Question

1) One of the following has returned the highest rate of return on investment since 1926?:

A) U.S Treasury Bills

B) Long-term corporate bond

C) Small company stocks

D) Common stocks

2) Which type of investments are considered diversified?

A) Stock

B) Bonds

C) Derivatives

D) Mutual funds

3) A basic rule in capital budgeting is that if a project's NPV is greater than zero, then the project should be accepted.

A) True

B) False

4) You're heavily invested in 80% in stocks and you are likely to retire in five years. What would be your decision going forward based on the three choices below (select one)? Continue the current investment strategy, significantly reduce amounts invested in stocks, buy more stocks, buy junk bonds

Answer 1

1) C) small company stocks

2) D) mutual funds

Mutual funds can invest in a variety of stocks and there by creates a diversified portfolio for investors. no other option proovides this diversification benefit

3) True

yes, because positive NPV shows how much wealth generated for shareholders by accepting the project

4) significantly reduce amounts invested in stocks

The basic reason is that when you are near retirement, you have to safeguard money for future & so you can not take more risks