The common stock of BigRich Industries has just suffered a huge loss as a result of poor management and a massive strike; they may need to file Chapter 11 soon. This is an example of which type of risk:
Answer(s): C
The common stock of BigRich would be a valuable investment vehicle if the business were successful. When business fails or declines, however, common stock value suffers. Because common stockholders are at the bottom of the priority list in the event of bankruptcy, BigRich stock could become worthless. This defines business risk.
Ronnie has just created her own publishing company and, as the sole owner, she wants to protect her personal assets in a simple business structure. Which of the following would be an appropriate choice?
Answer(s): B
A limited liability company (LLC) will offer Ronnie protection for her personal assets if the company should fail. She is currently operating as a sole proprietor, with no liability protection. Ronnie does not qualify for either a limited partnership or general partnership since both require a minimum of two people. The LLC also has a more simplified business structure than a corporation and is, therefore, easier to administer.
Dollar cost averaging is NOT described by which of the following?
All choices are true about dollar cost averaging, with the exception that investors are NOT protected from losses that come from steadily declining markets. Additionally, investors may sustain a loss at redemption if the total cost of their shares exceeds the current market value
The person who creates a trust is known as:
The person who creates a trust is known as the grantor.
Based on the Employment Retirement Income Security Act (ERISA), a retirement plan may be considered QUALIFIED, if it meets all of the following criteria EXCEPT:
With regard to eligibility, the plan must cover all employees 21 and older who have worked for the employer for at least two years, and at least one year for 401(k) plans. If more than one year is required, the employee must then be vested immediately at 100%. Vesting describes the schedule by which employees gradually receive the portion of monies contributed by the employer. Qualified plans receive a more favorable tax treatment than non-qualified plans and follow strict guidelines set forth by ERISA, which are specific to how the plan assets are invested and distributed. Non-qualified plans do not have to be offered to all employees. Qualified plans must be available to everyone
An 8% bond is purchased at par $1,000. One year later, is has a market value of $980.Calculate the total return on this investment.
An investment's total return takes into account any additions from interest or dividends earned, plus any appreciation or depreciation in the investment's value. In this example, a $1,000 par value bond has depreciated to $980 or 2% ($1,000-$980 divided by $1,000). While the bond is paying 8% interest, the total return is actually 6% (8% - 2%)
Which of the following types of risk may be diversified?
A diversified portfolio of securities will greatly reduce risk. However, diversification will not reduce market risk because a general decline in the market will result in a price drop for ALL company securities
Jason Sanborn is a senior-level executive with Beanster Brew, one of the world''s largest coffee bean importers. To sweeten his contract, Beanster offered Mr. Sanborn a retirement plan that pays 57% of his salary per year for the rest of his life, beginning at age 65. Which of the following situation does this arrangement describe:
Answer(s): A
This is an example of a non-qualified retirement plan; it is also evidence of a defined benefit plan.
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