Question 1

__________ was the first to introduce mortgage pass-through securities.

Accepted Answer

A)   Chase Manhattan
B)   Citicorp
C)   FNMA
D)   GNMAE) A) and B)
F) B) and C)

Question 2

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 B)
F) A) and C)

Question 3

Which of the following firms was not engaged in a major accounting scandal between 2000 and 2005?

Accepted Answer

A)   General Electric
B)   Parmalat
C)   Enron
D)   WorldComE) A) and B)
F) A) and C)

Question 4

Asset allocation refers to the _________.

Accepted Answer

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

Question 5

An important trend that has changed the contemporary investment market is _________.

Accepted Answer

A)   financial engineering
B)   globalization
C)   securitization
D)   all three of the other answersE) A) and D)
F) B) and D)

Question 6

The value of a derivative security _________.

Accepted Answer

A)   depends on the value of other related security
B)   affects the value of a related security
C)   is unrelated to the value of a related security
D)   can only be integrated by calculus professorsE) A) and D)
F) C) and D)

Question 7

U.S.Treasury bonds pay interest every six months and repay the principal at maturity.The U.S.Treasury routinely sells individual interest payments on these bonds to investors.This is an example of ___________.

Accepted Answer

A)   unbundling
B)   bundling
C)   securitization
D)   security selectionE) None of the above
F) B) and C)

Question 8

Which of the following are financial assets?
I.Debt securities
II.Equity securities
III.Derivative securities

Accepted Answer

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

Question 9

Security selection refers to the ________.

Accepted Answer

A)   allocation of the investment portfolio across broad asset classes
B)   analysis of the value of securities
C)   choice of specific securities within each asset class
D)   top down method of investingE) B) and D)
F) B) and C)

Question 10

The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but which one of the following?

Accepted Answer

A)   Required corporations to have more independent directors
B)   Required the CFO to personally vouch for the corporation's financial statements
C)   Required that firms could no longer employ investment bankers to sell securities to the public
D)   The creation of a new board to oversee the auditing of public companiesE) All of the above
F) A) and C)

Question 11

Which of the following is not an example of a financial intermediary?

Accepted Answer

A)   Goldman Sachs
B)   Allstate Insurance
C)   First Interstate Bank
D)   IBME) A) and D)
F) A) and C)

Question 12

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

Question 13

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)   Can't tell from the information givenE) A) and B)
F) None of the above

Question 14

Real assets are ______.

Accepted Answer

A)   are assets used to produce goods and services
B)   always the same as financial assets
C)   always equal to liabilities
D)   claims on company's incomeE) A) and B)
F) A) and C)

Question 15

__________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.

Accepted Answer

A)   Active
B)   Momentum
C)   Passive
D)   Market timingE) B) and C)
F) A) and C)

Question 16

Securitization refers to the creation of new securities by _________.

Accepted Answer

A)   selling individual cash flows of a security or loan
B)   repackaging individual cash flows of a security or loan into a new payment pattern
C)   taking an illiquid asset and converting it into a marketable security
D)   selling financial services overseas as well as in the U.S.E) All of the above
F) None of the above

Question 17

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

Accepted Answer

A)   globalization
B)   securitization
C)   negative analyst recommendations
D)   online tradingE) All of the above
F) A) and B)

Question 18

_____ is a mechanism to mitigate potential agency problems.

Accepted Answer

A)   Tying income of managers to success of the firm
B)   Directors defending top management
C)   Anti takeover strategies
D)   Straight voting method of electing the board of directorsE) A) and B)
F) C) and D)

Question 19

__________ are an indirect way U.S.investors can invest in foreign companies.

Accepted Answer

A)   ADRs
B)   IRAs
C)   SDRs
D)   CPCsE) A) and B)
F) C) and D)

Question 20

After much investigation an investor finds that Intel stock is currently under priced.This is an example of ______.

Accepted Answer

A)   asset allocation
B)   security analysis
C)   top down portfolio management
D)   passive managementE) B) and C)
F) A) and D)

Exam 1: Investments: Background and Issues

__________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.

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

Which of the following are financial assets? I.Debt securities II.Equity securities III.Derivative securities

Correct AnswerverifiedShow Answer

After much investigation an investor finds that Intel stock is currently under priced.This is an example of ______.

Correct AnswerverifiedShow Answer

_____ is a mechanism to mitigate potential agency problems.

Correct AnswerverifiedShow Answer

Real assets are ______.

Correct AnswerverifiedShow Answer

Security selection refers to the ________.

Correct AnswerverifiedShow Answer

U.S.Treasury bonds pay interest every six months and repay the principal at maturity.The U.S.Treasury routinely sells individual interest payments on these bonds to investors.This is an example of ___________.

Correct AnswerverifiedShow Answer

An important trend that has changed the contemporary investment market is _________.

Correct AnswerverifiedShow Answer

__________ are an indirect way U.S.investors can invest in foreign companies.

Correct AnswerverifiedShow Answer

The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but which one of the following?

Correct AnswerverifiedShow Answer

Securitization refers to the creation of new securities by _________.

Correct AnswerverifiedShow Answer

Asset allocation refers to the _________.

Correct AnswerverifiedShow Answer

The value of a derivative security _________.

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

__________ was the first to introduce mortgage pass-through securities.

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

Which of the following is not an example of a financial intermediary?

Correct AnswerverifiedShow Answer

Which of the following firms was not engaged in a major accounting scandal between 2000 and 2005?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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