Chapter 01
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 False
2. Rare paintings and baseball cards may be considered as forms of investment.
True False
3. Mutual funds are a form of direct equity claims.
True False
4. Warrants are a form of direct equity claims.
True False
5. Pension funds are a form of indirect equity claims.
True False
6. An investor can totally eliminate time-consuming investment management activities by
participating in a mutual fund or limited partnership.
True False
,7. The riskiness of an investment is measured by the dispersion of possible outcomes.
True False
,8. Unlike the risk-free rate, the level of the risk premium varies by investment.
True False
9. The Ibbotson study showed that high-risk investments generate high returns.
True False
10. Diversification is the process of determining the risk premium.
True False
11. The Tax Act of 2003 offers greater potential for wealth accumulation.
True False
12. The age and economic circumstances of an investor are important variables in
determining an appropriate level of risk.
True False
13. It is generally thought that young, upwardly mobile people should take less risk than
elderly people living on a fixed income.
True False
14. Commodity futures are a form of financial asset.
True False
15. Diamonds represent a form of real assets, but cattle do not.
True False
, 16. To achieve maximum diversification benefits, an investor should invest in projects
which are highly correlated.
True False
17. In general, inflation results in a loss of purchasing power to the investor.
True False
18. The only compensation anticipated from an investment is for inflation protection.
True False
19. Investment is the commitment of current funds in anticipation of receiving a larger flow
of funds in the future.
True False
20. Common stock represents a direct equity claim.
True False
21. Silver is an example of a financial asset.
True False
22. A share in a money market fund is an indirect equity claim.
True False
23. In the financial world, risk is defined as variability of returns.
True False
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 False
2. Rare paintings and baseball cards may be considered as forms of investment.
True False
3. Mutual funds are a form of direct equity claims.
True False
4. Warrants are a form of direct equity claims.
True False
5. Pension funds are a form of indirect equity claims.
True False
6. An investor can totally eliminate time-consuming investment management activities by
participating in a mutual fund or limited partnership.
True False
,7. The riskiness of an investment is measured by the dispersion of possible outcomes.
True False
,8. Unlike the risk-free rate, the level of the risk premium varies by investment.
True False
9. The Ibbotson study showed that high-risk investments generate high returns.
True False
10. Diversification is the process of determining the risk premium.
True False
11. The Tax Act of 2003 offers greater potential for wealth accumulation.
True False
12. The age and economic circumstances of an investor are important variables in
determining an appropriate level of risk.
True False
13. It is generally thought that young, upwardly mobile people should take less risk than
elderly people living on a fixed income.
True False
14. Commodity futures are a form of financial asset.
True False
15. Diamonds represent a form of real assets, but cattle do not.
True False
, 16. To achieve maximum diversification benefits, an investor should invest in projects
which are highly correlated.
True False
17. In general, inflation results in a loss of purchasing power to the investor.
True False
18. The only compensation anticipated from an investment is for inflation protection.
True False
19. Investment is the commitment of current funds in anticipation of receiving a larger flow
of funds in the future.
True False
20. Common stock represents a direct equity claim.
True False
21. Silver is an example of a financial asset.
True False
22. A share in a money market fund is an indirect equity claim.
True False
23. In the financial world, risk is defined as variability of returns.
True False
