Question 1

In 2018, which of the following financial assets make up the second highest proportion of the financial assets held by U.S. households?

Accepted Answer

A)  Corporate equity 
B)  Life insurance reserves 
C)  Mutual fund shares 
D)  Debt securities 
E)  Personal trusts 
A)  Corporate equity 
B)  Life insurance reserves 
C)  Mutual fund shares 
D)  Debt securities 
E)  Personal trusts

Question 2

The largest 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 3

________ 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 options 
A)  Credit default swaps 
B)  CMOs 
C)  ETFs 
D)  Collateralized debt obligations 
E)  All of the options

Question 4

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. 
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.

Question 5

In 2018, ____________ were the most significant liability of U.S. households in terms of total value.

Accepted Answer

A)  credit cards 
B)  mortgages 
C)  bank loans 
D)  student loans 
E)  other forms of debt 
A)  credit cards 
B)  mortgages 
C)  bank loans 
D)  student loans 
E)  other forms of debt

Question 6

_______ are examples of financial intermediaries.

Accepted Answer

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

Question 7

A debt security pays

Accepted Answer

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

Question 8

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

Accepted Answer

A)  cash and deposits 
B)  trade credit 
C)  trade debt 
D)  inventory 
E)  marketable securities 
A)  cash and deposits 
B)  trade credit 
C)  trade debt 
D)  inventory 
E)  marketable securities

Question 9

In 2018, ____________ 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 reserves 
A)  real estate 
B)  mutual fund shares 
C)  debt securities 
D)  life insurance reserves 
E)  pension reserves

Question 10

In 2018, ____________ was the most significant real asset of U.S. households in terms of total value.

Accepted Answer

A)  consumer durables 
B)  automobiles 
C)  real estate 
D)  mutual fund shares 
E)  bank loans 
A)  consumer durables 
B)  automobiles 
C)  real estate 
D)  mutual fund shares 
E)  bank loans

Question 11

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. 
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.

Question 12

Financial intermediaries exist because small investors cannot efficiently

Accepted Answer

A)  diversify their portfolios. 
B)  assess credit risk of borrowers. 
C)  advertise for needed investments. 
D)  diversify their portfolios and assess credit risk of borrowers. 
E)  All of the options. 
A)  diversify their portfolios. 
B)  assess credit risk of borrowers. 
C)  advertise for needed investments. 
D)  diversify their portfolios and assess credit risk of borrowers. 
E)  All of the options.

Question 13

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

Question 14

An example of a derivative security is

Accepted Answer

A)  a common share of Microsoft. 
B)  a call option on Intel stock. 
C)  a commodity futures contract. 
D)  a call option on Intel stock and a commodity futures contract. 
E)  a common share of Microsoft and a call option on Intel stock. 
A)  a common share of Microsoft. 
B)  a call option on Intel stock. 
C)  a commodity futures contract. 
D)  a call option on Intel stock and a commodity futures contract. 
E)  a common share of Microsoft and a call option on Intel stock.

Question 15

Although derivatives can be used as speculative instruments, businesses most often use them to

Accepted Answer

A)  attract customers. 
B)  appease stockholders. 
C)  offset debt. 
D)  hedge risks. 
E)  enhance their balance sheets. 
A)  attract customers. 
B)  appease stockholders. 
C)  offset debt. 
D)  hedge risks. 
E)  enhance their balance sheets.

Question 16

________ were designed to concentrate the credit risk of a bundle of loans on one class of investor, leaving the other investors in the pool relatively protected from that risk.

Accepted Answer

A)  Stocks 
B)  Bonds 
C)  Derivatives 
D)  Collateralized debt obligations 
E)  All of the options 
A)  Stocks 
B)  Bonds 
C)  Derivatives 
D)  Collateralized debt obligations 
E)  All of the options

Question 17

Corporate shareholders are best protected from incompetent management decisions by

Accepted Answer

A)  the ability to engage in proxy fights. 
B)  management's control of pecuniary rewards. 
C)  the ability to call shareholder meetings. 
D)  the threat of takeover by other firms. 
E)  one-share/one-vote election rules. 
A)  the ability to engage in proxy fights. 
B)  management's control of pecuniary rewards. 
C)  the ability to call shareholder meetings. 
D)  the threat of takeover by other firms. 
E)  one-share/one-vote election rules.

Question 18

Until 1999, the ________ Act(s) prohibited banks in the United States from both accepting deposits and underwriting securities.

Accepted Answer

A)  Sarbanes-Oxley 
B)  Glass-Steagall 
C)  SEC 
D)  Sarbanes-Oxley and SEC 
E)  None of the options 
A)  Sarbanes-Oxley 
B)  Glass-Steagall 
C)  SEC 
D)  Sarbanes-Oxley and SEC 
E)  None of the options

Question 19

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

Exam 1: The Investment Environment

In 2018, which of the following financial assets make up the second highest proportion of the financial assets held by U.S. households?

The largest component of domestic net worth in 2018 was

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

The value of a derivative security

In 2018, ____________ were the most significant liability of U.S. households in terms of total value.

_______ are examples of financial intermediaries.

A debt security pays

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

In 2018, ____________ was the most significant asset of U.S. households in terms of total value.

In 2018, ____________ was the most significant real asset of U.S. households in terms of total value.

Financial assets

Financial intermediaries exist because small investors cannot efficiently

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.

An example of a derivative security is

Although derivatives can be used as speculative instruments, businesses most often use them to

________ were designed to concentrate the credit risk of a bundle of loans on one class of investor, leaving the other investors in the pool relatively protected from that risk.

Corporate shareholders are best protected from incompetent management decisions by

Until 1999, the ________ Act(s) prohibited banks in the United States from both accepting deposits and underwriting securities.

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

Filters