Question 1

In terms of total value,the most significant liability of U.S.nonfinancial businesses in 2009 was _______.

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 B

Question 2

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) none of the above 
A) all financial assets 
B) all real assets 
C) all financial and real assets 
D) all physical assets 
E) none of the above B

Question 3

_______ are real assets.

Accepted Answer

A) Land 
B) Machines 
C) Stocks and bonds 
D) Knowledge 
E) A,B and D 
A) Land 
B) Machines 
C) Stocks and bonds 
D) Knowledge 
E) A,B and D E

Question 4

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 
E) none of the above 
A) term spread 
B) T-bill spread 
C) LIBOR spread 
D) TED spread 
E) none of the above

Question 5

In 2009,____________ 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 6

In 2009,____________ was the most significant real asset 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 7

In 2009,____________ 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 8

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 9

In 2009,____________ was the most significant financial 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

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 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

Question 11

Which of the following financial assets made up the greatest proportion of the financial assets held by U.S.households?

Accepted Answer

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

Question 12

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 13

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) Only A and B are correct. 
E) A,B,and C are correct. 
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) Only A and B are correct. 
E) A,B,and C are correct.

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

Question 15

The ____________ refers to the potential conflict between management and shareholders.

Accepted Answer

A) agency problem 
B) diversification problem 
C) liquidity problem 
D) solvency problem 
E) regulatory problem 
A) agency problem 
B) diversification problem 
C) liquidity problem 
D) solvency problem 
E) regulatory problem

Question 16

In 2009,____________ was the least significant financial 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 17

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) none of the above 
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) none of the above

Question 18

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 19

________ 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 above. 
A) Stocks 
B) Bonds 
C) Derivatives 
D) Collateralized debt obligations 
E) all of the above.

Question 20

Money market securities ____________.

Accepted Answer

A) are short term 
B) are highly marketable 
C) are generally very low risk 
D) all of the above 
E) B and C only. 
A) are short term 
B) are highly marketable 
C) are generally very low risk 
D) all of the above 
E) B and C only.

Exam 1: The Investment Environment

In terms of total value,the most significant liability of U.S.nonfinancial businesses in 2009 was _______.

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

_______ are real assets.

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

In 2009,____________ was the most significant asset of U.S.households in terms of total value.

In 2009,____________ was the most significant real asset of U.S.nonfinancial businesses in terms of total value.

In 2009,____________ was the most significant liability of U.S.households in terms of total value.

Financial assets ______.

In 2009,____________ was the most significant financial asset of U.S.households in terms of total value.

Which of the following financial assets made up the greatest proportion of the financial assets held by U.S.households?

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

The Sarbanes-Oxley Act ____________.

An example of a derivative security is ______.

The ____________ refers to the potential conflict between management and shareholders.

In 2009,____________ was the least significant financial asset of U.S.households in terms of total value.

A fixed-income security pays ____________.

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

________ 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.

Money market securities ____________.

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and 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

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

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