Question 1

Until 1999, the ________ Act separated commercial banking and investment banking activities.

Accepted Answer

A)   Dodd-Frank Wall Street Reform and Consumer Protection
B)   Sarbanes-Oxley
C)   Glass-Steagall
D)   Volcker RuleE) A) and B)
F) B) and C)

Question 2

________ is (are)  real assets.

Accepted Answer

A)   Bonds
B)   Production equipment
C)   Stocks
D)   Life insuranceE) B) and D)
F) B) and C)

Question 3

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

Accepted Answer

A)   almost 5%
B)   almost 8%
C)   almost 12%
D)   almost 20%E) C) and D)
F) B) and C)

Question 4

The average rate of return on U.S. Treasury bills since 1926 was ________.

Accepted Answer

A)   less than 1%
B)   less than 3%
C)   less than 4%
D)   less than 7%E) A) and B)
F) C) and D)

Question 5

In recent years the greatest dollar amount of securitization occurred for which type of loan?

Accepted Answer

A)   home mortgages
B)   credit card debt
C)   automobile loans
D)   equipment leasingE) A) and D)
F) A) and C)

Question 6

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 specialistsE) None of the above
F) All of the above

Question 7

An intermediary that pools and manages funds for many investors is called ________.

Accepted Answer

A)   an investment company
B)   a credit union
C)   an investment banker
D)   a commercial bankE) B) and C)
F) A) and D)

Question 8

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

Accepted Answer

A)   mutual fund shares
B)   real estate
C)   pension reserves
D)   corporate equityE) None of the above
F) C) and D)

Question 9

________ portfolio construction starts with asset allocation.

Accepted Answer

A)   Bottom-up
B)   Top-down
C)   Upside-down
D)   Side-to-sideE) All of the above
F) C) and D)

Question 10

When a pass-through mortgage security is issued, what does the issuing agency expect to receive?

Accepted Answer

A)   the amount of the original loan plus a servicing fee
B)   the principal and interest that are paid by the homeowner
C)   the principal and interest that are paid by the homeowner, minus a servicing fee
D)   the interest paid by the homeowner, plus a servicing feeE) A) and B)
F) C) and D)

Question 11

Which one of the following best describes the purpose of derivatives markets?

Accepted Answer

A)   Transferring risk from one party to another.
B)   Investing for a short time period to earn a small rate of return.
C)   Investing for retirement.
D)   Earning interest income.E) A) and D)
F) None of the above

Question 12

________ are examples of financial intermediaries.

Accepted Answer

A)   Commercial banks
B)   Insurance companies
C)   Investment companies
D)   All of the optionsE) B) and C)
F) A) and B)

Question 13

Market signals will help to allocate capital efficiently only if investors are acting ________.

Accepted Answer

A)   on the basis of their individual hunches
B)   as directed by financial experts
C)   as dominant forces in the economy
D)   on accurate informationE) C) and D)
F) None of the above

Question 14

Stone Harbor Products takes out a bank loan. It receives $100,000 and signs a promissory note to pay back the loan over 5 years. In this transaction, ________.

Accepted Answer

A)   a new financial asset was created
B)   a financial asset was traded for a real asset
C)   a financial asset was destroyed
D)   a real asset was createdE) All of the above
F) B) and C)

Question 15

An investment adviser 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 selectionE) A) and B)
F) C) and D)

Question 16

Suppose an investor is considering one of two investments that are identical in all respects except for risk. If the investor anticipates a fair return for the risk of the security he invests in, he can expect to ________.

Accepted Answer

A)   earn no more than the Treasury-bill rate on either security.
B)   pay less for the security that has higher risk.
C)   pay less for the security that has lower risk.
D)   earn more if interest rates are lower.E) A) and D)
F) C) and D)

Question 17

________ portfolio construction starts with selecting attractively priced securities.

Accepted Answer

A)   Bottom-up
B)   Top-down
C)   Upside-down
D)   Side-to-sideE) All of the above
F) C) and D)

Question 18

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)   securitizationE) A) and C)
F) None of the above

Question 19

Which of the following is not a money market security?

Accepted Answer

A)   U.S. Treasury bill
B)   6-month maturity certificate of deposit
C)   common stock
D)   All of the options.E) None of the above
F) A) and B)

Question 20

The material wealth of society is determined by the economy's ________, which is a function of the economy's ________.

Accepted Answer

A)   investment bankers; financial assets
B)   investment bankers; real assets
C)   productive capacity; financial assets
D)   productive capacity; real assetsE) B) and C)
F) A) and D)

Exam 1: Investments: Background and Issues

________ is (are) real assets.

Correct AnswerverifiedShow Answer

Which one of the following best describes the purpose of derivatives markets?

Correct AnswerverifiedShow Answer

Suppose an investor is considering one of two investments that are identical in all respects except for risk. If the investor anticipates a fair return for the risk of the security he invests in, he can expect to ________.

Correct AnswerverifiedShow Answer

The average rate of return on U.S. Treasury bills since 1926 was ________.

Correct AnswerverifiedShow Answer

Market signals will help to allocate capital efficiently only if investors are acting ________.

Correct AnswerverifiedShow Answer

The material wealth of society is determined by the economy's ________, which is a function of the economy's ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

________ portfolio construction starts with asset allocation.

Correct AnswerverifiedShow Answer

Stone Harbor Products takes out a bank loan. It receives $100,000 and signs a promissory note to pay back the loan over 5 years. In this transaction, ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not a money market security?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

________ are examples of financial intermediaries.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In recent years the greatest dollar amount of securitization occurred for which type of loan?

Correct AnswerverifiedShow Answer

________ portfolio construction starts with selecting attractively priced securities.

Correct AnswerverifiedShow Answer

When a pass-through mortgage security is issued, what does the issuing agency expect to receive?

Correct AnswerverifiedShow Answer

An intermediary that pools and manages funds for many investors is called ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Until 1999, the ________ Act separated commercial banking and investment banking activities.

Correct AnswerverifiedShow Answer

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The material wealth of society is determined by the economy's , which is a function of the economy's .

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