Question 1

Money market securities

Accepted Answer

A)  are short term. 
B)  are highly marketable. 
C)  are generally very low risk. 
D)  are highly marketable and are generally very low risk. 
E)  All of the options. 
A)  are short term. 
B)  are highly marketable. 
C)  are generally very low risk. 
D)  are highly marketable and are generally very low risk. 
E)  All of the options.

Question 2

_______ are financial assets.

Accepted Answer

A)  Bonds 
B)  Machines 
C)  Stocks 
D)  Bonds and stocks 
E)  Bonds, machines, and stocks 
A)  Bonds 
B)  Machines 
C)  Stocks 
D)  Bonds and stocks 
E)  Bonds, machines, and stocks

Question 3

According to the Economic Growth, Regulatory Relief and Consumer Protection Act of 2019 many larger banks are no longer considered ________________.

Accepted Answer

A)  insurable 
B)  high risk 
C)  insolvent 
D)  systematically important 
E)  All of the options. 
A)  insurable 
B)  high risk 
C)  insolvent 
D)  systematically important 
E)  All of the options.

Question 4

The smallest component of domestic net worth in 2018 was

Accepted Answer

A)  nonresidential real estate. 
B)  residential real estate. 
C)  inventories. 
D)  consumer durables. 
E)  equipment and software. 
A)  nonresidential real estate. 
B)  residential real estate. 
C)  inventories. 
D)  consumer durables. 
E)  equipment and software.

Question 5

The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of

Accepted Answer

A)  credit enhancement. 
B)  credit swap. 
C)  unbundling. 
D)  derivatives. 
A)  credit enhancement. 
B)  credit swap. 
C)  unbundling. 
D)  derivatives.

Question 6

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

Accepted Answer

A)  primary 
B)  secondary 
C)  over-the-counter 
D)  primary and secondary 
A)  primary 
B)  secondary 
C)  over-the-counter 
D)  primary and secondary

Question 7

In 2018, ____________ was(were) the least significant liability(ies) of U.S. nonfinancial businesses in terms of total value.

Accepted Answer

A)  bonds and mortgages 
B)  bank loans 
C)  inventories 
D)  trade debt 
E)  marketable securities 
A)  bonds and mortgages 
B)  bank loans 
C)  inventories 
D)  trade debt 
E)  marketable securities

Question 8

________ specialize in helping companies raise capital by selling securities.

Accepted Answer

A)  Commercial bankers 
B)  Investment bankers 
C)  Investment issuers 
D)  Credit raters 
A)  Commercial bankers 
B)  Investment bankers 
C)  Investment issuers 
D)  Credit raters

Question 9

In terms of total value, the most significant liability(ies) of U.S. nonfinancial businesses in 2018 was(were)

Accepted Answer

A)  bank loans. 
B)  bonds and mortgages. 
C)  trade debt. 
D)  other loans. 
E)  marketable securities. 
A)  bank loans. 
B)  bonds and mortgages. 
C)  trade debt. 
D)  other loans. 
E)  marketable securities.

Question 10

Financial assets permit all of the following except

Accepted Answer

A)  consumption timing. 
B)  allocation of risk. 
C)  separation of ownership and control. 
D)  elimination of risk. 
A)  consumption timing. 
B)  allocation of risk. 
C)  separation of ownership and control. 
D)  elimination of risk.

Question 11

Security selection refers to

Accepted Answer

A)  choosing which securities to hold based on their valuation. 
B)  investing only in "safe" securities. 
C)  the allocation of assets into broad asset classes. 
D)  top-down analysis. 
A)  choosing which securities to hold based on their valuation. 
B)  investing only in "safe" securities. 
C)  the allocation of assets into broad asset classes. 
D)  top-down analysis.

Question 12

A fixed-income security pays

Accepted Answer

A)  a fixed level of income for the life of the owner. 
B)  a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security. 
C)  a variable level of income for owners on a fixed income. 
D)  a fixed or variable income stream at the option of the owner. 
A)  a fixed level of income for the life of the owner. 
B)  a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security. 
C)  a variable level of income for owners on a fixed income. 
D)  a fixed or variable income stream at the option of the owner.

Question 13

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

Question 14

The domestic net worth of the U.S. in 2018 was

Accepted Answer

A)  $9.350 trillion. 
B)  $22.642 trillion. 
C)  $32.539 trillion. 
D)  $72.683 trillion. 
E)  $80.983 trillion. 
A)  $9.350 trillion. 
B)  $22.642 trillion. 
C)  $32.539 trillion. 
D)  $72.683 trillion. 
E)  $80.983 trillion.

Question 15

In 2018, ____________ was(were) the most significant real asset(s) of U.S. nonfinancial businesses in terms of total value.

Accepted Answer

A)  equipment and software 
B)  inventory 
C)  real estate 
D)  trade credit 
E)  marketable securities 
A)  equipment and software 
B)  inventory 
C)  real estate 
D)  trade credit 
E)  marketable securities

Question 16

Theoretically, takeovers should result in

Accepted Answer

A)  improved management. 
B)  increased stock price. 
C)  increased benefits to existing management of the taken-over firm. 
D)  improved management and increased stock price. 
E)  All of the options. 
A)  improved management. 
B)  increased stock price. 
C)  increased benefits to existing management of the taken-over firm. 
D)  improved management and increased stock price. 
E)  All of the options.

Question 17

Which of the following are mechanisms that have evolved to mitigate potential agency problems? I) Using the firm's stock options for compensationII) Hiring bickering family members as corporate spiesIII) Boards of directors forcing out underperforming managementIV) Security analysts monitoring the firm closelyV) 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 V 
A)  II and V 
B)  I, III, and IV 
C)  I, III, IV, and V 
D)  III, IV, and V 
E)  I, III, and V

Question 18

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. 
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.

Question 19

In 2018, ____________ was(were) the most significant liability(ies) 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 securities 
A)  loans and leases 
B)  cash 
C)  real estate 
D)  deposits 
E)  investment securities

Question 20

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. 
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.

Exam 1: The Investment Environment

Money market securities

_______ are financial assets.

According to the Economic Growth, Regulatory Relief and Consumer Protection Act of 2019 many larger banks are no longer considered ________________.

The smallest component of domestic net worth in 2018 was

The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of

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

In 2018, ____________ was(were) the least significant liability(ies) of U.S. nonfinancial businesses in terms of total value.

________ specialize in helping companies raise capital by selling securities.

In terms of total value, the most significant liability(ies) of U.S. nonfinancial businesses in 2018 was(were)

Financial assets permit all of the following except

Security selection refers to

A fixed-income security pays

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

The domestic net worth of the U.S. in 2018 was

In 2018, ____________ was(were) the most significant real asset(s) of U.S. nonfinancial businesses in terms of total value.

Theoretically, takeovers should result in

The Sarbanes-Oxley Act

In 2018, ____________ was(were) the most significant liability(ies) of U.S. commercial banks in terms of total value.

A disadvantage of using stock options to compensate managers is that

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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