BFI344 FINAL EXAM

United Methodists University

Department of Banking and Finance
BFI344 Section 1 Final Exam
Name: ___________________________ID#: ________Date: _______ Score: _______
Instruction: Answer all questions accurately and precisely. Points will be deducted for
improper grammar.
1. Sources of risk for an investment include _____________ a. variance of returns and
business risk. b. coefficient of variation of returns and financial risk. c. business risk and
financial risk. d. variance of returns and coefficient of variation of returns. e. variance of
returns and economic risk.
2. Asset allocation is_________________ a. The process of dividing funds into asset
classes. b. Concerned with returns variability. c. Concerned with the risk associated with
different assets. d. Concerned with the relationship among investments’ returns. e. All of
the above.
3. The Markowitz model assumes most investors are: a. risk averse. b risk neutral. c.
risk seekers. d. risk moderators.
4. The asset allocation decision must involve a consideration of a. Cultural
differences. b. The objectives stated in the investor’s policy statement. c. The types of
assets that are appropriate for the investor. d. The risk associated with different
investments. e. All of the above.
5. ____ gains are taxable and occur when an asset is sold for more than its basis (the
value of the asset when it was purchased by the original owner or inherited by the heirs
of the original owner). a. Realized capital b. Income c. Portfolio d. Nominal e. Real
6. The three contingencies life insurance covers
are______________________________, _______________________________ and
__________________________________.
7. The ability to sell an asset quickly at a fair price is associated
with_________________
8. The uncertainty of investment returns associated with how a firm finances its
investments is known as__________
9. Some risks connected to investment are_________________,
___________________, _________________________________,
_______________________________ etc.
10. Once the portfolio is constructed, it must be continuously___________
11. Name the types of portfolio.
12. What is portfolio management?
13. Name five elements of investment.
YOUR SUCCESS DEPENDS ON YOURSELF
BFI344 FINAL EXAM
14. Discuss the overall purpose people have for investing. Define investment.
15. As a student, are you saving or borrowing? Why?
16. List and discuss the two concepts of investment.
17. Define investment objective and list its four approaches.
18. In a tabular form give the difference between investor and speculator in terms of
planning horizon, basis for decisions and leverage.
19. Name at least five investment alternatives.
20. What makes an investment liquid?
21. The current outlay of money to guard against a potentially large future loss is
commonly known a. Asset management. b. Portfolio management. c. Minimizing
risk. d. Loss control. e. Insurance
22. In an investment policy statement the objectives of an investor are expressed in
terms of a. risk and return b. risk c. return d. time horizon e. liquidity needs
23. Which of the following is not a step in the portfolio management process?
a. Develop a policy statement. b. Study current financial and economic conditions. c.
Construct the portfolio. d. Monitor investor’s needs and market conditions. e. Sell all
assets and reinvestment proceeds at least once a year.
24. The first step in the investment process is the development of a(n) ______ a.
Objective statement. b. Policy statement. c. Financial statement. d. Statement of cash
needs. e. Statement of cash flows.
25. Which of the following is not considered to be an investment objective? a. Capital
preservation b. Capital appreciation c. Current income d. Total return. None of the
above (that is, all are considered investment objectives)
26. The future value of $50,000 invested today, at the end of 10 years assuming an
interest rate of 7.5% per year, with semiannual compounding, is _______ a.
$104,407.60 b. $103,051.58 c. $123,510.52 d. $210,673.43 e. $105,117.46
27. Investors are willing to forgo current consumption in order to increase future
consumption for a nominal rate of interest. True/False
28. The holding period return (HPR) is equal to the holding period yield (HPY) stated as
a percentage. True/False
29. You purchased 100 shares for $34 a share and later sold it for $39 a share.
Compute your HPR and HPY on your investment.
30. On January 1, 2020, you started saving $1,000 per month with a saving club and on
December 31, 2020, you received $15,000. What is the return on your savings?
Bonus: What is the full name of your instructor.

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