statements of Burnaby Mountain Trading Company.The firm's times interest earned ratio for 2008 is _________.
A) 2.80
B) 6.00
C) 9.00
D) 11.11
Q2) Economic Value Added (EVA)is:
A) The difference between the return on assets and the opportunity cost of capital times the capital base
B) ROA x ROE
C) A measure of the firm's abnormal return
D) Largest for high growth firms
Q3) What is the net cash provided by or used in financing activities of Haven Hardware?
A) ($10,000)
B) ($120,000)
C) $10,000
D) $120,000
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Chapter 15: Options Markets
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88 Flashcards
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Sample Questions
Q1) To establish a bull money spread with puts you would _______________.
A) sell the 55 put and buy the 45 put
B) buy the 45 put and buy the 55 put
C) buy the 55 put and sell the 45 put
D) sell the 45 put and sell the 55 put
Q2) An American call option gives the buyer the right to _________.
A) buy the underlying asset at the exercise price on or before the expiration date
B) buy the underlying asset at the exercise price only at the expiration date
C) sell the underlying asset at the exercise price on or before the expiration date
D) sell the underlying asset at the exercise price only at the expiration date
Q3) A futures call option provides its holder with the right to ___________.
A) purchase a particular stock at some time in the future at a specified price
B) purchase a futures contract for the delivery of options on a particular stock
C) purchase a futures contract at a specified price for a specified period of time
D) deliver a futures contract and receive a specified price at a specific date in the future
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17
Chapter 16: Option Valuation
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Sample Questions
Q1) The stock price of Ajax Inc.is currently $105.The stock price a year from now will be either $130 or $90 with equal probabilities.The interest rate at which investors can borrow is 10%.Using the binomial OPM,the value of a call option with an exercise price of $110 and an expiration date one year from now should be worth __________ today.
A) $11.59
B) $15.00
C) $20.00
D) $40.00
Q2) The divergence between an option's intrinsic value and its market value is usually greatest when ___________________.
A) the option is deep in the money
B) the option is approximately at the money
C) the option is far out of the money
D) time to expiration is very low
Q3) Hedge ratios for long puts are always __________.
A) between -1 and 0
B) between 0 and 1
C) 1
D) greater than 1
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Page 18
Chapter 17: Futures Markets and Risk Management
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Sample Questions
Q1) A bank has made long term fixed rate mortgages and has financed them with short term deposits.To hedge out the bank's interest rate risk they could ________.
A) sell T-bond futures
B) buy T-bond futures
C) buy stock index futures
D) sell stock index futures
Q2) A market timer now believes that the economy will soften over the rest of the year as the housing market slump continues and he also believes that foreign investors will stop buying U.S.fixed income securities in such large quantities as they have in the past.One way the timer could take advantage of this forecast is to ________________.
A) buy T-bond futures and sell stock index futures
B) sell T-bond futures and but stock index futures
C) buy stock index futures and buy T-bond futures
D) sell stock index futures and sell T-bond futures
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Chapter 18: Portfolio Performance Evaluation
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Sample Questions
Q1) You wish to evaluate the three mutual funds using the Treynor measure for performance evaluation.The fund with the highest Treynor measure of performance is
A) Fund A
B) Fund B
C) Fund C
D) indeterminable
Q2) Which of the following investment strategies would have produced the highest returns in the time period since 1926?
A) T bills portfolio
B) S&P 500 index fund
C) Perfect market timing
D) Random stock selection
Q3) If an investor is a successful market timer,his distribution of monthly portfolio returns will __________.
A) be skewed to the left
B) be skewed to the right
C) exhibit kurtosis
D) exhibit neither skewness nor kurtosis
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Page 20
Chapter 19: Globalization and International Investing
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Sample Questions
Q1) Generally speaking,countries with ______ capitalization of equities have
A) larger; higher GDP
B) smaller; wealthier
C) larger; smaller GDP
D) larger; higher growth countries
Q2) You are a U.S.investor who purchased British securities for 3,500 pounds one year ago when the British pound cost $1.35.No dividends were paid on the British securities in the past year.Your total return based in U.S.dollars was __________ if the value of the securities is now 4,200 pounds and the pound is worth $1.15.
A) -3.8%
B) 2.2%
C) 5.6%
D) 15%
Q3) It appears from empirical work that exchange rate risk is ____________.
A) declining for individual investments in recent years
B) mostly diversifiable
C) mostly systematic risk
D) unimportant for an investment in a single foreign country
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Page 21
Chapter 20: Hedge Funds
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Sample Questions
Q1) The fastest growing category of hedge funds are feeder funds.These funds invest in
A) other hedge funds
B) convertible securities and preferred stock
C) equities and bonds
D) managed futures and options
Q2) What is the Black-Scholes value of the call option on management incentive fee?
A) $6.67
B) $8.20
C) $9.74
D) $10.22
Q3) What is the exercise price on the incentive fee?
A) $100
B) $105
C) $110
D) $115
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Chapter 21: Taxes,inflation,and Investment Strategy
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Sample Questions
Q1) An investor can earn a 6% nominal rate of return but inflation is expected to be 3%.If the individual invests $2,000 per year for 20 years the real future value of their investment is ________.(All investments occur at year end).
A) $73,571
B) $66,334
C) $53,251
D) $48,732
Q2) A worker plans to retire in 30 years.He hopes to receive $65,000 per year in retirement income.If inflation is forecast at 2.5% per year,what annual income should he plan to receive in the first year of retirement in order to maintain the purchasing power on $65,000?
A) $65,000
B) $76,159
C) $98,398
D) $136,342
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23
Chapter 22: Investors and the Investment Process
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Sample Questions
Q1) A pension fund will owe $10 million to retirees in 6 years.An actuary assumes an 8% rate of return on the funds invested in the pension plan.If the pension plan receives annual contributions from the company sponsor,how much must the company pay to fully fund the pension liability?
A) $1,212,587
B) $1,363,154
C) $1,533,333
D) $1,666,667
Q2) _______ is a life insurance policy that will provide a death benefit only but has no savings plan.
A) Term life
B) Whole life
C) Variable life
D) Universal life
Q3) Major functions of the investment committee include all but which one of the following?
A) Engage in security selection for each portfolio managed
B) Broadly determine the overall asset allocation of the investment company
C) Determine the asset class weights for each portfolio
D) Determine the asset universe
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