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Alabama Finance 414 Ch 1 Test Bank

5363 words - 22 pages

Chapter 01
Investments: Background and Issues

Multiple Choice Questions

1. Financial assets represent _____ of total assets of U.S. households. 
A. over 60%
B. over 90%
C. under 10%
D. about 30%


2. Real assets in the economy include all but which one of the following? 
A. Land
B. Buildings
C. Consumer durables
D. Common stock


3. Net worth represents _____ of the liabilities and net worth of commercial banks. 
A. about 50%
B. about 90%
C. about 10%
D. about 30%


4. According to the Flow of Funds Accounts of the United States, the largest single asset of U.S. households is ___. 
A. mutual fund shares
B. real estate
C. pension reserves
...view middle of the document...

 productive capacity, real assets


10. Which of the following is not a money market security? 
A. U.S. Treasury bill
B. Six month maturity certificate of deposit
C. Common stock
D. Banker's acceptance


11. __________ assets generate net income to the economy and __________ assets define allocation of income among investors. 
A. Financial, financial
B. Financial, real
C. Real, financial
D. Real, real


12. Which of the following are financial assets?
I. Debt securities
II. Equity securities
III. Derivative securities 
A. I only
B. I and II only
C. II and III only
D. I, II and III


13. __________ are examples of financial intermediaries. 
A. Commercial banks
B. Insurance companies
C. Investment companies
D. All of the above are financial intermediaries


14. Asset allocation refers to the _________. 
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 allocation


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


16. __________ was the first to introduce mortgage pass-through securities. 
A. Chase Manhattan
B. Citicorp


17. Security selection refers to the ________. 
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 investing


18. _____ is an example of an agency problem. 
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


19. _____ is a mechanism to mitigate potential agency problems. 
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 directors


20. __________ are real assets. 
A. Bonds
B. Production equipment
C. Stocks
D. Commercial paper


21. __________ portfolio construction starts with selecting attractively priced securities. 
A. Bottom-up
B. Top-down
C. Upside-down
D. Side-to-side


22. In a capitalist system capital resources are primarily allocated by ____________. 
A. governments
B. the SEC
C. financial markets
D. investment bankers


23. A __________ represents an ownership share in a corporation. 
A. call option
B. common stock
C. fixed-income security
D. preferred stock


24. The value of a derivative security _________. 
A. depends on the value of other related security
B. affects the value of a related security...

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