Chapter 11: Analysis

Question 1

______ looks at company specifics, balance sheet and income statement, and is concerned with alpha, financial, or bankruptcy risk. It is economics based, monetarism driven, and Federal Reserve Board directed.

Answer 1

Fundamental Analysis

Question 2

If the Fed buys, the money supply ______, interest rates ______, yield curves become ______, prices ______ … prosperity is nearing.

Answer 2

1. Grows
2. Decline
3. Normal
4. Rise

Question 3

If the Fed sells, the money supply ______, interest rates ______, yield curves become ______, short-term rates become ______ than bond yields … a recession is coming.

Answer 3

1. Shrinks
2. Rise
3. Inverted
4. Higher

Question 4

______ is concerned with four major issues:

1. Monetary policies as implemented by the Federal Reserve Board (FRB) through its open market committee.
2. Fiscal vs. Monetary policy
3. Economic indicators: leading, lagging, and coincident.
4. Specific company information: balance sheet and income statement.

Answer 4

Fundamental Analysis

Question 5

______ is our total national output of goods and services.

Answer 5

Gross Domestic Product (GDP)

Question 6

The ______ gauges inflation by measuring costs in constant dollars.

Answer 6

Consumer Price Index (CPI)

Question 7

______ is defined as too many dollars chasing too few goods and services.

Answer 7

Inflation

Question 8

The economic cycle starts with the ______ phase.

Answer 8

Expansion

Question 9

______ is a common symptom of the expansion phase.

Answer 9

Inflation

Question 10

The expansion phase culminates at the ______.

Answer 10

Peak

Question 11

If the cycle lingers too long at the peak, we sometimes experience ______, which is a period of rising prices with no economic growth.

Answer 11

Stagflation

Question 12

______ is a slowing of the economy over a prolonged period of time.

Answer 12

Stagnation

Question 13

______ follows the peak, and is sometimes accompanied by ______.

Answer 13

1. Decline

2. Deflation

Question 14

______ is a period of falling prices; too few dollars chasing too many goods and services.

Answer 14

Deflation

Question 15

A recession is defined as ______ (______ months) of a decline in GDP.

Answer 15

1. 2 Consecutive Quarters

2. 6 Months

Question 16

A depression is defined as ______ (______ months) of a decline in GDP.

Answer 16

1. 8 Consecutive Quarters

2. 24 Months

Question 17

The decline phase ends when the economy bottoms out, which is called the ______.

Answer 17

Trough

Question 18

After the ______, the economy begins to expand again, and the cycle starts over.

Answer 18

Trough

Question 19

______ involves the president and Congress passing bills and appropriations that influence economic activity. ______ and ______ are its primary tools.

Answer 19

1. Fiscal Policy
2. Federal Taxation
3. Spending

Question 20

Congress can ______ to increase economic activity or ______ to decrease economic activity.

Answer 20

1. Lower Taxes

2. Raise Taxes

Question 21

The federal government can increase spending on ______ (i.e., roads and bridges), ______, and/or ______ to stimulate the economy. It can also increase ______, such as social security or tax rebate programs.

Answer 21

1. Capital Projects
2. Military
3. Social Programs
4. Transfer Payments

Question 22

Congress not only has the ability to spend money, but, if needed, can authorize ______ to stimulate the economy.

Answer 22

Borrowing Funds

Question 23

______ is the economic theory that advocated using fiscal policy to jump-start the economy to “full employment”.

Answer 23

Keynesian

Question 24

______ is the use of government spending and taxation to influence the economy.

Answer 24

Fiscal Policy

Question 25

______ believes that the economy runs at an "equilibrium" level that is determined by income and spending, and aggregate demand. In other words, if people are out of work, they do not consume or spend money

Answer 25

Keynesian Theory

Question 26

______ believes that is the government's responsibility to stimulate the economy to "full employment" by increasing spending.

Answer 26

Keynesian Theory

Question 27

______ doctrine says that as long as the government does not meddle with the economy, business will take care of itself.

Answer 27

Supply Side Economics

Question 28

______ states that stable interest rates, money supply, and low inflation achieved through ______ will enable business to drive the economy to full employment.

Answer 28

1. Supply Side Economics | 2. Monetary Policy

Question 29

In ______, growth is promoted through tax cuts and deregulation.

Answer 29

Supply Side Economics

Question 30

Monetary policy is controlled by the ______ or "______".

Answer 30

1. Federal Reserve Board (FRB) | 2. The Fed

Question 31

The main ______ is in New York, and it controls a system of member banks in major cities across the U.S.

Answer 31

Federal Reserve Bank

Question 32

The ______ is the Federal Reserve System's top monetary policy-making body.

Answer 32

Federal Open Market Committee (FOMC)

Question 33

______ refers to actions taken to influence the money supply and credit in the economy, which in turn affects interest rates.

Answer 33

Monetary Policy

Question 34

By raising or lower short-term interest rates, it indirectly controls ______ and ______.

Answer 34

1. Inflation | 2. Employment

Question 35

The primary focus of ______ is to promote price stability and full employment.

Answer 35

Monetary Policy

Question 36

If the FRB believes that the economy is growing too quickly (which might cause ______), it will ______ the money supply to slow the economy, which makes money scarcer and causes interest rates to ______.

Answer 36

1. Inflation 2. Tight 3. Rise

Question 37

If the FRB wishes to stimulate the economy, it will ______ the money supply, which causes interest rates to ______, and speeds economic growth.

Answer 37

1. Ease | 2. Drop

Question 38

The most powerful tool the FRB has is the ______, which is an overnight cash reserve that each Federal Reserve member bank must maintain each night.

Answer 38

Reserve Requirement

Question 39

The FRB will raise the reserve requirement to ______ the money supply and lower it to ______ the money supply.

Answer 39

1. Tighten | 2. Increase

Question 40

The reserve requirement is the most powerful tool which the FRB has, because it has a(n) ______ throughout the economy.

Answer 40

Multiplier Effect

Question 41

Each night, every member bank calculates its ______. If the member is short, it must borrow cash from another member bank or from the main Federal Reserve Bank in New York.

Answer 41

Reserve Requirement

Question 42

The fed also sets the ______, which is the rate the main Federal Reserve Bank charges member banks for loans to meet their overnight loan requirement.

Answer 42

Discount Rate

Question 43

When a member bank borrows from the main Federal Reserve Bank at the ______, the member is said to borrow at the ______. This is an indication that the borrower is experiencing financial trouble, because the main Federal Reserve Bank is considered the lender of last resort.

Answer 43

1. Discount Rate | 2. Discount Window

Question 44

If a member bank is short funds to satisfy its reserve requirement, it will first attempt to borrow from another ______.

Answer 44

Member Bank

Question 45

When member banks lend to each other, the interest rate they assess is called the ______. This rate is not set by the ______; it is the average of all interest rates charged by member banks for these overnight loans.

Answer 45

1. Fed Funds Rate / Federal Funds Rate | 2. Federal Reserve Board

Question 46

The ______ charged by member banks for overnight loans is extremely volatile because it can literally change overnight.

Answer 46

Fed Funds Rate

Question 47

The most often used FRB tool is the ______, which is where the ______ buys or sells treasuries in the secondary market to slow or stimulate the economy.

Answer 47

1. Federal Open Market Operations | 2. Federal Open Market Committee (FOMC)

Question 48

If the Fed is ______ treasuries, they are putting money into the economy. This ______ the money supply and ______ the economy.

Answer 48

1. Buying 2. Increases 3. Stimulates

Question 49

If the Fed is ______ treasuries, they are pulling money out of the economy. This ______ the money supply and ______ the economy.

Answer 49

1. Selling 2. Shrinks 3. Slows

Question 50

The FOMC operation has the greatest effect on ______, which is a measure of the money supply.

Answer 50

M1

Question 51

______ equals cash and demand deposits such as checking accounts. ______ equals the previous plus savings accounts and some money market funds. ______ equals the previous plus institutional investors and money markets.

Answer 51

1. M1 2. M2 3. M3

Question 52

On a global level is the ______, which is an international, decentralized unregulated, market. Consequently, the ______ is a high risk market.

Answer 52

Interbank System

Question 53

The major participants in the ______ are central banks and large multi-national corporations.

Answer 53

Interbank Market

Question 54

In the ______, foreign currencies are traded in large blocks. Generally, these are blocks of ______.

Answer 54

1. Interbank Market | 2. $1 to $5 Million

Question 55

When the U.S. dollar is ______, foreign currencies are ______. This makes foreign goods ______, so U.S. imports ______ and dollars flow out of the U.S., creating a(n) ______ trade balance. This outflow also ______ the dollar.

Answer 55

1. Strong 2. Weaker 3. Cheap 4. Increase 5. Deficit 6. Weakens

Question 56

As U.S. dollar ______, foreign currencies by comparison are ______. This makes American products ______ abroad, and U.S. exports ______. As money flows into the U.S. due to exports, the dollar grows ______.

Answer 56

1. Weakens 2. Stronger 3. Cheaper 4. Increase 5. Stronger

Question 57

The balance of trade is ______. In other words, when the dollar is strong, imports go ______, causing the dollar to get _____. When the dollar is weak, exports ______, causing the dollar to get ______.

Answer 57

1. Cyclical 2. Up 3. Weaker 4. Increase 5. Stronger

Question 58

If interest rates rise, 1. Bond and yields ______. 2. The U.S. dollar is ______ as the FRB is attacking ______. 3. Imports ______ because of the ______ dollar's purchasing power. 4. Exports ______ because the ______ U.S. dollar means ______ foreign currencies.

Answer 58

1. Rise 2. Strengthened, Inflation 3. Rise, Strong 4. Rise, Stronger, Weaker

Question 59

______ interest rates cause the FRB to pursue a tight money policy by ______ government securities to banks and broker/dealers. This sometimes causes a(n) ______, with short-term rates rising above bond yields.

Answer 59

1. Raising 2. Selling 3. Inverted Yield Curve

Question 60

An inverted yield curve often leads to ______, which is large-scale investor movement into long term debt instruments. This causes long-term yields to drop as greater demand drives long-term bond prices up.

Answer 60

Disintermediation

Question 61

Inverted Yield Curve = Tight Money Policy ``` Rates: ______ Yields: ______ Imports: ______ US $: ______ Stock/Bond Prices: ______ Exports/For $: ______ ```

Answer 61

``` Rates: RISE Yields: RISE Imports: RISE US $: RISE Stock/Bond Prices: FALL Exports/For $: FALL ```

Question 62

Normal Yield Curve = Loose Money Policy ``` Rates: ______ Yields: ______ Imports: ______ US $: ______ Stock/Bond Prices: ______ Exports/For $: ______ ```

Answer 62

``` Rates: FALL Yields: FALL Imports: FALL US $: FALL Stock/Bond Prices: RISE Exports/For $: RISE ```

Question 63

FRB through its Open Market Committee (OMC) is SELLING Government/Agencies. Money is removed from the Money Supply. The discount rate ______, then is followed by ______ in the Fed Funds rate, then T-Bill rate, then Repo and CD rates, then Prime rate, Broker Call Loan Rate (Bank charging B/Ds), then Margin Loan Rate (B/Ds charging customers).

Answer 63

1. Rises | 2. Increases

Question 64

Inverted Yields means ______ rates are higher than ______ yields.

Answer 64

1. Short-Term | 2. Long-Term

Question 65

When the FRB sells securities, it ______ money from the money supply, which causes rates to ______. As rates start ______, yield curves turn from normal, positive, and upward sloping to inverted and negative. This means that ______ rates rise higher than ______ debt yields.

Answer 65

1. Removes 2. Rise 3. Rising 4. Short-Term 5. Long-Term

Question 66

A(n) ______ money supply draws investors from equities and bonds to money market. Soon, a(n) ______ provides the cure for inflation.

Answer 66

1. Inverted | 2. Recession

Question 67

Rates begin to ______ during prosperity, and ______ becomes a real problem during expansion.

Answer 67

1. Rise | 2. Inflation

Question 68

During recovery we can have a period (hopefully brief) of ______, no growth with inflation still present and high interest rates.

Answer 68

Stagflation

Question 69

The ______ rate is the lowest, and is set by the FRB to be charged to any member bank for borrowing.

Answer 69

Discount

Question 70

The ______ rate is slightly higher than discount for overnight borrowing between Federal Reserve member banks. Obviously ______, the most sensitive money market indicator, are the first rates to be affected by changes in the discount rate.

Answer 70

Fed Funds

Question 71

______ are bank-to-bank loans, so they are not money market securities.

Answer 71

Fed Funds

Question 72

______ have nothing to do with the FRB (the FED) directly. They are overnight loans banks make to other banks with funds they access by dipping into their excess Federal Reserve monies.

Answer 72

Fed Funds

Question 73

______ rates are usually slightly higher than fed funds. The banks earn ______ rates when they invest short-term.

Answer 73

Money Market

Question 74

______ rates include the repo rate (especially the overnight rep rate), commercial paper, bankers' acceptance, and CD rates.

Answer 74

Money Market

Question 75

______ are created when a bank dealer sells collateralized securities with a promise to buy them back.

Answer 75

Repurchase Agreements / Repos / Buy Backs / Matched Sales

Question 76

Other money market instruments are ______, which is unsecured corporate notes with maturities ranging from 30 to 270 days, and ______, which are import/export paper.

Answer 76

1. Commercial Paper | 2. Bankers' Acceptances

Question 77

______ (for this test) are the jumbos, requiring a minimum investment of $100,000.

Answer 77

Certificates of Deposit (CDs)

Question 78

Higher than money market rates that banks earn are the ______ rate and ______ rates, which banks charge. The ______ rates are charged to their best customers, and ______ rates are charged to broker/dealers for customer margin purchases.

Answer 78

1. Prime 2. Broker Call Loan 3. Prime 4. Broker Call Loan

Question 79

Of the call loan, discount, fed funds, money market, and prime rates, ______ has the lowest rate and ______ has the highest.

Answer 79

1. Discount | 2. Call Loan

Question 80

______ estimate future economic activity in a business cycle.

Answer 80

Leading Indicators

Question 81

______ Indicator: Average weekly hours, manufacturing.

Answer 81

Leading

Question 82

______ Indicator: Average weekly initial claims for unemployment insurance.

Answer 82

Leading

Question 83

______ Indicator: Manufacturers' new orders, consumer goods and materials.

Answer 83

Leading

Question 84

______ Indicator: Institute for Supply Management (ISM) new order index.

Answer 84

Leading

Question 85

______ Indicator: Manufacturers' new orders, nondefense capital goods excluding aircraft.

Answer 85

Leading

Question 86

______ Indicator: Building permits, new private housing units.

Answer 86

Leading

Question 87

______ Indicator: Standard & Poor's 500 stock index.

Answer 87

Leading

Question 88

______ Indicator: Leading Credit Index.

Answer 88

Leading

Question 89

______ Indicator: Interest rate spread, 10-year Treasury bonds less federal funds.

Answer 89

Leading

Question 90

______ Indicator: Average consumer expectations for business and economic conditions.

Answer 90

Leading

Question 91

______ are current indices (show the current phase of the cycle), and the more current the index, the more ______.

Answer 91

1. Coincident Indicators | 2. Coincident

Question 92

______ Indicator: Payroll employment (excluding agriculture).

Answer 92

Coincident

Question 93

______ Indicator: Personal income (excluding Social Security).

Answer 93

Coincident

Question 94

______ Indicator: Industrial production (GDP).

Answer 94

Coincident

Question 95

______ Indicator: Manufacturing and trade sales.

Answer 95

Coincident

Question 96

______ reflect historical data. They indicate the status of the economy in the past few months.

Answer 96

Lagging Indicators

Question 97

______ Indicator: Average length of unemployment (in weeks).

Answer 97

Lagging

Question 98

______ Indicator: Inventories to sales ratio (manufacturing and trade).

Answer 98

Lagging

Question 99

______ Indicator: Labor cost per unit of output (manufacturing).

Answer 99

Lagging

Question 100

______ Indicator: Average prime rate.

Answer 100

Lagging

Question 101

______ Indicator: Commercial and industrial loans.

Answer 101

Lagging

Question 102

______ Indicator: Consumer installment credit to personal income ratio.

Answer 102

Lagging

Question 103

______ Indicator: Consumer price index (CPI).

Answer 103

Lagging

Question 104

The CPI, a measure of ______, is a(n) ______ indicator.

Answer 104

1. Inflation | 2. Lagging

Question 105

Consumer Price Index (CPI) is a(n) ______ indicator.

Answer 105

Lagging

Question 106

Industrial production (GDP) is a(n) ______ indicator.

Answer 106

Coincident

Question 107

Initial claims for unemployment insurance is a(n) ______ indicator.

Answer 107

Leading

Question 108

Average length of unemployment is a(n) ______ indicator.

Answer 108

Lagging

Question 109

S&P 500 is a(n) ______ indicator.

Answer 109

Leading

Question 110

Building permits (private housing) are a(n) ______ indicator.

Answer 110

Leading

Question 111

Prime rate is a(n) ______ indicator.

Answer 111

Lagging

Question 112

Personal income is a(n) ______ indicator.

Answer 112

Coincident

Question 113

Manufacturers' new orders are a(n) ______ indicator.

Answer 113

Leading

Question 114

Commercial and industrial loans are a(n) ______ indicator.

Answer 114

Lagging

Question 115

NYSE market indicators include the following: 1. ______ is the oldest and most widely quoted market indicator. 2. ______ is the most widely quoted index. 3. ______ is a broader measure of NYSE activity. 4. ______ is the broadest, most accurate measure of NYSE activity.

Answer 115

1. Dow Jones Average 2. Dow Jones Industrial Average (DJIA) 3. Standard and Poor's 500 (S&P 500) 4. NYSE Composite Index

Question 116

______ is the oldest and most widely quoted NYSE market indicator. It consists of 65 stocks (30 industrial, 20 Transports, and 15 Utilities).

Answer 116

Dow Jones Average

Question 117

______ is the most widely quoted index, and averages the movement of 30 widely held stocks (i.e. IBM, GE, American Express, etc.). However, it is a very narrow measure of NYSE activity because there are more than 3,000 issues listed on the exchange.

Answer 117

Dow Jones Industrial Average (DJIA)

Question 118

______ is a broader measure of NYSE activity and is comprised of the 500 largest market capitalization stocks in the U.S.

Answer 118

Standard and Poor's 500 (S&P 500)

Question 119

______ is the broadest, most accurate measure of NYSE activity because it includes all common issues traded on the exchange (approximately 3,000 issues).

Answer 119

NYSE Composite Index

Question 120

The ______ is the broadest measure of NASDAQ activity, covering more than 6,500 stocks. The ______ covers only the largest 100 stocks.

Answer 120

1. NASDAQ Composite Index | 2. NASDAQ 100 Stock Index

Question 121

______ consists of the market value o more than 7,000 NYSE, AMEX, NASDAQ, and OTC issues headquartered in the U.S. It is the broadest market indicator.

Answer 121

Wilshire Index

Question 122

______ have regular, pronounced cycles of growth and contraction. Stocks of companies in this industry perform nicely in a rising market, but suffer badly in a falling market.

Answer 122

Cyclical Industries

Question 123

______ companies produce durable goods, which sell well in healthy economic environments but do poorly during weak phases. Examples are large appliances and automobiles, heavy equipment, and airplanes.

Answer 123

Cyclical Companies

Question 124

______ prosper during economic declines and underperform when the economy is growing strongly.

Answer 124

Countercyclical Industries

Question 125

Examples of ______ include the pawn shop and asset repossession industries. By adding stocks from these industries, a portfolio has a greater possibility of positive performance through a down market.

Answer 125

Countercyclical Industries

Question 126

______ have less pronounced cyclical variation. Stocks in ______ do not experience dramatic growth swings in up markets or declines in weak markets. They tend to have relatively stead performance through all economic phases.

Answer 126

Defensive Industries

Question 127

______ produce basic consumer goods, also known as consumer staples, such as food, alcohol, tobacco, pharmaceuticals, cosmetics. Demand for these basic consumer goods tends to be steady through up and down markets.

Answer 127

Defensive Corporations

Question 128

______ are characterized by rapid development. They are typically fueled by new technological advances. Investing in these industries involves greater risk, but offers higher potential rewards.

Answer 128

Growth Industries

Question 129

______, in the early stages, are expanding quickly and are not necessarily closely tied to the business cycle. However, more established companies generally perform better during the expansionary phase.

Answer 129

Growth Industries

Question 130

______ is used to evaluate and rate corporations, their debit, their credit, and their strength. It is also employed to examine and evaluate our economy, its current position, and its future direction.

Answer 130

Fundamental Analysis

Question 131

______ is used by market makers and traders, particularly day-traders and option players; its usefulness is the determination of price and time.

Answer 131

Technical Analysis

Question 132

______ or ______ are used primarily for stock selection. The ______ knows the corporate financial statements and can select strong, growth companies. The ______, on the other hand, knows market movements, support lines for purchasing stock, and resistance lines for selling stock.

Answer 132

1. Fundamentalists 2. Economists / Technician 3. Fundamentalist 4. Economist / Technician

Question 133

______ assist in recommending the companies to consider, whereas ______ tell you when to buy and sell.

Answer 133

1. Fundamentalists | 2. Economists / Technicians

Question 134

______ is market-driven, charts and graphs centered, focused on advance/decline lines and moving averages. Among its chief concerns are beta risk, systematic risk, and market risk.

Answer 134

Technical Analysis

Question 135

______ consists of tracking stock performance and charting advances and declines. It emphasizes trends and trend reversals.

Answer 135

Technical Analysis

Question 136

Stocks tend to trade within a price range; the line of ______ reflects the price lows and ______ is price highs.

Answer 136

1. Support | 2. Resistance

Question 137

Technical analysis values the following market indicators for pointing the direction of stock prices: 1. ______ 2. ______ 3. ______ 4. ______ 5. ______

Answer 137

1. 200 Day Moving Average 2. Advance/Decline Line Charting 3. Volume Analysis 4. Put/Call Ratio 5. Short Interest Theory

Question 138

______: Every day analysts chart moving average price over the last 200 days, adding previous day's price to the average and eliminating the price from 200 days ago.

Answer 138

200 Day Moving Average

Question 139

______: Each day the number of stocks advanced is added and number of stocks declined is subtracted starting at zero. On these charts, a rising line indicates that cumulative advances outnumber the declines (bullish) and a falling line indicates the opposite: cumulative declines outnumber advances (bearish).

Answer 139

Advance/Decline Line Charting

Question 140

______: Volume is the number of trades traded in a company's stock or in the market over a specified period, usually a day. An increase in volume may occur when a company makes an announcement, such as an acquisition or spinoff. Earnings reports, positive or negative, may result in increased volume. Technicians also use volume to assess the health of a trend.

Answer 140

Volume Analysis

Question 141

If, in the ratio of puts to calls, puts increase dramatically, the market is poised to ______. If the ratio shows a large increase in calls, however, then the ratio becomes ______.

Answer 141

1. Decline | 2. Bullish

Question 142

Short interest (short sales) rising sharply is actually a(n) ______ indicator because the need to cover short sales will bring buyers in to the market when the market begins rising.

Answer 142

Bullish

Question 143

A(n) ______ indicates that a stock's price has reached its low and that the downward trend has come to an end.

Answer 143

Saucer Formation

Question 144

A(n) ______ indicates that a stock's price has reached its high, ending the uptrend.

Answer 144

Inverted Saucer Formation

Question 145

Other terminology related to technical analysis includes: 1. ______: stock price moves through a support or resistance level. 2. ______: stock price moves within a trading range and there is no clear trend. 3. ______: stock price has risen too far and too quickly and is susceptible to downward pressure. 4. ______: stock price has dropped significantly and is likely to rebound.

Answer 145

1. Breakout 2. Consolidation 3. Overbought 4. Oversold

Question 146

______ is a measure of volatility in relation to the overall market, usually the S&P 500, or a benchmark that is appropriate for a specific portfolio.

Answer 146

Beta

Question 147

A stock or portfolio with a beta greater than ______ is more volatile than the market. For example, if a stock has a beta of ______, its price fluctuates 25% more than the market. This security is suitable for an investor with a(n) ______ investment profile.

Answer 147

1. 1 2. 1.25 3. More Aggressive

Question 148

If a stock has a beta of ______, its volatility matches the overall market. During an upturn or downturn in the market, it will perform about the same as the market.

Answer 148

1

Question 149

A stock with a beta of ______ is 25% less volatile and its price will not move as much as the market.

Answer 149

0.75

Question 150

______ measures the reaction of a particular security in relation to the movements of the market as a whole. The higher the ______ on a security, the more potential there is a volatility.

Answer 150

Beta

Question 151

______ is a measure of risk-adjusted performance. It is the excess return of an investment relative to the market or its benchmark.

Answer 151

Alpha

Question 152

In simple terms, ______ is the difference between a security's actual return and its beta.

Answer 152

Alpha

Question 153

The point of reference for alpha is beta; therefore, a(n) ______ alpha indicates underperformance while a(n) ______ one represents a better than expected return.

Answer 153

1. Negative | 2. Positive

Question 154

The ______ is used to determine the value of a security. The model uses the security's beta, a theoretical risk-free rate of return, and the time value of money.

Answer 154

Capital Asset Pricing Model (CAPM)

Question 155

The ______ addresses the return that the security should yield given its risk level. That yield is equal to the risk-free rate of return plus a premium for assuming the risk of the investment.

Answer 155

Capital Asset Pricing Model (CAPM)

Question 156

______ is an indication of how investors feel about the market, whether they expect it to go up or down, and is reflected in movements in the market.

Answer 156

Market Sentiment

Question 157

______ is an actual acceleration in the price movement of the market.

Answer 157

Market Momemtum

Question 158

Positive ______ will drive stock prices higher, contributing to ______.

Answer 158

1. Market Sentiment | 2. Market Momentum

Question 159

If market sentiment is negative and investors are nervous about the market, they may hold ______ rather than invest. When market sentiment turns positive and they decide to put the ______ to use by investing, the large inflow into the market can drive market momentum, moving stock prices higher.

Answer 159

Cash

Question 160

A portfolio is measured against a(n) ______ that reflects the composition of the portfolio. A(n) ______ is simply a standard that can be used to analyze performance.

Answer 160

Benchmark

Question 161

The benchmark for a large-cap growth portfolio might be the ______.

Answer 161

S&P 500

Question 162

The ______ would be a more appropriate benchmark for a small-cap fund.

Answer 162

Russell 2000

Question 163

______ are typically indices, either a single index or an index construct.

Answer 163

Benchmarks

Question 164

A net long-term gain is taxed at a maximum ______ rate.

Answer 164

20%

Question 165

Short-term gains are taxed as ______, but because of the netting with capital losses, it is still better to have short-term gains than ______.

Answer 165

Ordinary Income

Question 166

All investments are ______, EXCEPT money markets, insurance, including both annuities and life insurance, and retirement plans and accounts.

Answer 166

Capital Assets

Question 167

Short-term capital gains are taxed as ______. Long-term capital gains are taxed at ______ rates, capped at a maximum of ______.

Answer 167

1. Ordinary Income 2. Capital Gain 3. 20%

Question 168

Capital losses are first used to offset any ______. Any remaining net capital losses are allowed as a deduction against ______ on a dollar-for-dollar basis (referred to as an above-the-line deduction).

Answer 168

1. Capital Gains | 2. Ordinary Income

Question 169

The maximum allowable net capital loss is ______ per year, per return. Any losses in excess of the allowable limit may be carried over into subsequent years.

Answer 169

$3,000

Question 170

The federal gift and estate taxes are integrated in one tax system, called the ______.

Answer 170

Unified Estate and Gift Tax

Question 171

The ______ is a tax on a person's right to transfer property at death. It includes everything that a person owns or has certain interests in at the date of death.

Answer 171

Estate Tax

Question 172

A(n) ______ must be filed if the gross estate of the decedent is valued at more than the threshold for the year of the decedent's death. This is called the ______.

Answer 172

1. Estate Tax Return | 2. Estate and Gift Tax Exclusion

Question 173

As of 2021, the person's entire estate after the first ______ would be taxable on a graduated scale up to a maximum tax rate. Any assets left to a spouse or left to charity are not subject to ______ until the spouse also dies.

Answer 173

1. $11.7 Million | 2. Estate Tax

Question 174

The ______ (or ______) tax applies to values in excess of a stated amount.

Answer 174

1. Inheritance | 2. Estate

Question 175

All assets not passed onto a spouse are subject to ______. This includes IRAs, annuities, Roth IRAs, and municipal bonds.

Answer 175

Estate Taxes

Question 176

Currently, the taxpayer may give ______ per year per recipient gift tax free. Any gift equal to a dollar amount above ______ annually per recipient is taxable to the donor.

Answer 176

$15,000

Question 177

The lifetime ______ exclusion or exemption and the ______ exclusion are expressed as a total amount. This basic exclusion is called the ______, which used against a person's ______ in one year reduces the amount that can be used against the ______ in a later year.

Answer 177

1. Gift Tax 2. Estate Tax 3. Unified Credit 4. Gift Tax 5. Gift Tax

Question 178

If the market value is higher than the donor's basis at time of gift, the recipient's cost basis is equal to the donor's ______ of the security.

Answer 178

Original Purchase Price

Question 179

If the market value is lower than the donor's cost basis, the recipient's basis is equal to the ______ at the time of the gift.

Answer 179

Market Value of the Securities

Question 180

In the gift of securities, a(n) ______ is paid by the donor if the value exceeds ______.

Answer 180

1. Gift Tax | 2. $15,000

Question 181

The gift tax paid increases the gift's ______. If the recipient sells the securities later, the recipient pays ______ taxes on the gains above the cost basis.

Answer 181

1. Cost Basis | 2. Capital Gains

Question 182

Charitable donations are not subject to ______.

Answer 182

Gift Tax

Question 183

When a security is donated to charity, the ______ at the time of the donation is deductible on the donor's tax return, as long as the investor held the security for more than ______.

Answer 183

1. Value of the Security | 2. 1 Year

Question 184

When a security is donated to charity, the donor is not required to pay ______ on the appreciated value of the security.

Answer 184

Capital Gains Tax

Question 185

An investor purchased 100 shares of stock for $4,500. Two years later, the stock has appreciated to $7,000 and the investor donates the stock to charity. 1. What is the investor's tax deduction? 2. How much will the investor pay in capital gains?

Answer 185

1. $7,000 (the current value of the security) | 2. $0 (no capital gains on charitable donations)

Question 186

The appreciated value at the time of security donation becomes the recipient's cost basis and is referred to as the "______".

Answer 186

Stepped-Up Basis

Question 187

If a security is ______, the beneficiary gets a(n) ______, that is, the cost basis to the beneficiary is "stepped-up" (or "stepped-down" if the value has declined) to the ______ of the securities on the day of the deceased's death.

Answer 187

1. Inherited 2. Stepped-Up Basis 3. Fair Market Value

Question 188

The holding period is always considered ______ regardless of the deceased's actual holding period.

Answer 188

Long-Term

Question 189

When a beneficiary inherits a mutual fund, the cost basis is the ______ of the shares on the day of the owner's death.

Answer 189

Net Asset Value (NAV)

Question 190

When an investor sells securities that were acquired through several purchases, the investor may choose ______ and select specific shares, which requires supporting documentation.

Answer 190

Specific Identification

Question 191

When an investor sells securities that were acquired through several purchases, the investor may choose the ______ method. Under ______, the first shares purchased are the first shares sold.

Answer 191

1. First-In, First-Out | 2. FIFO

Question 192

In a rising market, ______ method is the worst option for the investor, because it typically results in the highest reported capital gain tax.

Answer 192

First-In, First-Out (FIFO)

Question 193

If the securities are mutual fund shares, the investor may choose the ______ method. Under this method, the investor calculates an average cost per share, which is used as the sale price.

Answer 193

Weighted Average

Question 194

The investor must disclose to the IRS which sell option was selected. If the investor fails to do this, the IRS chooses ______. This is usually the best option for the IRS, and the worst for the investor.

Answer 194

First-In, First-Out (FIFO)

Question 195

If the investor repurchases essentially the same security within ______ of the sale, this is known as a(n) ______, and the loss is disallowed by the IRS.

Answer 195

1. 30 Days | 2. Wash Sale

Question 196

If the investor wishes to take a capital loss resulting from a stock sale, the investor must not purchase the stock within a(n) ______ window: ______ before the sale, trade date, and ______ after the sale.

Answer 196

1. 61-Day 2. 30 Days 3. 30 Days

Question 197

During the wash sale window, the investor may not purchase the stock or any security which is substantially identical, including: 1. ______ bonds or preferred stock which ______ into the stock. 2. A(n) ______ on the stock. 3. A(n) ______ on the stock. 4. The stock itself.

Answer 197

1. Convertible / Convert 2. Long Call Option 3. Short Put

Question 198

The two least effective for the four repurchases are ______ (this gives you your maximum gain or premium while attempting to deduct a loss) and ______.

Answer 198

1. Selling Put Options | 2. Buying the Stock

Question 199

If the investor violates the ______ rule, the investor may not claim the capital loss on the stock sale.

Answer 199

Wash Sale

Question 200

When a U.S. corporation owns common or preferred stock of another ______ and receives a dividend, the owning corporation may exclude ______ of the dividend from its taxation.

Answer 200

1. Domestic Corporation | 2. 50%

Question 201

If one domestic corporation owns stock in another one and receives a $10,000 dividend, the investing corporation is taxed on ______ of the dividend.

Answer 201

$5,000

Question 202

In accordance with Section 1035 of the Internal Revenue Code, certain exchanges of life insurance policies and annuities may occur as ______.

Answer 202

Nontaxable Exchanges

Question 203

A(n) ______ allows a policyholder to roll the cost basis from one product into another, thereby deferring recognition and tax on any capital gain realized in the exchange.

Answer 203

1035 Exchange

Question 204

The following are allowable exchanges when effected directly between trustees: 1. A life insurance policy for a(n) ______, a(n) ______, or a(n) ______. 2. An endowment contract for another ______ or a(n) ______. 3. An annuity contract for a(n) ______.

Answer 204

1a. Life Insurance Policy 1b. Endowment Contract 1c. Annuity Contract 2a. Endowment Contract 2b. Annuity Contract 3. Annuity Contract

Question 205

There will be no income tax on allowable 1035 exchanges, as long as the policies or annuities exchanged are on the same ______.

Answer 205

Life

Question 206

Although they enjoy special tax deferral privileges, 1035 exchanges raise ______ concerns which should be reviewed by a(n) ______.

Answer 206

1. Suitability | 2. Principal

Question 207

1035 exchange suitability concerns include possible ______ on the old policy, the initiation of a new ______ on the new policy, and ______ assessed on the new product.

Answer 207

1. Surrender Charges 2. Surrender Period 3. Sales Charges

Question 208

Fiscal policy is set by ______. Monetary policy is governed by ______.

Answer 208

1. Congress | 2. the Federal Reserve Board