16 questions were answered correctly
1 question was answered incorrectly
1
Which of the following statements is true of a self-directed brokerage account?
Investors receive guidance and support from a representative to identify and invest in profitable stocks.
Any stocks in the account that experience a downward trend in market value are automatically sold.
Investors do not have to pay fees or commissions on any of their stock trades.
Investors are solely responsible for their investment decisions.
RATIONALE
A self-directed brokerage account allows you to make your own investment decisions. Full-service brokerage firms, sometimes referred to as broker-dealers, match an investor with a broker—a financial professional who will provide guidance and support throughout the investing process.
CONCEPT
Brokerage Accounts
Ian2
is a graduate student who is looking to apply for a federal student loan to pay for education expenses not covered by his existing loan. He decides to opt for a direct PLUS loan.
Which of the following is true about Ian's choice?
Ian's loan will not need to be repaid because it is government-issued.
Ian will not need to show financial need to receive this type of loan.
If Ian is enrolled in school more than half-time, the interest on the loan will be paid by the federal government.
The annual amount that Ian can borrow is capped.
RATIONALE
Direct PLUS loans are available to graduate and professional students and parents of undergraduate students to help pay for education expenses more than the capped amounts available through the other federal student loan programs. Interest on the loan is added to the loan balance, or students can pay the interest only until they’re no longer attending school and repayment begins. Students don’t need to show financial need to receive these loans.
CONCEPT
Student Loans
stock price of Nickel Works Corp. is $25 per share. The formula for market capitalization is as follows: Market capitalization = Stock price per share × Total number of shares in marketplace
If the total number of shares in the stock market is 12 million, the market capitalization of Nickel Works Corp. is __________.
$25 million $480 million $300 million
$12 million
RATIONALE
To calculate market capitalization, we use the following formula: Stock price per share × Total number of shares in marketplace = $25 × 12 million = $300 million
CONCEPT
Stock Valuation and Ownership
Shirin4
is looking to take a mortgage loan and gets a good faith estimate from several lenders.
Under which element of the good faith estimate will she find the title insurance costs?
Closing costs
Interest rate
Loan type
Monthly principal payment
RATIONALE
Closing costs include all of the loan and purchase fees associated with buying a house, such as appraisal fees and title insurance (insurance that protects either the lender or the borrower in case someone says they have a claim on the property after the buyer has purchased it).
CONCEPT
Buying a Home
In which of the following cases would prioritizing liquidity over returns be the most productive choice?
Chloe wants to buy a large piece of land as an investment.
Hanna needs to start an emergency fund for her household.
Anton, who is 33 years old, wants to begin investing for retirement. Julio wants to double his initial investment to pay off his mortgage quickly.
RATIONALE
Liquidity refers to how quickly an asset can be converted into cash. An emergency fund needs to be very liquid, that is, immediately accessible for use in case of unexpected expenses (such as a major car repair) or lost income (reduced number of hours worked).
CONCEPT
Risk and Return 6
Which of the following statements is true of a value-oriented investor?
A value-oriented investor relies on the investment decisions of other investors in the same mutual fund.
A value-oriented investor monitors the pattern of stocks in the market index and mirrors the investment.
A value-oriented investor looks to invest in undervalued stocks.
A value-oriented investor looks to invest in highly priced stocks.
RATIONALE
Value-oriented investors are a type of mutual fund investors that look for underpriced stocks or bargains. They tend to pick stocks that are selling for a lower price than their actual value.
CONCEPT Mutual Funds
Patricia7 is planning to attend college next semester. She has a low credit score and no savings in her bank account.
Which of the following loans will be a low-cost loan and prove to be a productive financial decision for Patricia?
A pawn shop loan
A subsidized
A title
A personal loan at the bank
RATIONALE
A subsidized loan means the federal government pays interest on the loan while the student is enrolled in school. While other loan options require a good credit score or charge a high interest rate, a subsidized student loan requires no credit check and charges interest at subsidized rates.
CONCEPT
Consumer Loans
Sylvia has monetary assets of $24,000, and the minimum amount she needs to spend each month is $6,000. The formula for emergency fund ratio is as follows: Emergency Fund Ratio = Monetary Assets / Monthly Living Expenses
For how long will Sylvia's emergency fund last? 4 months 2 years 12 months 3 months
RATIONALE
Emergency Fund Ratio = Monetary Assets / Monthly Living Expenses
Sylvia's emergency fund ratio, which is the number of months her fund will last her, is 24,000/6,000 = 4. Therefore, Sylvia's fund will last her 4 months.
CONCEPT
Emergency Funds 9
Which of the following savings options offers low liquidity but allows an individual to deposit money several times?
A certificate of deposit
A money market account
A dedicated savings account
A savings account
RATIONALE
The early withdrawal penalty on a dedicated savings account helps stop the impulse to purchase unnecessary items using emergency funds while also providing access to the funds in the event you do experience an emergency. A dedicated savings account allows you to contribute additional money until the maturity date.
CONCEPT Savings Accounts