Question 1

Discuss the similarities and differences between real and financial assets.

Accepted Answer

Real assets represent the productive capacity of the firm and appear as assets on the firm's balance sheet.Financial assets are claims against the firm and thus appear as liabilities on the firm's balance sheet.On the other hand, financial assets are listed on the asset side of the balance sheet of the individuals who own them.Thus, when financial statements are aggregated across the economy, the financial assets cancel out, leaving only the real assets, which directly contribute to the productive capacity of the economy.Financial assets contribute indirectly only.
Feedback: The purpose of this question is to ascertain if the student understands the difference between real and financial assets, both in the aggregate balance sheet context and the relative contribution of the two types of assets to the productive capacity of the economy.

Question 2

The national net worth of the U.S.in 2012 was

Accepted Answer

A) $15.411 trillion. 
B) $26.431 trillion. 
C) $42.669 trillion. 
D) $48.616 trillion. 
E) $70.983 trillion. 
A) $15.411 trillion. 
B) $26.431 trillion. 
C) $42.669 trillion. 
D) $48.616 trillion. 
E) $70.983 trillion. D

Question 3

The smallest component of domestic net worth in 2012 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. C

Question 4

Theoretically, takeovers should result in

Accepted Answer

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

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

Question 6

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 7

In 2012, ____________ 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 8

Investment bankers perform which of the following role(s)

Accepted Answer

A) Market new stock and bond issues for firms 
B) Provide advice to the firms as to market conditions, price, etc. 
C) Design securities with desirable properties 
D) All of the options 
E) None of the options 
A) Market new stock and bond issues for firms 
B) Provide advice to the firms as to market conditions, price, etc. 
C) Design securities with desirable properties 
D) All of the options 
E) None of the options

Question 9

________ 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 10

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 11

In 2012, ____________ was 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 debt 
A) credit cards 
B) mortgages 
C) bank loans 
D) student loans 
E) other debt

Question 12

In 2012, ____________ 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 13

________ 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 14

The spread between the LIBOR and the Treasury-bill rate is called the

Accepted Answer

A) term spread. 
B) T-bill spread. 
C) LIBOR spread. 
D) TED spread. 
A) term spread. 
B) T-bill spread. 
C) LIBOR spread. 
D) TED spread.

Question 15

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 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 16

_______ 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 17

In 2012 _______ of the assets of U.S.households were financial assets as opposed to tangible assets.

Accepted Answer

A) 20.4% 
B) 34.2% 
C) 68.8% 
D) 71.7% 
E) 82.5% 
A) 20.4% 
B) 34.2% 
C) 68.8% 
D) 71.7% 
E) 82.5%

Question 18

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 19

_________ financial asset(s).

Accepted Answer

A) Buildings are 
B) Land is a 
C) Derivatives are 
D) U.S.agency bonds are 
E) Derivatives and U.S.agency bonds are 
A) Buildings are 
B) Land is a 
C) Derivatives are 
D) U.S.agency bonds are 
E) Derivatives and U.S.agency bonds are

Question 20

_______ 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

Exam 1: The Investment Environment

Discuss the similarities and differences between real and financial assets.

The national net worth of the U.S.in 2012 was

The smallest component of domestic net worth in 2012 was

Theoretically, takeovers should result in

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

Corporate shareholders are best protected from incompetent management decisions by

In 2012, ____________ was(were) the most significant real asset(s) of U.S.nonfinancial businesses in terms of total value.

Investment bankers perform which of the following role(s)

________ 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.

Which of the following portfolio construction methods starts with security analysis

In 2012, ____________ was the most significant liability of U.S.households in terms of total value.

In 2012, ____________ was(were) the least significant financial asset(s) of U.S.nonfinancial businesses in terms of total value.

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

The spread between the LIBOR and the Treasury-bill rate is called the

_______ are examples of financial intermediaries.

In 2012 _______ of the assets of U.S.households were financial assets as opposed to tangible assets.

A debt security pays

_________ financial asset(s).

_______ are financial assets.

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

Optimal Risky Portfolios

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