FIN 100 Final Examination
Dr. Dorla Evans
Read the following questions and mark in pencil the best answer on the computer sheet. Be sure to
erase any changes completely as I cannot give credit for any questions incorrectly marked by the
grading machine. Do not read more into the question than is presented. If in doubt, ask me.
1. Dr. Evans suggested you invest in
a. no-load mutual funds
b. index mutual funds
c. mutual funds with low annual administrative fees
d. mutual funds without annual marketing fees
e. all of the above
2. The most common reason given for investing is
a. enhancing current income
b. saving for retirement
c. shelter earnings from taxes
d. paying for expensive vacations
e. saving for your children’s education.
3. The Dow Jones Industrial Index, the most popular average/index covering stocks, is made up on
4. An essential ingredient for an effective investment strategy is
a. enough money to diversify.
b. a good broker.
c. blue-chip stock selections.
d. high-income securities.
e. a bull market.
5. Asset allocation deals with portfolio construction across
e. potentially all of the above
6. In class, we discussed a new type of mutual fund, which reduces the need to reallocate funds,
a. life-cycle fund.
b. emerging market fund.
c. active trading fund.
d. age-specific fund.
e. no allocation fund.
7. A stock portfolio containing 80% common stock is most likely to be appropriate for a
a. retired couple who needs high returns.
b. divorced middle-aged mother who needs high returns.
c. blue-collar, two-income family with five kids.
d. young single worker putting money aside for retirement.
e. an elderly woman entering an assisted living facility.
8. Bonds offer a steady stream of interest payments until they mature.
9. Compound interest is a very important concept when evaluating the return on an investment you
plan to hold for a long time.
10. Dr. Evans said the three biggest mistakes in retirement planning include:
a. investing too conservatively.
b. starting too late with investing for retirement.
c. saving too little.
d. b and c above
e. a, b, and c above
11. Exchange-indexed funds are passively managed pools of investments.
12. According to Dr. Evans, in order to earn 10% as a long-term return, you would need to put most
of your funds into money market mutual funds.
13. Companies whose earnings have increased at an above-average level over the recent past are
a. blue-chip companies.
b. growth companies.
c. income companies.
d. speculative companies.
e. defensive companies.
14. When evaluating a stock as a possible investment, one must consider
a. the current market price.
b. the expected capital gain.
c. the expected dividend income.
d. one’s investment goals.
e. all of the above
15. By holding stocks in 20 companies, you are reducing ___________ risk.
16. Brokers charge a commission on security purchases as well as on security sales.
17. The SEC requires mutual funds to issue ______ describing the firm and the fund issue it wishes
a. an advertisement
b. a prospectus
c. an underwriting journal
d. a dealer newsletter
18. Past returns on an investment are an indication of future returns, not a guarantee.
19. Joshua thinks he can invest $5,000 per year toward his retirement. If he can earn 6% per year
on his investments over the next 35 years, approximately how much money will he have when he
20. ______ would NOT be a reason for purchasing mutual funds.
b. professional management
c. tax advantage
d. financial return
21. A mutual fund whose main objective is to simply match the S&P 500 is called a(n) _______ fund.
b. preferred stock
c. money market
e. growth stock
22. A bull market is characterized by
a. investor optimism.
b. governmental stimulus.
c. economic slowdown.
d. falling stock prices.
e. investor pessimism.
23. Discount brokers will
a. execute orders.
b. give advice.
c. watch portfolios.
d. do all of these.
e. do none of these.
24. Corporate ownership is represented by
a. preferred stock
b. common stock
25. A diversified securities portfolio is characterized by
a. dissimilar risk and return characteristics of securities.
b. concentrating on a single industry.
c. minimal loss potential.
d. stable earnings.
e. formula timing.
26. Both load and no-load mutual funds will always charge a
a. transaction fee
b. 12(b)-1 fee
c. management fee
d. fee on the sale of shares
e. redemption fee
27. The first step in retirement planning is to
a. determine how large a nest egg is required.
b. consider your longevity.
c. define your investment program.
d. determine your income-earning assets.
e. set your retirement goals.
28. The purpose of the social security retirement program is to
a. increase retirement income to 75 percent of pre-retirement income.
b. pay for health care costs.
c. replace defunct pension fund plans.
d. provide a basic adequate income to eligible retirees.
e. eliminate 401K plans.
29. You are investing with the goal of having $1,600,000 available for your retirement 25 years from
now. If you can earn an 8% rate of return each year, approximately how much must you save
each month to meet the goal?
30. The _________ is a service offered by mutual funds which helps an investor earn compound
interest on his investments.
a. retirement plan
b. automatic withdrawal plan
c. automatic reinvestment plan
d. conversion privilege
e. automatic investment plan
31. Dr. Evans said that it is foolish to NOT take advantage of employer matching in 401K plans
a. you will be penalized by Social Security.
b. you will miss out on a 100% return.
c. your firm will reduce your salary.
d. the IRS will penalize your retirement income.
e. all of the above.
32. Major sources of retirement income include
a. Social Security payments
c. individual savings plans
d. employer retirement and pension plans
e. all of these
33. According to Dr. Evans, investors in their twenties should prefer the Roth IRA over the traditional
Answers to Final Exam