Question 1

An intermediary that pools and manages funds for many investors is called ________.

Accepted Answer

A)  an investment company 
B)  a credit union 
C)  an investment banker 
D)  a commercial bank 
A)  an investment company 
B)  a credit union 
C)  an investment banker 
D)  a commercial bank

Question 2

Suppose an investor is considering one of two investments that are identical in all respects except for risk. If the investor anticipates a fair return for the risk of the security he invests in, he can expect to ________.

Accepted Answer

A)  earn no more than the Treasury-bill rate on either security. 
B)  pay less for the security that has higher risk. 
C)  pay less for the security that has lower risk. 
D)  earn more if interest rates are lower. 
A)  earn no more than the Treasury-bill rate on either security. 
B)  pay less for the security that has higher risk. 
C)  pay less for the security that has lower risk. 
D)  earn more if interest rates are lower.

Question 3

An investment adviser has decided to purchase gold, real estate, stocks, and bonds in equal amounts. This decision reflects which part of the investment process?

Accepted Answer

A)  asset allocation 
B)  investment analysis 
C)  portfolio analysis 
D)  security selection 
A)  asset allocation 
B)  investment analysis 
C)  portfolio analysis 
D)  security selection

Question 4

When a pass-through mortgage security is issued, what does the issuing agency expect to receive?

Accepted Answer

A)  the amount of the original loan plus a servicing fee 
B)  the principal and interest that are paid by the homeowner 
C)  the principal and interest that are paid by the homeowner, minus a servicing fee 
D)  the interest paid by the homeowner, plus a servicing fee 
A)  the amount of the original loan plus a servicing fee 
B)  the principal and interest that are paid by the homeowner 
C)  the principal and interest that are paid by the homeowner, minus a servicing fee 
D)  the interest paid by the homeowner, plus a servicing fee

Question 5

________ is (are) real assets.

Accepted Answer

A)  Bonds 
B)  Production equipment 
C)  Stocks 
D)  Life insurance 
A)  Bonds 
B)  Production equipment 
C)  Stocks 
D)  Life insurance

Question 6

The average rate of return on U.S. Treasury bills since 1926 was ________.

Accepted Answer

A)  less than 1% 
B)  less than 3% 
C)  less than 4% 
D)  less than 7% 
A)  less than 1% 
B)  less than 3% 
C)  less than 4% 
D)  less than 7%

Question 7

________ portfolio construction starts with selecting attractively priced securities.

Accepted Answer

A)  Bottom-up 
B)  Top-down 
C)  Upside-down 
D)  Side-to-side 
A)  Bottom-up 
B)  Top-down 
C)  Upside-down 
D)  Side-to-side

Question 8

Which of the following is not a money market security?

Accepted Answer

A)  U.S. Treasury bill 
B)  6-month maturity certificate of deposit 
C)  common stock 
D)  All of the options. 
A)  U.S. Treasury bill 
B)  6-month maturity certificate of deposit 
C)  common stock 
D)  All of the options.

Question 9

The historical average rate of return on large company stocks since 1926 has been ________.

Accepted Answer

A)  almost 5% 
B)  almost 8% 
C)  almost 12% 
D)  almost 20% 
A)  almost 5% 
B)  almost 8% 
C)  almost 12% 
D)  almost 20%

Question 10

Accounting scandals can often be attributed to a particular concept in the study of finance known as the ________.

Accepted Answer

A)  agency problem 
B)  risk-return trade-off 
C)  allocation of risk 
D)  securitization 
A)  agency problem 
B)  risk-return trade-off 
C)  allocation of risk 
D)  securitization

Question 11

________ portfolio construction starts with asset allocation.

Accepted Answer

A)  Bottom-up 
B)  Top-down 
C)  Upside-down 
D)  Side-to-side 
A)  Bottom-up 
B)  Top-down 
C)  Upside-down 
D)  Side-to-side

Question 12

Which one of the following best describes the purpose of derivatives markets?

Accepted Answer

A)  Transferring risk from one party to another. 
B)  Investing for a short time period to earn a small rate of return. 
C)  Investing for retirement. 
D)  Earning interest income. 
A)  Transferring risk from one party to another. 
B)  Investing for a short time period to earn a small rate of return. 
C)  Investing for retirement. 
D)  Earning interest income.

Question 13

Stone Harbor Products takes out a bank loan. It receives $100,000 and signs a promissory note to pay back the loan over 5 years. In this transaction, ________.

Accepted Answer

A)  a new financial asset was created 
B)  a financial asset was traded for a real asset 
C)  a financial asset was destroyed 
D)  a real asset was created 
A)  a new financial asset was created 
B)  a financial asset was traded for a real asset 
C)  a financial asset was destroyed 
D)  a real asset was created

Question 14

In recent years the greatest dollar amount of securitization occurred for which type of loan?

Accepted Answer

A)  home mortgages 
B)  credit card debt 
C)  automobile loans 
D)  equipment leasing 
A)  home mortgages 
B)  credit card debt 
C)  automobile loans 
D)  equipment leasing

Question 15

Financial institutions that specialize in assisting corporations in primary market transactions are called ________.

Accepted Answer

A)  mutual funds 
B)  investment bankers 
C)  pension funds 
D)  globalization specialists 
A)  mutual funds 
B)  investment bankers 
C)  pension funds 
D)  globalization specialists

Question 16

Until 1999, the ________ Act separated commercial banking and investment banking activities.

Accepted Answer

A)  Dodd-Frank Wall Street Reform and Consumer Protection 
B)  Sarbanes-Oxley 
C)  Glass-Steagall 
D)  Volcker Rule 
A)  Dodd-Frank Wall Street Reform and Consumer Protection 
B)  Sarbanes-Oxley 
C)  Glass-Steagall 
D)  Volcker Rule

Question 17

________ are examples of financial intermediaries.

Accepted Answer

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

Question 18

Market signals will help to allocate capital efficiently only if investors are acting ________.

Accepted Answer

A)  on the basis of their individual hunches 
B)  as directed by financial experts 
C)  as dominant forces in the economy 
D)  on accurate information 
A)  on the basis of their individual hunches 
B)  as directed by financial experts 
C)  as dominant forces in the economy 
D)  on accurate information

Question 19

The material wealth of society is determined by the economy's ________, which is a function of the economy's ________.

Accepted Answer

A)  investment bankers; financial assets 
B)  investment bankers; real assets 
C)  productive capacity; financial assets 
D)  productive capacity; real assets 
A)  investment bankers; financial assets 
B)  investment bankers; real assets 
C)  productive capacity; financial assets 
D)  productive capacity; real assets

Question 20

According to the Flow of Funds Accounts of the United States, the largest single asset of U.S. households is ________.

Accepted Answer

A)  mutual fund shares 
B)  real estate 
C)  pension reserves 
D)  corporate equity 
A)  mutual fund shares 
B)  real estate 
C)  pension reserves 
D)  corporate equity

Exam 1: Investments: Background and Issues

An intermediary that pools and manages funds for many investors is called ________.

Suppose an investor is considering one of two investments that are identical in all respects except for risk. If the investor anticipates a fair return for the risk of the security he invests in, he can expect to ________.

An investment adviser has decided to purchase gold, real estate, stocks, and bonds in equal amounts. This decision reflects which part of the investment process?

When a pass-through mortgage security is issued, what does the issuing agency expect to receive?

________ is (are) real assets.

The average rate of return on U.S. Treasury bills since 1926 was ________.

________ portfolio construction starts with selecting attractively priced securities.

Which of the following is not a money market security?

The historical average rate of return on large company stocks since 1926 has been ________.

Accounting scandals can often be attributed to a particular concept in the study of finance known as the ________.

________ portfolio construction starts with asset allocation.

Which one of the following best describes the purpose of derivatives markets?

Stone Harbor Products takes out a bank loan. It receives $100,000 and signs a promissory note to pay back the loan over 5 years. In this transaction, ________.

In recent years the greatest dollar amount of securitization occurred for which type of loan?

Financial institutions that specialize in assisting corporations in primary market transactions are called ________.

Until 1999, the ________ Act separated commercial banking and investment banking activities.

________ are examples of financial intermediaries.

Market signals will help to allocate capital efficiently only if investors are acting ________.

The material wealth of society is determined by the economy's ________, which is a function of the economy's ________.

According to the Flow of Funds Accounts of the United States, the largest single asset of U.S. households is ________.

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Filters

The material wealth of society is determined by the economy's , which is a function of the economy's .