Question

42. Lisa put 25% of her money into growth stocks, another 25% in government bonds, 10% in gold, and the rest in the bank for emergencies. Lisa's apparent objective is: A) speculation. B) concentration. C) diversification. D) risk inversion 43. Buying stock on margin allows an investor to borrow funds and buy shares of a stock that hopefully then appreciates. This _ the potential return to the investor and the risk A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases 44. Every time someone sells a stock believing that the price will soon decrease, someone else buys the security: A) believing that the price will increase. B) hoping that the price will decrease. C) in order to increase the price. D) trying to decrease the price. 45. Which of the following companies faces the problem of undercapitalization? A) A large corporation that has been hit with a major lawsuit because one of its products has a design flaw that has led to serious injuries. B) A small new company struggling because it has insufficient start-up funds. C) A medium sized company that has decided to buy out a smaller competitor. D) An electric utility that has recently experienced a significant increase in the cost of coal and labor. 46. Akiko realizes the importance of developing a_ for her interior design business. Akiko knows of no better way of establishing revenue expectations and allocating resources in order to achieve the goals of her firm. A) market prediction B) financial forecast C) budget D) cash flow analysis

Answer 1

1. C. Diversification. The investment in different kind of asset classes which have varying degrees of risk. Gold and Govt. bonds are mostly conservative investments with very less risk and less return. Growth Stocks provide good returns but have high risk profile. So, it clear diversification.

2. B.As there is more money to invest, there is higher return but the return depends on right stock picking and thus risk is increased due to higher quantum of investment and also there need to be a payment of interest on borrowed capital if money is not made.

3. B. Buying is mostly based on the hope of increment. There is no sure way of predicting an increment.

4. B. Small startup not able to fund its costs is obviously undercapitalized as they are not able to perform business as usual, while others will face problems but not really facing the undercapitalization problem. Large firms are generally well capitalized and utilities mostly get subsidized.

5. C. Budget is a plan for establishing expectations and allocating resources for appropriate and justified usage.