Question 1

Which of the following is not a financial intermediary?

Accepted Answer

A)  a mutual fund 
B)  an insurance company 
C)  a real estate brokerage firm 
D)  a savings and loan company 
A)  a mutual fund 
B)  an insurance company 
C)  a real estate brokerage firm 
D)  a savings and loan company

Question 2

Surf City Software Company develops new surf forecasting software.It sells the software to Microsoft in exchange for 1000 shares of Microsoft common stock.Surf City Software has exchanged a _____ asset for a _____ asset in this transaction.

Accepted Answer

A)  real, real 
B)  financial, financial 
C)  real, financial 
D)  financial, real 
A)  real, real 
B)  financial, financial 
C)  real, financial 
D)  financial, real

Question 3

__________ are real assets.

Accepted Answer

A)  Bonds 
B)  Production equipment 
C)  Stocks 
D)  Commercial paper 
A)  Bonds 
B)  Production equipment 
C)  Stocks 
D)  Commercial paper

Question 4

The efficient markets hypothesis suggests that _______.

Accepted Answer

A)  active portfolio management strategies are the most appropriate investment strategies 
B)  passive portfolio management strategies are the most appropriate investment strategies 
C)  either active or passive strategies may be appropriate, depending on the expected direction of the market 
D)  a bottom up approach is the most appropriate investment strategy 
A)  active portfolio management strategies are the most appropriate investment strategies 
B)  passive portfolio management strategies are the most appropriate investment strategies 
C)  either active or passive strategies may be appropriate, depending on the expected direction of the market 
D)  a bottom up approach is the most appropriate investment strategy

Question 5

The 2002 law designed to improve corporate governance is titled the

Accepted Answer

A)  Pension Reform Act 
B)  ERISA 
C)  Financial Services Modernization Act 
D)  Sarbanes-Oxley Act 
A)  Pension Reform Act 
B)  ERISA 
C)  Financial Services Modernization Act 
D)  Sarbanes-Oxley Act

Question 6

According to the Flow of Funds Accounts of the United States,the largest financial asset of U.S.households is ____.

Accepted Answer

A)  mutual fund shares 
B)  corporate equity 
C)  pension reserves 
D)  personal trusts 
A)  mutual fund shares 
B)  corporate equity 
C)  pension reserves 
D)  personal trusts

Question 7

Real assets in the economy include all but which one of the following?

Accepted Answer

A)  Land 
B)  Buildings 
C)  Consumer durables 
D)  Common stock 
A)  Land 
B)  Buildings 
C)  Consumer durables 
D)  Common stock

Question 8

The historical average rate of return on the large company stocks since 1926 has been

Accepted Answer

A)  5% 
B)  8% 
C)  12% 
D)  20% 
A)  5% 
B)  8% 
C)  12% 
D)  20%

Question 9

Accounting scandals can often be attributed to a particular concept in the study of finance known as the

Accepted Answer

A)  agency problem 
B)  risk - return trade - off 
C)  allocation of risk 
D)  securitization 
A)  agency problem 
B)  risk - return trade - off 
C)  allocation of risk 
D)  securitization

Question 10

WEBS allow investors to _______.

Accepted Answer

A)  invest in U.S. mortgage backed securities 
B)  invest in an individual foreign stock 
C)  invest in a portfolio of foreign stocks 
D)  avoid any exposure to foreign exchange risk 
A)  invest in U.S. mortgage backed securities 
B)  invest in an individual foreign stock 
C)  invest in a portfolio of foreign stocks 
D)  avoid any exposure to foreign exchange risk

Question 11

Active trading in markets and competition among securities analysts helps ensure that __________.
I.security prices approach informational efficiency
II.riskier securities are priced to offer higher potential returns
III.investors are unlikely to be able to consistently find under- or overvalued securities

Accepted Answer

A)  I only 
B)  I and II only 
C)  II and III only 
D)  I, II and III 
A)  I only 
B)  I and II only 
C)  II and III only 
D)  I, II and III

Question 12

The process of securitizing poor quality bank loans made to developing nations resulted in the creation of __________.

Accepted Answer

A)  Pass-throughs 
B)  Brady bonds 
C)  WEBS 
D)  FHLMC participation certificates 
A)  Pass-throughs 
B)  Brady bonds 
C)  WEBS 
D)  FHLMC participation certificates

Question 13

Real assets represent about ____ of total assets for financial institutions.

Accepted Answer

A)  1% 
B)  15% 
C)  25% 
D)  40% 
A)  1% 
B)  15% 
C)  25% 
D)  40%

Question 14

Financial institutions that specialize in assisting corporations in primary market transactions are called _______.

Accepted Answer

A)  mutual funds 
B)  investment bankers 
C)  pension funds 
D)  globalization specialists 
A)  mutual funds 
B)  investment bankers 
C)  pension funds 
D)  globalization specialists

Question 15

Methods to encourage managers to act in shareholders' best interest include
I.Threat of takeover
II.Proxy fights for control of the Board of Directors
III.Tying managers' compensation to stock price performance

Accepted Answer

A)  I only 
B)  I and II only 
C)  II and III only 
D)  I, II and III 
A)  I only 
B)  I and II only 
C)  II and III only 
D)  I, II and III

Question 16

Financial assets represent _____ of total assets of U.S.households.

Accepted Answer

A)  over 60% 
B)  over 90% 
C)  under 10% 
D)  about 30% 
A)  over 60% 
B)  over 90% 
C)  under 10% 
D)  about 30%

Question 17

The success of common stock investments depends on the success of _________.

Accepted Answer

A)  derivative securities 
B)  fixed income securities 
C)  the firm and its real assets 
D)  government methods of allocating capital 
A)  derivative securities 
B)  fixed income securities 
C)  the firm and its real assets 
D)  government methods of allocating capital

Question 18

An investment advisor has decided to purchase gold,real estate,stocks,and bonds in equal amounts.This decision reflects which part of the investment process?

Accepted Answer

A)  Asset allocation 
B)  Investment analysis 
C)  Portfolio analysis 
D)  Security selection 
A)  Asset allocation 
B)  Investment analysis 
C)  Portfolio analysis 
D)  Security selection

Question 19

_____ is an example of an agency problem.

Accepted Answer

A)  Managers engage in empire building 
B)  Managers protect their jobs by avoiding risky projects 
C)  Managers over consume luxuries such as corporate jets 
D)  All of the answers provide examples of agency problems 
A)  Managers engage in empire building 
B)  Managers protect their jobs by avoiding risky projects 
C)  Managers over consume luxuries such as corporate jets 
D)  All of the answers provide examples of agency problems

Question 20

Liabilities equal approximately _____ of total assets for nonfinancial U.S.businesses.

Accepted Answer

A)  10% 
B)  25% 
C)  44% 
D)  75% 
A)  10% 
B)  25% 
C)  44% 
D)  75%

Exam 1: Investments: Background and Issues

Which of the following is not a financial intermediary?

Surf City Software Company develops new surf forecasting software.It sells the software to Microsoft in exchange for 1000 shares of Microsoft common stock.Surf City Software has exchanged a _____ asset for a _____ asset in this transaction.

__________ are real assets.

The efficient markets hypothesis suggests that _______.

The 2002 law designed to improve corporate governance is titled the

According to the Flow of Funds Accounts of the United States,the largest financial asset of U.S.households is ____.

Real assets in the economy include all but which one of the following?

The historical average rate of return on the large company stocks since 1926 has been

Accounting scandals can often be attributed to a particular concept in the study of finance known as the

WEBS allow investors to _______.

The process of securitizing poor quality bank loans made to developing nations resulted in the creation of __________.

Real assets represent about ____ of total assets for financial institutions.

Financial institutions that specialize in assisting corporations in primary market transactions are called _______.

Methods to encourage managers to act in shareholders' best interest include I.Threat of takeover II.Proxy fights for control of the Board of Directors III.Tying managers' compensation to stock price performance

Financial assets represent _____ of total assets of U.S.households.

The success of common stock investments depends on the success of _________.

An investment advisor has decided to purchase gold,real estate,stocks,and bonds in equal amounts.This decision reflects which part of the investment process?

_____ is an example of an agency problem.

Liabilities equal approximately _____ of total assets for nonfinancial U.S.businesses.

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

Surf City Software Company develops new surf forecasting software.It sells the software to Microsoft in exchange for 1000 shares of Microsoft common stock.Surf City Software has exchanged a _ asset for a _ asset in this transaction.