Question 1

Financial intermediaries exist because small investors cannot efficiently ________.

Accepted Answer

A)  diversify their portfolios 
B)  gather information 
C)  monitor their portfolios 
D)  advertise for needed investments 
E)  all of these. 
A)  diversify their portfolios 
B)  gather information 
C)  monitor their portfolios 
D)  advertise for needed investments 
E)  all of these. E

Question 2

What are the objectives of businesses issuing securities to the public?

Accepted Answer

A)  To get the best possible price for their securities. 
B)  To market the issues to the public at the lowest cost. 
C)  To issue fairly simple securities requiring little incremental analysis. 
D)  All of these are true. 
E)  None of these is true. 
A)  To get the best possible price for their securities. 
B)  To market the issues to the public at the lowest cost. 
C)  To issue fairly simple securities requiring little incremental analysis. 
D)  All of these are true. 
E)  None of these is true. D

Question 3

The value of a derivative security _______.

Accepted Answer

A)  depends on the value of the related primitive security 
B)  can only cause increased risk. 
C)  is unrelated to the value of the related primitive security 
D)  has been enhanced due the recent misuse and negative publicity regarding these instruments 
E)  is worthless today 
A)  depends on the value of the related primitive security 
B)  can only cause increased risk. 
C)  is unrelated to the value of the related primitive security 
D)  has been enhanced due the recent misuse and negative publicity regarding these instruments 
E)  is worthless today A

Question 4

Important trends changing the contemporary investment environment are

Accepted Answer

A)  globalization 
B)  securitization 
C)  bundling and unbundling 
D)  financial engineering 
E)  all of these 
A)  globalization 
B)  securitization 
C)  bundling and unbundling 
D)  financial engineering 
E)  all of these

Question 5

Firms that specialize in helping companies raise capital by selling securities are called ________.

Accepted Answer

A)  chartered banks 
B)  investment banks 
C)  trust companies 
D)  credit unions 
E)  all of these. 
A)  chartered banks 
B)  investment banks 
C)  trust companies 
D)  credit unions 
E)  all of these.

Question 6

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

Accepted Answer

A)  credit enhancement 
B)  securitization 
C)  unbundling 
D)  derivatives 
E)  none of these 
A)  credit enhancement 
B)  securitization 
C)  unbundling 
D)  derivatives 
E)  none of these

Question 7

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

Question 8

Collateralized mortgage obligations were created to

Accepted Answer

A)  aggregate individual mortgages into relatively homogeneous pools 
B)  meet the demand for mortgage-backed securities with a range of maturities 
C)  rebundle separate branches into a single unit 
D)  circumvent the requirements of Regulation Q 
E)  provide government insurance for mortgages 
A)  aggregate individual mortgages into relatively homogeneous pools 
B)  meet the demand for mortgage-backed securities with a range of maturities 
C)  rebundle separate branches into a single unit 
D)  circumvent the requirements of Regulation Q 
E)  provide government insurance for mortgages

Question 9

____________ of an investment bank.

Accepted Answer

A)  BMO Nesbitt Burns is an example 
B)  CIBC is an example 
C)  Scotia Capital is an example 
D)  a and b are examples 
E)  a and c are examples 
A)  BMO Nesbitt Burns is an example 
B)  CIBC is an example 
C)  Scotia Capital is an example 
D)  a and b are examples 
E)  a and c are examples

Question 10

Investors seeking to diversify are likely to find that their largest investment is in

Accepted Answer

A)  stocks. 
B)  bonds. 
C)  their job. 
D)  foreign securities. 
E)  cash. 
A)  stocks. 
B)  bonds. 
C)  their job. 
D)  foreign securities. 
E)  cash.

Question 11

In what roles do investment bankers perform?

Accepted Answer

A)  design securities with desirable properties 
B)  market new stock and bond issues for firms 
C)  provide advice to the firms as to market conditions,price,etc. 
D)  none of these 
E)  all of these 
A)  design securities with desirable properties 
B)  market new stock and bond issues for firms 
C)  provide advice to the firms as to market conditions,price,etc. 
D)  none of these 
E)  all of these

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 
E)  a riskless return that is fixed for life 
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 
E)  a riskless return that is fixed for life

Question 13

Money market securities ____________.

Accepted Answer

A)  are short term 
B)  are highly marketable 
C)  are generally very low risk 
D)  are short term,highly marketable,and generally very low risk 
E)  highly marketable and generally very low risk 
A)  are short term 
B)  are highly marketable 
C)  are generally very low risk 
D)  are short term,highly marketable,and generally very low risk 
E)  highly marketable and generally very low risk

Question 14

Discuss the agency problem in detail.

Accepted Answer

Managers are the agents of the sharehold

Question 15

Investment objectives

Accepted Answer

A)  must be consistent with investment constraints. 
B)  must be in direct contrast with investment constraints. 
C)  and investment constraints determine investment policies. 
D)  a and b. 
E)  a and c. 
A)  must be consistent with investment constraints. 
B)  must be in direct contrast with investment constraints. 
C)  and investment constraints determine investment policies. 
D)  a and b. 
E)  a and c.

Question 16

Financial intermediaries differ from other businesses in that both their assets and their liabilities are mostly

Accepted Answer

A)  illiquid. 
B)  owned by government. 
C)  real. 
D)  financial. 
E)  regulated. 
A)  illiquid. 
B)  owned by government. 
C)  real. 
D)  financial. 
E)  regulated.

Question 17

Stripped Treasury securities are

Accepted Answer

A)  examples of tax-induced innovations. 
B)  examples of derivative assets. 
C)  separated into an income component and a principal component. 
D)  targeted to meet the needs of investors in different income brackets 
E)  all of these are true 
A)  examples of tax-induced innovations. 
B)  examples of derivative assets. 
C)  separated into an income component and a principal component. 
D)  targeted to meet the needs of investors in different income brackets 
E)  all of these are true

Question 18

The material wealth of a society is a function of _________.

Accepted Answer

A)  all financial assets 
B)  all real assets 
C)  all financial and real assets 
D)  all physical assets 
E)  all commodities 
A)  all financial assets 
B)  all real assets 
C)  all financial and real assets 
D)  all physical assets 
E)  all commodities

Question 19

_______ is/are a real asset(s).

Accepted Answer

A)  Only land 
B)  Only machines 
C)  Only stocks and bonds 
D)  Only knowledge 
E)  Land,machines and knowledge are real assets 
A)  Only land 
B)  Only machines 
C)  Only stocks and bonds 
D)  Only knowledge 
E)  Land,machines and knowledge are real assets

Question 20

The stage an individual is in his/her life cycle will affect his/her __________.

Accepted Answer

A)  return requirements 
B)  risk tolerance 
C)  asset allocation 
D)  a and b 
E)  a,b,and c 
A)  return requirements 
B)  risk tolerance 
C)  asset allocation 
D)  a and b 
E)  a,b,and c

Exam 1: Investments: Background and Issues

Financial intermediaries exist because small investors cannot efficiently ________.

What are the objectives of businesses issuing securities to the public?

The value of a derivative security _______.

Important trends changing the contemporary investment environment are

Firms that specialize in helping companies raise capital by selling securities are called ________.

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

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

Collateralized mortgage obligations were created to

____________ of an investment bank.

Investors seeking to diversify are likely to find that their largest investment is in

In what roles do investment bankers perform?

A fixed-income security pays ____________.

Money market securities ____________.

Discuss the agency problem in detail.

Investment objectives

Financial intermediaries differ from other businesses in that both their assets and their liabilities are mostly

Stripped Treasury securities are

The material wealth of a society is a function of _________.

_______ is/are a real asset(s).

The stage an individual is in his/her life cycle will affect his/her __________.

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters