Question 1

Investors trade previously issued securities in the ________ market(s).

Accepted Answer

A) primary 
B) secondary 
C) primary and secondary 
D) derivatives 
E) A and D. 
A) primary 
B) secondary 
C) primary and secondary 
D) derivatives 
E) A and D.

Question 2

Until 1999,the ________ Act(s)prohibited banks in the United States from both accepting deposits and underwriting securities.

Accepted Answer

A) Sarbanes-Oxley 
B) Glass-Steagall 
C) SEC 
D) A and C 
E) none of the above 
A) Sarbanes-Oxley 
B) Glass-Steagall 
C) SEC 
D) A and C 
E) none of the above

Question 3

_________ financial asset(s).

Accepted Answer

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

Question 4

In 2009,____________ was the least 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 5

Which of the following portfolio construction methods starts with asset allocation?

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 6

Asset allocation 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) bottom-up 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) bottom-up analysis 
E) all of the above

Question 7

A disadvantage of using stock options to compensate managers is that

Accepted Answer

A) it encourages mangers to undertake projects that will increase stock price. 
B) it encourages managers to engage in empire building. 
C) it can create an incentive for mangers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects. 
D) all of the above. 
E) none of the above. 
A) it encourages mangers to undertake projects that will increase stock price. 
B) it encourages managers to engage in empire building. 
C) it can create an incentive for mangers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects. 
D) all of the above. 
E) none of the above.

Question 8

Discuss the similarities and differences between real and financial assets.

Accepted Answer

Real assets represent the productive cap

Question 9

________ specialize in helping companies raise capital by selling securities.

Accepted Answer

A) commercial bankers 
B) investment bankers 
C) investment issuers 
D) credit raters 
E) all of the above. 
A) commercial bankers 
B) investment bankers 
C) investment issuers 
D) credit raters 
E) all of the above.

Question 10

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) A and B 
E) A,B,and C 
A) improved management 
B) increased stock price 
C) increased benefits to existing management of taken over firm 
D) A and B 
E) A,B,and C

Question 11

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

Question 12

Financial intermediaries exist because small investors cannot efficiently ________.

Accepted Answer

A) diversify their portfolios 
B) assess credit risk of borrowers 
C) advertise for needed investments 
D) all of the above. 
E) A and B only. 
A) diversify their portfolios 
B) assess credit risk of borrowers 
C) advertise for needed investments 
D) all of the above. 
E) A and B only.

Question 13

In 2009,_______ of the assets of U.S.households were financial assets as opposed to tangible assets.

Accepted Answer

A) 20.4% 
B) 34.2% 
C) 63.0% 
D) 71.7% 
E) 82.5% 
A) 20.4% 
B) 34.2% 
C) 63.0% 
D) 71.7% 
E) 82.5%

Question 14

Investment bankers perform 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 above 
E) none of the above 
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 above 
E) none of the above

Question 15

The means by which individuals hold their claims on real assets in a well-developed economy are

Accepted Answer

A) Investment assets. 
B) Depository assets. 
C) Derivative assets. 
D) Financial assets. 
E) Exchange-driven assets. 
A) Investment assets. 
B) Depository assets. 
C) Derivative assets. 
D) Financial assets. 
E) Exchange-driven assets.

Question 16

Commercial banks differ from other businesses in that both their assets and their liabilities are mostly

Accepted Answer

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

Question 17

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

Accepted Answer

A) bonds and mortgages 
B) bank loans 
C) inventories 
D) trade debt 
E) marketable securities 
A) bonds and mortgages 
B) bank loans 
C) inventories 
D) trade debt 
E) marketable securities

Question 18

The national net worth of the U.S.in 2009 was _________.

Accepted Answer

A) $15.411 trillion 
B) $26.431 trillion 
C) $42.669 trillion 
D) $39.139 trillion 
E) $70.983 trillion 
A) $15.411 trillion 
B) $26.431 trillion 
C) $42.669 trillion 
D) $39.139 trillion 
E) $70.983 trillion

Exam 1: The Investment Environment

Investors trade previously issued securities in the ________ market(s).

Until 1999,the ________ Act(s)prohibited banks in the United States from both accepting deposits and underwriting securities.

_________ financial asset(s).

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

Which of the following portfolio construction methods starts with asset allocation?

Asset allocation refers to ____________.

A disadvantage of using stock options to compensate managers is that

Discuss the similarities and differences between real and financial assets.

________ specialize in helping companies raise capital by selling securities.

Theoretically,takeovers should result in ___________.

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

Financial intermediaries exist because small investors cannot efficiently ________.

In 2009,_______ of the assets of U.S.households were financial assets as opposed to tangible assets.

Investment bankers perform the following role(s)___________.

The means by which individuals hold their claims on real assets in a well-developed economy are

Commercial banks differ from other businesses in that both their assets and their liabilities are mostly

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

The national net worth of the U.S.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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