Question 1

Real assets are ________.

Accepted Answer

A)   assets used to produce goods and services
B)   always the same as financial assets
C)   always equal to liabilities
D)   claims on a company's incomeE) A) and D)
F) B) and C)

Question 2

Commodity and derivative markets allow firms to adjust their ________.

Accepted Answer

A)   management styles
B)   focus from their main line of business to their investment portfolios
C)   ways of doing business so that they'll always have positive returns
D)   exposure to various business risksE) C) and D)
F) A) and B)

Question 3

Security selection refers to the ________.

Accepted Answer

A)   allocation of the investment portfolio across broad asset classes
B)   analysis of the value of securities
C)   choice of specific securities within each asset class
D)   top-down method of investingE) A) and D)
F) All of the above

Question 4

Net worth represents ________ of the liabilities and net worth of commercial banks.

Accepted Answer

A)   about 51%
B)   about 91%
C)   about 11%
D)   about 31%E) A) and D)
F) B) and C)

Question 5

Active trading in markets and competition among securities analysts helps ensure that:
I. Security prices approach informational efficiency.
II. Riskier securities are priced to offer higher potential returns.
III. Investors are unlikely to be able to consistently find under- or overvalued securities.

Accepted Answer

A)   I only
B)   I and II only
C)   II and III only
D)   I, II, and IIIE) A) and B)
F) A) and C)

Question 6

After considering current market conditions, an investor decides to place 60% of her funds in equities and the rest in bonds. This is an example of ________.

Accepted Answer

A)   asset allocation
B)   security analysis
C)   top-down portfolio management
D)   passive managementE) A) and D)
F) B) and C)

Question 7

The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but which one of the following?

Accepted Answer

A)   Required that corporations have more independent directors.
B)   Required that the CFO personally vouch for the corporation's financial statements.
C)   Required that firms could no longer employ investment bankers to sell securities to the public.
D)   Required the creation of a new board to oversee the auditing of public companies.E) B) and D)
F) A) and D)

Question 8

Which one of the following firms falsely claimed to have a $4.8 billion bank account, eventually resulting in the firm's bankruptcy?

Accepted Answer

A)   WorldCom
B)   Enron
C)   Parmalat
D)   Global CrossingE) All of the above
F) A) and B)

Question 9

Real assets in the economy include all but which one of the following?

Accepted Answer

A)   land
B)   buildings
C)   consumer durables
D)   common stockE) B) and C)
F) A) and B)

Question 10

Which of the following is (are)  true about nonconforming mortgage loans?

Accepted Answer

A)   They are also known as subprime loans.
B)   They have higher default risk than conforming loans.
C)   They were able to be offered without due diligence.
D)   All of the options are true.E) A) and D)
F) A) and C)

Question 11

The inability of shareholders to influence the decisions of managers, despite overwhelming shareholder support, is a breakdown in what process or mechanism?

Accepted Answer

A)   auditing
B)   public finance
C)   corporate governance
D)   public reportingE) C) and D)
F) B) and D)

Question 12

The success of common stock investments depends on the success of ________.

Accepted Answer

A)   derivative securities
B)   fixed-income securities
C)   the firm and its real assets
D)   government methods of allocating capitalE) B) and C)
F) A) and C)

Question 13

________ is a mechanism for mitigating potential agency problems.

Accepted Answer

A)   Tying income of managers to success of the firm
B)   Directors defending top management
C)   Antitakeover strategies
D)   All of the options.E) A) and C)
F) None of the above

Question 14

In a market economy, capital resources are primarily allocated by ________.

Accepted Answer

A)   governments
B)   corporation CEOs
C)   financial markets
D)   investment bankersE) A) and C)
F) A) and D)

Question 15

Real assets represent about ________ of total assets for commercial banks.

Accepted Answer

A)   1%
B)   15%
C)   25%
D)   40%E) None of the above
F) C) and D)

Question 16

Money market securities are characterized by:
I. Maturity less than 1 year
II. Safety of the principal investment
III. Low rates of return

Accepted Answer

A)   I only
B)   I and II only
C)   I and III only
D)   I, II, and IIIE) B) and D)
F) All of the above

Question 17

The combined liabilities of American households represent approximately ________ of combined assets.

Accepted Answer

A)   11%
B)   14%
C)   25%
D)   33%E) C) and D)
F) B) and C)

Question 18

Which of the following is (are)  true about hedge funds?
I. They are open to institutional investors.
II. They are open to wealthy individuals.
III. They are more likely than mutual funds to pursue simple strategies.

Accepted Answer

A)   I and II only
B)   I and III only
C)   II and III only
D)   I, II, and IIIE) None of the above
F) A) and D)

Question 19

The difference between LIBOR and the Treasury-bill rate

Accepted Answer

A)   is called the TED spread.
B)   measures credit risk in the banking sector.
C)   was very low just before the 2008 financial crisis.
D)   All of the options.E) A) and C)
F) None of the above

Exam 1: Investments: Background and Issues

________ is a mechanism for mitigating potential agency problems.

Correct Answer
verified

Which of the following is (are) true about hedge funds? I. They are open to institutional investors. II. They are open to wealthy individuals. III. They are more likely than mutual funds to pursue simple strategies.

Correct Answer
verified

The inability of shareholders to influence the decisions of managers, despite overwhelming shareholder support, is a breakdown in what process or mechanism?

Correct Answer
verified

The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but which one of the following?

Correct Answer
verified

The success of common stock investments depends on the success of ________.

Correct Answer
verified

The difference between LIBOR and the Treasury-bill rate

Correct Answer
verified

The combined liabilities of American households represent approximately ________ of combined assets.

Correct Answer
verified

Correct Answer
verified

Which of the following is (are) true about nonconforming mortgage loans?

Correct Answer
verified

After considering current market conditions, an investor decides to place 60% of her funds in equities and the rest in bonds. This is an example of ________.

Correct Answer
verified

Which one of the following firms falsely claimed to have a $4.8 billion bank account, eventually resulting in the firm's bankruptcy?

Correct Answer
verified

Real assets are ________.

Correct Answer
verified

In a market economy, capital resources are primarily allocated by ________.

Correct Answer
verified

Money market securities are characterized by: I. Maturity less than 1 year II. Safety of the principal investment III. Low rates of return

Correct Answer
verified

Security selection refers to the ________.

Correct Answer
verified

Real assets in the economy include all but which one of the following?

Correct Answer
verified

Real assets represent about ________ of total assets for commercial banks.

Correct Answer
verified

Net worth represents ________ of the liabilities and net worth of commercial banks.

Correct Answer
verified

Commodity and derivative markets allow firms to adjust their ________.

Correct Answer
verified

Exam 1: Investments: Background and Issues

________ is a mechanism for mitigating potential agency problems.

Correct AnswerverifiedShow Answer

Which of the following is (are) true about hedge funds? I. They are open to institutional investors. II. They are open to wealthy individuals. III. They are more likely than mutual funds to pursue simple strategies.

Correct AnswerverifiedShow Answer

The inability of shareholders to influence the decisions of managers, despite overwhelming shareholder support, is a breakdown in what process or mechanism?

Correct AnswerverifiedShow Answer

The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but which one of the following?

Correct AnswerverifiedShow Answer

The success of common stock investments depends on the success of ________.

Correct AnswerverifiedShow Answer

The difference between LIBOR and the Treasury-bill rate

Correct AnswerverifiedShow Answer

The combined liabilities of American households represent approximately ________ of combined assets.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is (are) true about nonconforming mortgage loans?

Correct AnswerverifiedShow Answer

After considering current market conditions, an investor decides to place 60% of her funds in equities and the rest in bonds. This is an example of ________.

Correct AnswerverifiedShow Answer

Which one of the following firms falsely claimed to have a $4.8 billion bank account, eventually resulting in the firm's bankruptcy?

Correct AnswerverifiedShow Answer

Real assets are ________.

Correct AnswerverifiedShow Answer

In a market economy, capital resources are primarily allocated by ________.

Correct AnswerverifiedShow Answer

Money market securities are characterized by: I. Maturity less than 1 year II. Safety of the principal investment III. Low rates of return

Correct AnswerverifiedShow Answer

Security selection refers to the ________.

Correct AnswerverifiedShow Answer

Real assets in the economy include all but which one of the following?

Correct AnswerverifiedShow Answer

Real assets represent about ________ of total assets for commercial banks.

Correct AnswerverifiedShow Answer

Net worth represents ________ of the liabilities and net worth of commercial banks.

Correct AnswerverifiedShow Answer

Commodity and derivative markets allow firms to adjust their ________.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified