Metropolitan Community College
Personal Finance (FINA 1200)
Quiz 4 Study Guide
Chapter 13:
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Know the ways common stock holders earn money on their investment (dividends & capital gains)
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Understand the impact diversification has on volatility and return (Reduces volatility & averages out the investor return)
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Identify which strategy avoids risks and responsibilities of investment timing when purchases are made regularly (dollar-cost averaging)
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Identify characteristics of a conservative investment philosophy (accepts little risk)
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Know investment strategy based upon time horizon of 0 to 5 years with majority in bonds and cash (conservative) Slide 24
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Identify reasons why people invest (achieve financial goals, increase income, gain wealth)
Chapter 14:
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Know the role of a P/E ratio in determining growth rates for a firm
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Understand the role of a bond and who issues them (government, corporation, municipality)
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Be able to calculate the real rate of return on an investment if given the taxable equivalent
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 and inflation rate
Know how to calculate dividend income given total outstanding shares and dividends declared
Understand the relationship of yield to maturity to coupon rate for a bond purchased at face value
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Know the benefits of treasury securities (safe income source, good liquidity, easy to acquire)
Chapter 15:
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Know the type of mutual fund fee paid by an investor for advertising, marketing and operating expenses of the fund (12b-1 fee)
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Know the type of mutual fund that does NOT assess a sales charge at the time of the investment purchase (no load)
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Understand how the net asset value increases (NAV) in a mutual fund (increases as securities price increases)
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Know what federal income taxes must be paid by mutual fund investors (dividend distributions, capital gains distributions, capital gains from selling shares)
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Know the steps in selecting a mutual fund (review investment philosophy, eliminate funds inappropriate for investment goals, locate sources of performance data, screen and compare funds)
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Understand the characteristics of mutual funds such as a value fund (underpriced)
Chapter 16:
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Understand the option type when the investor does not own the asset (naked option)
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Know the role of an option in terms of what is provides (the right to buy or sell at a specified price)
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Know how to calculate after tax return based upon the investor tax bracket
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Identify examples of direct ownership in real estate investments (residential & commercial and raw lots)
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Know the time period when rental income is exempt from federal taxation (14 days or less)
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Identify the types of speculative investments (high risk, options, futures contracts)
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Calculate how depreciation affects taxable income on rent received (building price divided by depreciation useful life – bottom of page 488)