Question 1

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 2

Discuss the agency problem in detail.

Accepted Answer

Managers are the agents of the sharehold

Question 3

New issues of securities are sold in the ________ market(s).

Accepted Answer

A) primary 
B) secondary 
C) over the counter 
D) primary and secondary 
E) A and C. 
A) primary 
B) secondary 
C) over the counter 
D) primary and secondary 
E) A and C.

Question 4

_______ are examples of financial intermediaries.

Accepted Answer

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

Question 5

Financial assets permit all of the following except ____________.

Accepted Answer

A) consumption timing 
B) allocation of risk 
C) separation of ownership and control 
D) elimination of risk 
E) all of the above 
A) consumption timing 
B) allocation of risk 
C) separation of ownership and control 
D) elimination of risk 
E) all of the above

Question 6

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

Question 7

The smallest component of domestic net worth in 2009 was ____________.

Accepted Answer

A) non-residential real estate 
B) residential real estate 
C) inventories 
D) consumer durables 
E) equipment and software 
A) non-residential real estate 
B) residential real estate 
C) inventories 
D) consumer durables 
E) equipment and software

Question 8

During the period between 2000 and 2002,a large number of scandals were uncovered.Most of these scandals were related to
I.Manipulation of financial data to misrepresent the actual condition of the firm.
II.Misleading and overly optimistic research reports produced by analysts.
III.Allocating IPOs to executives as a quid pro quo for personal favors.
IV.Greenmail.

Accepted Answer

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

Question 9

Security selection refers to ____________.

Accepted Answer

A) choosing which securities to hold based on their valuation 
B) investing only in "safe" securities 
C) the allocation of assets into broad asset classes 
D) top-down analysis 
E) all of the above 
A) choosing which securities to hold based on their valuation 
B) investing only in "safe" securities 
C) the allocation of assets into broad asset classes 
D) top-down analysis 
E) all of the above

Question 10

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 
E) none of the above 
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 
E) none of the above

Question 11

In 2009,____________ 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 12

Discuss securitization as it relates to the field of investments.

Accepted Answer

Securitization refer

Question 13

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

Accepted Answer

A) loans and leases 
B) cash 
C) real estate 
D) deposits 
E) investment securities 
A) loans and leases 
B) cash 
C) real estate 
D) deposits 
E) investment securities

Question 14

________ 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 above. 
A) Credit default swaps 
B) CMOs 
C) ETFs 
D) Collateralized debt obligations 
E) all of the above.

Question 15

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 16

_______ are financial assets.

Accepted Answer

A) Bonds 
B) Machines 
C) Stocks 
D) A and C 
E) A,B and C 
A) Bonds 
B) Machines 
C) Stocks 
D) A and C 
E) A,B and C

Question 17

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

Accepted Answer

A) loans and leases 
B) cash 
C) real estate 
D) deposits 
E) investment securities 
A) loans and leases 
B) cash 
C) real estate 
D) deposits 
E) investment securities

Question 18

Which of the following are mechanisms that have evolved to mitigate potential agency problems?
I.Compensation in the form of the firm's stock options
II.Hiring bickering family members as corporate spies
III.Underperforming management teams being forced out by boards of directors
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 19

In 2009,____________ was the least significant financial asset 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 20

The largest component of domestic net worth in 2009 was ____________.

Accepted Answer

A) non-residential real estate 
B) residential real estate 
C) inventories 
D) consumer durables 
E) equipment and software 
A) non-residential real estate 
B) residential real estate 
C) inventories 
D) consumer durables 
E) equipment and software

Exam 1: The Investment Environment

Corporate shareholders are best protected from incompetent management decisions by

Discuss the agency problem in detail.

New issues of securities are sold in the ________ market(s).

_______ are examples of financial intermediaries.

Financial assets permit all of the following except ____________.

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.

The smallest component of domestic net worth in 2009 was ____________.

Security selection refers to ____________.

A debt security pays ____________.

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

Discuss securitization as it relates to the field of investments.

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

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

The value of a derivative security _______.

_______ are financial assets.

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

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

The largest component of domestic net worth in 2009 was ____________.

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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