Chapter 001
The Investment Setting
True / False Questions
1. In an efficient and informed capital market environment, those investments with the greatest
return tend to have the greatest risk.
TRUE
2. Rare painting and baseball cards may be considered as forms of an investment.
TRUE
3. Mutual funds are a form of direct equity claims.
FALSE
4. Warrants are a form of direct equity claims.
TRUE
5. Pension funds are a form of indirect equity claims.
TRUE
6. An investor can totally eliminate time consuming investment management activities by
participating in a mutual fund or limited partnership.
FALSE
,7. The riskiness of an investment is measured by the dispersion of possible outcomes.
TRUE
,8. Unlike the risk free rate, the level of the risk premium varies by investment.
TRUE
9. The Ibbotson study showed that high risk investments generate high returns.
TRUE
10. Diversification is the process of determining the risk premium.
FALSE
11. The tax Act of 2003 offers greater potential for wealth accumulation.
TRUE
12. The age and economic circumstance of an investor are important variables in determining an
appropriate level of risk.
TRUE
13. It is generally thought that young, upwardly mobile people should take less risk than elderly
people living on a fixed income.
FALSE
14. Commodity futures are a form of financial assets.
TRUE
15. Diamonds represent a form of real assets, but cattle does not.
FALSE
, 16. To achieve maximum diversification benefits, an investor should invest in projects which are
highly correlated.
FALSE
17. In general, if inflation is expected to increase, bond prices will increase.
FALSE
18. The only compensation anticipated from an investment is for inflation protection.
FALSE
19. Investment is the commitment of current funds in anticipation of receiving a larger future
flow of funds.
TRUE
20. Common stock represents a direct equity claim.
TRUE
21. Silver is an example of a financial asset.
FALSE
22. A share in a money market fund is an indirect equity claim.
FALSE
23. In the financial world, risk is defined as variability of returns.
TRUE
The Investment Setting
True / False Questions
1. In an efficient and informed capital market environment, those investments with the greatest
return tend to have the greatest risk.
TRUE
2. Rare painting and baseball cards may be considered as forms of an investment.
TRUE
3. Mutual funds are a form of direct equity claims.
FALSE
4. Warrants are a form of direct equity claims.
TRUE
5. Pension funds are a form of indirect equity claims.
TRUE
6. An investor can totally eliminate time consuming investment management activities by
participating in a mutual fund or limited partnership.
FALSE
,7. The riskiness of an investment is measured by the dispersion of possible outcomes.
TRUE
,8. Unlike the risk free rate, the level of the risk premium varies by investment.
TRUE
9. The Ibbotson study showed that high risk investments generate high returns.
TRUE
10. Diversification is the process of determining the risk premium.
FALSE
11. The tax Act of 2003 offers greater potential for wealth accumulation.
TRUE
12. The age and economic circumstance of an investor are important variables in determining an
appropriate level of risk.
TRUE
13. It is generally thought that young, upwardly mobile people should take less risk than elderly
people living on a fixed income.
FALSE
14. Commodity futures are a form of financial assets.
TRUE
15. Diamonds represent a form of real assets, but cattle does not.
FALSE
, 16. To achieve maximum diversification benefits, an investor should invest in projects which are
highly correlated.
FALSE
17. In general, if inflation is expected to increase, bond prices will increase.
FALSE
18. The only compensation anticipated from an investment is for inflation protection.
FALSE
19. Investment is the commitment of current funds in anticipation of receiving a larger future
flow of funds.
TRUE
20. Common stock represents a direct equity claim.
TRUE
21. Silver is an example of a financial asset.
FALSE
22. A share in a money market fund is an indirect equity claim.
FALSE
23. In the financial world, risk is defined as variability of returns.
TRUE
