Question 1

_______ 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

Question 2

In terms of total value, the most significant liability(ies) of U.S. nonfinancial businesses in 2016 was(were)

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.

Question 3

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 4

________ specialize in helping companies raise capital by selling securities.

Accepted Answer

A)  Commercial bankers 
B)  Investment bankers 
C)  Investment issuers 
D)  Credit raters 
A)  Commercial bankers 
B)  Investment bankers 
C)  Investment issuers 
D)  Credit raters

Question 5

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. 
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.

Question 6

In 2016, ____________ was(were) the most significant liability(ies) 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 7

The smallest component of domestic net worth in 2016 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.

Question 8

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)  Sarbanes-Oxley and SEC 
E)  None of the options 
A)  Sarbanes-Oxley 
B)  Glass-Steagall 
C)  SEC 
D)  Sarbanes-Oxley and SEC 
E)  None of the options

Question 9

The largest component of domestic net worth in 2016 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.

Question 10

In 2016, _______ of the assets of U.S. households were financial assets as opposed to tangible assets.

Accepted Answer

A)  20.4% 
B)  34.2% 
C)  69.4% 
D)  71.7% 
E)  82.5% 
A)  20.4% 
B)  34.2% 
C)  69.4% 
D)  71.7% 
E)  82.5%

Question 11

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 12

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

Accepted Answer

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

Question 13

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. 
A)  consumption timing. 
B)  allocation of risk. 
C)  separation of ownership and control. 
D)  elimination of risk.

Question 14

In 2016, ____________ 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 15

In 2016, ____________ 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 16

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. 
A)  all financial assets. 
B)  all real assets. 
C)  all financial and real assets. 
D)  all physical assets.

Question 17

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 18

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

Question 19

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. 
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.

Question 20

Money market securities

Accepted Answer

A)  are short term. 
B)  are highly marketable. 
C)  are generally very low risk. 
D)  are highly marketable and are generally very low risk. 
E)  All of the options. 
A)  are short term. 
B)  are highly marketable. 
C)  are generally very low risk. 
D)  are highly marketable and are generally very low risk. 
E)  All of the options.

Exam 1: The Investment Environment

_______ are financial assets.

In terms of total value, the most significant liability(ies) of U.S. nonfinancial businesses in 2016 was(were)

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

________ specialize in helping companies raise capital by selling securities.

Asset allocation refers to

In 2016, ____________ was(were) the most significant liability(ies) of U.S. commercial banks in terms of total value.

The smallest component of domestic net worth in 2016 was

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

The largest component of domestic net worth in 2016 was

In 2016, _______ of the assets of U.S. households were financial assets as opposed to tangible assets.

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

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

Financial assets permit all of the following except

In 2016, ____________ was the most significant real asset of U.S. households in terms of total value.

In 2016, ____________ was(were) the least significant financial asset(s) of U.S. nonfinancial businesses in terms of total value.

The material wealth of a society is a function of

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

Financial intermediaries exist because small investors cannot efficiently

A fixed-income security pays

Money market securities

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

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