Question

Questions 29-34 are based on the following information. Personal finance. Suppose you are an engineer and your spouse is a sales person. Neither of you knows finance, economics or financial statement analysis. Both you and your spouse are salary earners. Both are paid each month.

29. After allocating sufficient money to your monthly living expense, mortgage, education, other necessary expenses and emergency fund, you would like to use the remaining salary to do which of the following first? a. Invest in your tax-friendly retirement account. b. Invest in your taxable investment account. c. Pay down your high-interest consumer debt. d. Make extra payment to your mortgage.

30. Which of the following investment strategies is appropriate for you? a. Invest your money in actively managed mutual funds. b. Invest your money in low-cost index funds like Vanguard. c. Invest all your money in your company’s stock. d. Invest all your money in local companies’ stocks.

31. Which of the following investment strategies is appropriate for you? a. Save a certain amount of money each month and use the monthly savings to buy stocks or mutual fund shares each month no matter how the market performs at the time. b. Save a certain amount of money each month in a bank. At the end of each year, use the savings to buy stocks or mutual fund shares no matter how the market performs at the time. c. Save a certain amount of money each month in a bank. Use your savings to buy stocks or mutual fund shares only when you think the market is bullish, and then sell stocks or fund shares when you think the market is bearish. d. Save a certain amount of money each month in a bank. Use your savings to buy stocks or mutual fund shares only when you think the market is bearish, and then sell stocks or fund shares when you think the market is bullish.

32. If you suddenly inherit a large amount of money, which of the following investment strategy is appropriate for you? a. Stay focused. Immediately use all your money to buy a few stocks you like. b. Gradually invest your money in a few stocks you like. c. Immediately invest all your money in well-diversified mutual funds, such as index funds. d. Gradually invest your money in well-diversified mutual funds, such as index funds.

33. Which of the following investment strategies is appropriate for you? a. Only invest in US stocks or US mutual funds. b. Only invest in foreign stocks or foreign mutual funds. c. Invest in both US and foreign stocks or mutual funds. d. None of the above.

34. If your investment horizon is long, which of the following investments is LEAST appropriate for you? a. Corporate bonds b. Savings accounts c. Common stocks d. Mutual funds

Questions 29-34 end. Questions 35-40 are based on the following information. Corporate finance. You are the CFO of the Stocks-and-bonds company. Both your company’s stock and bonds are traded in the NYSE.

35. If you think your company’s stock is currently undervalued by the market, you would like to _____. a. issue more shares. b. buyback some shares. c. issue more bonds. d. call back your company’s old bonds and issue new bonds.

36. Another company also thinks your company’s stock is currently undervalued by the market. So, it wants to buy a large number of your company’s shares to control your firm. If you want to defend the takeover, you would _____. a. issue more shares. b. buyback some shares. c. lay off your company’s employees. d. call back your company’s old bonds and issue new bonds.

37. If you think your company’s stock is now substantially overvalued by the market, you would like to _____. a. issue more shares. b. buyback some shares. c. issue more bonds. d. call back your company’s old bonds and issue new bonds.

38. If you think your company’s stock is now substantially overvalued by the market and you want to acquire another company, which you think is undervalued by the market, you would ______ to control the target company. a. pay cash to retire the target company’s debt b. buy the target company’s bonds c. pay cash to buy the target company’s shares d. exchange your company’s shares for the target company’s shares

39. Your company wants to acquire another company. After you announce the merger intention to the public, the target company’s stock price would _____. a. decrease. b. increase. c. unchanged. d. none of the above.

40. You believe the market interest rate has already dropped to the bottom. You would _______. a. issue more shares. b. buyback some shares. c. call back your company’s old bonds and issue new bonds. d. increase your company’s cash dividends.  

Answer 1

29. After allocating sufficient money to your monthly living expense, mortgage, education, other necessary expenses and emergency fund, you would like to use the remaining salary to do which of the following first?

a. Invest in your tax-friendly retirement account.

b. Invest in your taxable investment account.

c. Pay down your high-interest consumer debt.

d. Make extra payment to your mortgage. (ANSWER)

Explanation: By making the extra payment on your mortgage, you'll be able to save more money which will be paid by you as interest costs. This should be your first priority.

30. Which of the following investment strategies is appropriate for you?

a. Invest your money in actively managed mutual funds. (ANSWER)

b. Invest your money in low-cost index funds like Vanguard.

c. Invest all your money in your company’s stock.

d. Invest all your money in local companies’ stocks.

Explanation: An actively managed mutual fund will always have a lower amount of risk that can maximize our returns with the market.

31. Which of the following investment strategies is appropriate for you?

a. Save a certain amount of money each month and use the monthly savings to buy stocks or mutual fund shares each month no matter how the market performs at the time.

b. Save a certain amount of money each month in a bank. At the end of each year, use the savings to buy stocks or mutual fund shares no matter how the market performs at the time.

c. Save a certain amount of money each month in a bank. Use your savings to buy stocks or mutual fund shares only when you think the market is bullish, and then sell stocks or fund shares when you think the market is bearish.

d. Save a certain amount of money each month in a bank. Use your savings to buy stocks or mutual fund shares only when you think the market is bearish, and then sell stocks or fund shares when you think the market is bullish. (ANSWER)

Explanation: By saving the money in the bank, we'll get nominal interest for a year. Also, the money will be kept secured in the bank. By investing this money gradually, we can make the most returns as per the market fluctuation and not end up in losses.

32. If you suddenly inherit a large amount of money, which of the following investment strategy is appropriate for you?

a. Stay focused. Immediately use all your money to buy a few stocks you like.

b. Gradually invest your money in a few stocks you like.

c. Immediately invest all your money in well-diversified mutual funds, such as index funds.

d. Gradually invest your money in well-diversified mutual funds, such as index funds. (ANSWER)

Explanation: The investment done should be gradual, not immediate.One should take time to analyze the market and take the help of well-diversified funds.