FP I - Unit 3 Test Review

Which statement is false about Form 8-K?

• Companies are required to file it within 15 days of a significant event.

• Companies are required to file it for the first three quarters of the fiscal year.

• The form describes changes in company management, products, acquisitions, or legal actions.

• The form is important because it alerts investors to events that might affect a company's fundamental value.

Which statement is false about using a buy-and-hold strategy?

• Assets need only passive management.

• There are tax benefits for this method.

• Stocks must be carefully monitored.

• Price fluctuations can be ignored.

Which is an important business factor to consider when choosing an investment?

• time horizon

• risk tolerance

• minimization of taxes

• comparison to competition

Before investing, a buyer should:

• conduct thorough research.

• be at least 25 years old.

• graduate from college.

• own a car.

Glenn has committed to investing $100 each month in his favorite stock. Last month, when the stock price was $20, he bought five shares. This month the stock price is $25, so he bought just four shares. This strategy is called:

• dollar cost averaging.

• growth investing.

• diversification.

• buy-and-hold.

Sammy received one share of stock in Nike, Inc., as a gift. He wondered how much of the company profit went to his single share, so he divided the net income by the number of outstanding shares of common stock. What common ratio did Sammy calculate?

• gross profit margin

• earnings per share

• return on equity

• price-earnings

Which is an appropriate investment objective for a mutual fund with a buy-and-hold approach?

• covering a broad range of industries

• seeking long-term capital appreciation

• investing primarily in a diversified portfolio

• investing in stocks with superior growth potential

Which is a poor way to find companies in which to invest?

• Read reputable investment magazines and newspapers.

• Discuss investment opportunities with family and friends.

• Follow suggestions in unsolicited e-mails and phone calls.

• Investigate businesses that have interesting products and services.

Which statement is true about assessing the fundamentals of a security?

• Fundamental analysis results in a reliable prediction of the stock price for the next year.

• Fundamental analysis is a complicated procedure that is inappropriate for beginning investors.

• Even investment experts disagree about the most important ratios to consider in fundamental analysis.

• The only valid approach to fundamental analysis is based on the work of investment guru Warren Buffett.

Too much diversification in a financial portfolio can:

• Dilute the value of big gains on an individual stock.

• Cause other investors to avoid a particular stock.

• Keep stock fund managers from doing their jobs.

• Prevent a stock from growing in value.