1. Which of the following has returned the highest rate of return on investment since 1926?

Long-term corporate bonds

U.S. treasury bills

Small company stocks

Common stocks

2. Assuming a 4% inflation rate, how long would it take to lose half of your purchasing power? (A dollar is worth only 50 cents) Hint: Rule of 72

12 years

18 years

20 years

24 years

3. In general, a savings account with a bank often cannot make enough interest to offset the losses from inflation.

True

False

4. In general, what happens to bond prices when interest rates go up?

Bond prices rise

Bond prices fall

Bond prices neither rise or fall

5. Treasury Bonds (T-Bonds) pay a higher interest rate than Treasury Bills (T-Bills).

True

False

6. What is a bank CD?

A multimedia CD-ROM for a computer?

A music CD for home entertainment?

A certificate of deposit with interest payments that is placed with a bank for a specific period.

All of the above

7. What is a P/E ratio?

The ratio of the price of a stock divided by the stock's earnings per share

The ratio of the price of a bond divided by the coupon of the bond

The ratio of the price of a stock divided by the stock's yield

8. What is an income statement?

A statement of the profits and losses of a company

Part of a financial statement

A statement that summarizes revenues and expenses of a firm over a time period

All of the above

 

9. What is a dividend?

A cash payment distributed among creditors

A payment of additional shares of stock to stockholders

A bonus to employees

A division of an international corporation

10. What is the Dow Jones Industrial Average or DJIA or the Dow?

Price-weighted average of 30 industrial company stocks

An indicator of the U.S. stock market

On May 30, 1996, total components multiplied by 0.34599543

All of the above