Question 1

An example of a derivative security is ________.

Accepted Answer

A)   a common share of General Motors
B)   a call option on Intel stock
C)   a Ford bond
D)   a U.S. Treasury bondE) B) and D)
F) A) and D)

Question 2

Methods of encouraging 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 IIIE) B) and C)
F) A) and B)

Question 3

________ represents an ownership share in a corporation.

Accepted Answer

A)   A call option
B)   Common stock
C)   A fixed-income security
D)   Preferred stockE) None of the above
F) B) and C)

Question 4

The efficient market 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 strategyE) C) and D)
F) B) and C)

Question 5

A major cause of the mortgage market meltdown in 2007 and 2008 was linked to ________.

Accepted Answer

A)   private equity investments
B)   securitization
C)   negative analyst recommendations
D)   online tradingE) A) and B)
F) A) and C)

Question 6

In securities markets, there should be a risk-return trade-off with higher-risk assets having ________ expected returns than lower-risk assets.

Accepted Answer

A)   higher
B)   lower
C)   the same
D)   The answer cannot be determined from the information given.E) None of the above
F) A) and B)

Question 7

Security selection refers to ________.

Accepted Answer

A)   choosing specific securities within each asset class
B)   deciding how much to invest in each asset class
C)   deciding how much to invest in the market portfolio versus the riskless asset
D)   deciding how much to hedgeE) A) and D)
F) A) and B)

Question 8

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 ActE) A) and C)
F) A) and D)

Question 9

In 2017 mortgages represented approximately ________ of total liabilities and net worth of American households.

Accepted Answer

A)   10%
B)   14%
C)   28%
D)   42%E) B) and C)
F) A) and D)

Question 10

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 credit unionE) A) and D)
F) All of the above

Question 11

The Dodd-Frank Reform Act does all of the following except:

Accepted Answer

A)   reduces capital requirements for banks.
B)   increases transparency in the derivatives market
C)   limits the risk-taking in which banks can engage
D)   requires public companies to set "claw-back" provisions
E)   creates an office within the SEC to oversee credit rating agencies.F) B) and D)
G) B) and C)

Question 12

An example of a real asset is:
I. A college education
II. Customer goodwill
III. A patent

Accepted Answer

A)   I only
B)   II only
C)   I and III only
D)   I, II, and IIIE) All of the above
F) A) and B)

Question 13

In real assets represented approximately ________ of the total asset holdings of American households.

Accepted Answer

A)   30%
B)   42%
C)   48%
D)   55%E) A) and B)
F) A) and C)

Question 14

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

Accepted Answer

A)   under 70%
B)   over 90%
C)   under 10%
D)   about 30%E) A) and B)
F) B) and C)

Question 15

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)   depositsE) B) and C)
F) A) and B)

Question 16

Financial markets allow for all but which one of the following?

Accepted Answer

A)   shift consumption through time from higher-income periods to lower
B)   price securities according to their riskiness
C)   channel funds from lenders of funds to borrowers of funds
D)   allow most participants to routinely earn high returns with low riskE) All of the above
F) C) and D)

Question 17

Firms that specialize in helping companies raise capital by selling securities to the public are called ________.

Accepted Answer

A)   pension funds
B)   investment banks
C)   savings banks
D)   REITsE) C) and D)
F) All of the above

Question 18

Asset allocation refers to ________.

Accepted Answer

A)   the allocation of the investment portfolio across broad asset classes
B)   the analysis of the value of securities
C)   the choice of specific assets within each asset class
D)   none of the optionsE) A) and C)
F) B) and C)

Question 19

Surf City Software Company develops new surf forecasting software. It sells the software to Microsoft in exchange for 1,000 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; realE) A) and D)
F) All of the above

Question 20

According to the Flow of Funds Accounts of the United States, the largest liability of U.S. households is ________.

Accepted Answer

A)   mortgages
B)   consumer credit
C)   bank loans
D)   gambling debtsE) A) and C)
F) A) and D)

Exam 1: Investments: Background and Issues

The efficient market hypothesis suggests that ________.

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Which of the following is not a financial intermediary?

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________ represents an ownership share in a corporation.

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In 2017 mortgages represented approximately ________ of total liabilities and net worth of American households.

Correct AnswerverifiedShow Answer

In real assets represented approximately ________ of the total asset holdings of American households.

Correct AnswerverifiedShow Answer

An example of a real asset is: I. A college education II. Customer goodwill III. A patent

Correct AnswerverifiedShow Answer

A major cause of the mortgage market meltdown in 2007 and 2008 was linked to ________.

Correct AnswerverifiedShow Answer

An example of a derivative security is ________.

Correct AnswerverifiedShow Answer

The Dodd-Frank Reform Act does all of the following except:

Correct AnswerverifiedShow Answer

The 2002 law designed to improve corporate governance is titled the ________.

Correct AnswerverifiedShow Answer

According to the Flow of Funds Accounts of the United States, the largest liability of U.S. households is ________.

Correct AnswerverifiedShow Answer

Asset allocation refers to ________.

Correct AnswerverifiedShow Answer

Security selection refers to ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Financial markets allow for all but which one of the following?

Correct AnswerverifiedShow Answer

Surf City Software Company develops new surf forecasting software. It sells the software to Microsoft in exchange for 1,000 shares of Microsoft common stock. Surf City Software has exchanged a ________ asset for a ________ asset in this transaction.

Correct AnswerverifiedShow Answer

Methods of encouraging 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.

Correct AnswerverifiedShow Answer

In securities markets, there should be a risk-return trade-off with higher-risk assets having ________ expected returns than lower-risk assets.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Firms that specialize in helping companies raise capital by selling securities to the public are called ________.

Correct AnswerverifiedShow Answer

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Surf City Software Company develops new surf forecasting software. It sells the software to Microsoft in exchange for 1,000 shares of Microsoft common stock. Surf City Software has exchanged a asset for a asset in this transaction.

Correct Answer
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