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1、Chapter 01The Investment EnvironmentMultiple Choice Questions1.The material wealth of a society is a function ofA.all financial assets.B.all real assets.C.all financial and real assets.D.all physical assets.2._ are real assets.A.LandB.MachinesC.Stocks and bondsD.KnowledgeE.Land, machines, and knowle
2、dge3.The means by which individuals hold their claims on real assets in a well-developed economy areA.investment assets.B.depository assets.C.derivative assets.D.financial assets.E.exchange-driven assets.4._ are financial assets.A.BondsB.MachinesC.StocksD.Bonds and stocksE.Bonds, machines, and stock
3、s5._ financial asset(s).A.Buildings areB.Land is aC.Derivatives areD.U.S. agency bonds areE.Derivatives and U.S. agency bonds are6.Financial assetsA.directly contribute to the countrys productive capacity.B.indirectly contribute to the countrys productive capacity.C.contribute to the countrys produc
4、tive capacity both directly and indirectly.D.do not contribute to the countrys productive capacity either directly or indirectly.E.are of no value to anyone.7.In 2012, _ was the most significant real asset of U.S. households in terms of total value.A.consumer durablesB.automobilesC.real estateD.mutu
5、al fund sharesE.bank loans8.In 2012, _ was the least significant financial asset of U.S. households in terms of total value.A.real estateB.mutual fund sharesC.debt securitiesD.life insurance reservesE.pension reserves9.In 2012, _ was the most significant financial asset of U.S. households in terms o
6、f total value.A.real estateB.mutual fund sharesC.debt securitiesD.life insurance reservesE.pension reserves10.In 2012, _ was the most significant asset of U.S. households in terms of total value.A.real estateB.mutual fund sharesC.debt securitiesD.life insurance reservesE.pension reserves11.In 2012,
7、_ was the most significant liability of U.S. households in terms of total value.A.credit cardsB.mortgagesC.bank loansD.student loansE.other debt12.Which of the following financial assets made up the greatest proportion of the financial assets held by U.S. households?A.Pension reservesB.Life insuranc
8、e reservesC.Mutual fund sharesD.Debt securitiesE.Personal trusts13.In 2012 _ of the assets of U.S. households were financial assets as opposed to tangible assets.A.20.4%B.34.2%C.68.8%D.71.7%E.82.5%14.The largest component of domestic net worth in 2012 wasA.nonresidential real estate.B.residential re
9、al estate.C.inventories.D.consumer durables.E.equipment and software.15.The smallest component of domestic net worth in 2012 wasA.nonresidential real estate.B.residential real estate.C.inventories.D.consumer durables.E.equipment and software.16.The national net worth of the U.S. in 2012 wasA.$15.411
10、 trillion.B.$26.431 trillion.C.$42.669 trillion.D.$48.616 trillion.E.$70.983 trillion.17.A fixed-income security paysA.a fixed level of income for the life of the owner.B.a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security.C
11、.a variable level of income for owners on a fixed income.D.a fixed or variable income stream at the option of the owner.18.A debt security paysA.a fixed level of income for the life of the owner.B.a variable level of income for owners on a fixed income.C.a fixed or variable income stream at the opti
12、on of the owner.D.a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security.19.Money market securitiesA.are short term.B.are highly marketable.C.are generally very low risk.D.are highly marketable and are generally very low risk.E
13、.All of the options20.An example of a derivative security isA.a common share of Microsoft.B.a call option on Intel stock.C.a commodity futures contract.D.a call option on Intel stock and a commodity futures contract.E.a common share of Microsoft and a call option on Intel stock.21.The value of a der
14、ivative securityA.depends on the value of the related security.B.is unable to be calculated.C.is unrelated to the value of the related security.D.has been enhanced due to the recent misuse and negative publicity regarding these instruments.E.is worthless today.22.Although derivatives can be used as
15、speculative instruments, businesses most often use them toA.attract customers.B.appease stockholders.C.offset debt.D.hedge risks.E.enhance their balance sheets.23.Financial assets permit all of the following exceptA.consumption timing.B.allocation of risk.C.separation of ownership and control.D.elim
16、ination of risk.24.The _ refers to the potential conflict between management and shareholders.A.agency problemB.diversification problemC.liquidity problemD.solvency problemE.regulatory problem25.A disadvantage of using stock options to compensate managers is thatA.it encourages managers to undertake
17、 projects that will increase stock price.B.it encourages managers to engage in empire building.C.it can create an incentive for managers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firms true p
18、rospects.D.All of the options26.Which of the following are mechanisms that have evolved to mitigate potential agency problems?I) Using the firms stock options for compensationII) Hiring bickering family members as corporate spiesIII) Boards of directors forcing out underperforming managementIV) Secu
19、rity analysts monitoring the firm closelyV) Takeover threatsA.II and VB.I, III, and IVC.I, III, IV, and VD.III, IV, and VE.I, III, and V27.Corporate shareholders are best protected from incompetent management decisions byA.the ability to engage in proxy fights.B.managements control of pecuniary rewa
20、rds.C.the ability to call shareholder meetings.D.the threat of takeover by other firms.E.one-share/one-vote election rules.28.Theoretically, takeovers should result inA.improved management.B.increased stock price.C.increased benefits to existing management of taken-over firm.D.improved management an
21、d increased stock price.E.All of the options29.During the period between 2000 and 2002, a large number of scandals were uncovered. Most of these scandals were related toI) manipulation of financial data to misrepresent the actual condition of the firm.II) misleading and overly optimistic research re
22、ports produced by analysts.III) allocating IPOs to executives as a quid pro quo for personal favors. IV) greenmail.A.II, III, and IVB.I, II, and IVC.II and IVD.I, III, and IVE.I, II, and III30.The Sarbanes-Oxley ActA.requires corporations to have more independent directors.B.requires the firms CFO t
23、o personally vouch for the firms accounting statements.C.prohibits auditing firms from providing other services to clients.D.requires corporations to have more independent directors and requires the firms CFO to personally vouch for the firms accounting statements.E.All of the options31.Asset alloca
24、tion refers toA.choosing which securities to hold based on their valuation.B.investing only in safe securities.C.the allocation of assets into broad asset classes.D.bottom-up analysis.32.Security selection refers toA.choosing which securities to hold based on their valuation.B.investing only in safe
25、 securities.C.the allocation of assets into broad asset classes.D.top-down analysis.33.Which of the following portfolio construction methods starts with security analysis?A.Top-downB.Bottom-upC.Middle-outD.Buy and holdE.Asset allocation34.Which of the following portfolio construction methods starts
26、with asset allocation?A.Top-downB.Bottom-upC.Middle-outD.Buy and holdE.Asset allocation35._ are examples of financial intermediaries.A.Commercial banksB.Insurance companiesC.Investment companiesD.Credit unionsE.All of the options36.Financial intermediaries exist because small investors cannot effici
27、entlyA.diversify their portfolios.B.assess credit risk of borrowers.C.advertise for needed investments.D.diversify their portfolios and assess credit risk of borrowers.E.All of the options37._ specialize in helping companies raise capital by selling securities.A.Commercial bankersB.Investment banker
28、sC.Investment issuersD.Credit raters38.Commercial banks differ from other businesses in that both their assets and their liabilities are mostlyA.illiquid.B.financial.C.real.D.owned by the government.E.regulated.39.In 2012, _ was(were) the most significant financial asset(s) of U.S. commercial banks
29、in terms of total value.A.loans and leasesB.cashC.real estateD.depositsE.investment securities40.In 2012, _ was(were) the most significant liability(ies) of U.S. commercial banks in terms of total value.A.loans and leasesB.cashC.real estateD.depositsE.investment securities41.In 2012, _ was(were) the
30、 most significant real asset(s) of U.S. nonfinancial businesses in terms of total value.A.equipment and softwareB.inventoryC.real estateD.trade creditE.marketable securities42.In 2012, _ was(were) the least significant real asset(s) of U.S. nonfinancial businesses in terms of total value.A.equipment
31、 and softwareB.inventoryC.real estateD.trade creditE.marketable securities43.In 2012, _ was(were) the least significant liability(ies) of U.S. nonfinancial businesses in terms of total value.A.bonds and mortgagesB.bank loansC.inventoriesD.trade debtE.marketable securities44.In terms of total value,
32、the most significant liability(ies) of U.S. nonfinancial businesses in 2012 was(were)A.bank loans.B.bonds and mortgages.C.trade debt.D.other loans.E.marketable securities.45.In 2012, _ was(were) the least significant financial asset(s) of U.S. nonfinancial businesses in terms of total value.A.cash a
33、nd depositsB.trade creditC.trade debtD.inventoryE.marketable securities46.New issues of securities are sold in the _ market(s).A.primaryB.secondaryC.over-the-counterD.primary and secondary47.Investors trade previously issued securities in the _ market(s).A.primaryB.secondaryC.primary and secondaryD.
34、derivatives48.Investment bankers perform which of the following role(s)?A.Market new stock and bond issues for firmsB.Provide advice to the firms as to market conditions, price, etc.C.Design securities with desirable propertiesD.All of the optionsE.None of the options49.Until 1999, the _ Act(s) proh
35、ibited banks in the United States from both accepting deposits and underwriting securities.A.Sarbanes-OxleyB.Glass-SteagallC.SECD.Sarbanes-Oxley and SECE.None of the options50.The spread between the LIBOR and the Treasury-bill rate is called theA.term spread.B.T-bill spread.C.LIBOR spread.D.TED spre
36、ad.51.Mortgage-backed securities were created when _ began buying mortgage loans from originators and bundling them into large pools that could be traded like any other financial asset.A.GNMAB.FNMAC.FHLMCD.FNMA and FHLMCE.GNMA and FNMA52.The sale of a mortgage portfolio by setting up mortgage pass-t
37、hrough securities is an example ofA.credit enhancement.B.securitization.C.unbundling.D.derivatives.53.Which of the following is true about mortgage-backed securities?I) They aggregate individual home mortgages into homogeneous pools.II) The purchaser receives monthly interest and principal payments
38、received from payments made on the pool.III) The banks that originated the mortgages maintain ownership of them.IV) The banks that originated the mortgages continue to service them.A.II, III, and IVB.I, II, and IVC.II and IVD.I, III, and IVE.I, II, III, and IV54._ were designed to concentrate the cr
39、edit risk of a bundle of loans on one class of investor, leaving the other investors in the pool relatively protected from that risk.A.StocksB.BondsC.DerivativesD.Collateralized debt obligationsE.All of the options55._ are in essence an insurance contract against the default of one or more borrowers
40、.A.Credit default swapsB.CMOsC.ETFsD.Collateralized debt obligationsE.All of the optionsShort Answer Questions56.Discuss the agency problem in detail.57.Discuss the similarities and differences between real and financial assets.58.Discuss securitization as it relates to the field of investments.Chapter 01 The Investment Environment Answer KeyMultiple Choice