Question

Your friend has $1000 that he wants to invest toward his retirement in about 30 years. This will be his first ever investment. What is the best choice?

A hedge fund

A Treasury bill

A mutual fund

Two shares of Apple stock, which has a price of $500 per share

In 1980, a stock with the ticker symbol "MBA" would trade on which exchange, the New York Stock Exchange (NYSE) or Nasdaq? How about in 2014?

1980 = NYSE or Nasdaq; 2014 = NYSE

1980 = NYSE; 2014 = NYSE

1980 = NYSE or Nasdaq; 2014 = NYSE or Nasdaq

1980 = NYSE; 2014 = NYSE or Nasdaq

Why is margin required in a short sale stock transaction?

To protect the broker from any of your losses resulting from a price increase in the shorted stock.

To help finance the purchase of the shorted stock.

Actually, margin is not required in most short sales.

To ensure the government receives its tax revenues from any gains resulting from your short position.

Assume A Corp, B Corp, and C Corp are components of the Dow Jones Industrial Average (DJIA). Given the information below, which would have the most influence on price movements of the DJIA?

All would have the equal influence on price movements

C Corp: stock price = $25, market cap = $250 million, assets = $5000

B Corp.: stock price = $50, market cap = $50 million, assets = $10,000

A Corp: stock price = $100, market cap = $100 million, assets = $1000

A trader wants to purchase Microsoft stock at $30.00 and no more. Microsoft's current price is $30.05. Which order is most appropriate for this trader?

Limit order

Stop-limit order

Market order

Stop order

Which of the following best describes the stock trading environment in the United States?

The NYSE dominates stock trading. Nasdaq is a distant second. No other major competitors exist.

The NYSE and Nasdaq dominate trading and have very little competition.

Alternative trading systems dominate leaving little role for the traditional exchanges like the NYSE or Nasdaq.

The NYSE and Nasdaq are leaders, but they face heavy competition from alternative trading systems and exchanges.

Which of the following represents an advantage of an ETF versus an open-end mutual fund?

ETFs often require a high initial investment, while mutual funds often require a low initial investment.

ETFs can invest in stocks all over the world. Mutual funds are restricted to investing in U.S. stocks only.

When trading an ETF, you know the price of the trade almost immediately. Mutual funds trade at prices determined at the end of the trading day.

ETFs can track an index like the S&P 500. Mutual funds cannot track indexes as they must be actively managed.

Answer 1

Note: As per answering guidelines, only the first question can be answered.

Solution:

An investment for retirement must meet the following two objectives at the very minimum:

1. The risk should not be high and must be under the normal levels. This is because retirement money should be safe first and foremost. Higher levels of risks must not be accepted for retirement related investments
2. The investment must generate at least reasonable level of returns, such that there is a real growth in sum invested. If the investment generates a return that barely covers inflation, there will be no increase in real value when the retirement comes. Therefore, it is important the returns are sufficient enough to cover inflation and generate a decent return on top of that so there can be wealth creation

Investing in a hedge fund, or shares of one company such as Apple is too risky which is not acceptable for a retirement investment, and treasury bills don't offer enough returns to generate wealth over the long-term.

Mutual funds are appropriate investments for retirement money. They are diversified and hence not very risky, as well as provide opportunities to generate good returns over the long-term. Hence, the sum should be invested in mutual fund and the correct option is the third option.