Question 1

________ are, in essence, an insurance contract against the default of one or more borrowers.

Accepted Answer

A)   Credit default swaps
B)   CMOs
C)   ETFs
D)   Collateralized debt obligations
E)   All of the optionsF) A) and D)
G) B) and C)

Question 2

_______ are real assets.

Accepted Answer

A)   Land
B)   Machines
C)   Stocks and bonds
D)   Knowledge
E)   Land, machines, and knowledgeF) B) and C)
G) A) and B)

Question 3

Investors trade previously issued securities in the ________ market(s) .

Accepted Answer

A)   primary
B)   secondary
C)   primary and secondary
D)   derivativesE) C) and D)
F) All of the above

Question 4

Which of the following are mechanisms that have evolved to mitigate potential agency problems? I)  Using the firm's stock options for compensation
II. Hiring bickering family members as corporate spies
III. Boards of directors forcing out underperforming management
IV. Security analysts monitoring the firm closely
V. Takeover threats

Accepted Answer

A)   II and V
B)   I, III, and IV
C)   I, III, IV, and V
D)   III, IV, and V
E)   I, III, and VF) A) and E)
G) A) and C)

Question 5

In 2016, ____________ was(were)  the most significant financial asset(s)  of U.S. commercial banks in terms of total value.

Accepted Answer

A)   loans and leases
B)   cash
C)   real estate
D)   deposits
E)   investment securitiesF) B) and E)
G) None of the above

Question 6

Financial assets

Accepted Answer

A)   directly contribute to the country's productive capacity.
B)   indirectly contribute to the country's productive capacity.
C)   contribute to the country's productive capacity, both directly and indirectly.
D)   do not contribute to the country's productive capacity, either directly or indirectly.
E)   are of no value to anyone.F) A) and B)
G) A) and C)

Question 7

The value of a derivative security

Accepted Answer

A)   depends on the value of the related security.
B)   is unable to be calculated.
C)   is unrelated to the value of the related security.
D)   has been enhanced due to the recent misuse and negative publicity regarding these instruments.
E)   is worthless today.F) A) and C)
G) C) and D)

Question 8

A disadvantage of using stock options to compensate managers is that

Accepted Answer

A)   it encourages managers to undertake projects that will increase stock price.
B)   it encourages managers to engage in empire building.
C)   it can create an incentive for managers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects.
D)   All of the above.E) A) and B)
F) C) and D)

Question 9

The Sarbanes-Oxley Act

Accepted Answer

A)   requires corporations to have more independent directors.
B)   requires the firm's CFO to personally vouch for the firm's accounting statements.
C)   prohibits auditing firms from providing other services to clients.
D)   requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements.
E)   All of the above.F) A) and B)
G) A) and C)

Question 10

Which of the following is true about mortgage-backed securities? I)  They aggregate individual home mortgages into homogeneous pools.
II)  The purchaser receives monthly interest and principal payments received from payments made on the pool.
III)  The banks that originated the mortgages maintain ownership of them.
IV)  The banks that originated the mortgages may continue to service them.

Accepted Answer

A)   II, III, and IV
B)   I, II, and IV
C)   II and IV
D)   I, III, and IV
E)   I, II, III, and IVF) All of the above
G) None of the above

Question 11

Mortgage-backed securities were created when ________ began buying mortgage loans from originators and bundling them into large pools that could be traded like any other financial asset.

Accepted Answer

A)   GNMA
B)   FNMA
C)   FHLMC
D)   FNMA and FHLMC
E)   GNMA and FNMAF) B) and E)
G) C) and D)

Question 12

_______ are examples of financial intermediaries.

Accepted Answer

A)   Commercial banks
B)   Insurance companies
C)   Investment companies
D)   Credit unions
E)   All of the optionsF) A) and E)
G) C) and E)

Question 13

New issues of securities are sold in the ________ market(s) .

Accepted Answer

A)   primary
B)   secondary
C)   over-the-counter
D)   primary and secondaryE) B) and C)
F) None of the above

Question 14

Which of the following portfolio construction methods starts with security analysis?

Accepted Answer

A)   Top-down
B)   Bottom-up
C)   Middle-out
D)   Buy and hold
E)   Asset allocationF) B) and D)
G) A) and E)

Question 15

In 2016, ____________ was the most significant asset of U.S. households in terms of total value.

Accepted Answer

A)   real estate
B)   mutual fund shares
C)   debt securities
D)   life insurance reserves
E)   pension reservesF) C) and E)
G) B) and E)

Exam 1: The Investment Environment

Which of the following portfolio construction methods starts with security analysis?

Correct Answer
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_______ are real assets.

Correct Answer
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Correct Answer
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_______ are examples of financial intermediaries.

Correct Answer
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In 2016, ____________ was the most significant asset of U.S. households in terms of total value.

Correct Answer
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The Sarbanes-Oxley Act

Correct Answer
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The value of a derivative security

Correct Answer
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Mortgage-backed securities were created when ________ began buying mortgage loans from originators and bundling them into large pools that could be traded like any other financial asset.

Correct Answer
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In 2016, ____________ was(were) the most significant financial asset(s) of U.S. commercial banks in terms of total value.

Correct Answer
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Correct Answer
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________ are, in essence, an insurance contract against the default of one or more borrowers.

Correct Answer
verified

Investors trade previously issued securities in the ________ market(s) .

Correct Answer
verified

A disadvantage of using stock options to compensate managers is that

Correct Answer
verified

New issues of securities are sold in the ________ market(s) .

Correct Answer
verified

Financial assets

Correct Answer
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Exam 1: The Investment Environment

Which of the following portfolio construction methods starts with security analysis?

Correct AnswerverifiedShow Answer

_______ are real assets.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

_______ are examples of financial intermediaries.

Correct AnswerverifiedShow Answer

In 2016, ____________ was the most significant asset of U.S. households in terms of total value.

Correct AnswerverifiedShow Answer

The Sarbanes-Oxley Act

Correct AnswerverifiedShow Answer

The value of a derivative security

Correct AnswerverifiedShow Answer

Mortgage-backed securities were created when ________ began buying mortgage loans from originators and bundling them into large pools that could be traded like any other financial asset.

Correct AnswerverifiedShow Answer

In 2016, ____________ was(were) the most significant financial asset(s) of U.S. commercial banks in terms of total value.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

________ are, in essence, an insurance contract against the default of one or more borrowers.

Correct AnswerverifiedShow Answer

Investors trade previously issued securities in the ________ market(s) .

Correct AnswerverifiedShow Answer

A disadvantage of using stock options to compensate managers is that

Correct AnswerverifiedShow Answer

New issues of securities are sold in the ________ market(s) .

Correct AnswerverifiedShow Answer

Financial assets

Correct AnswerverifiedShow Answer

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