Question 1

The spread between the LIBOR and the Treasury-bill rate is called the

Accepted Answer

A)  term spread.
B)  T-bill spread.
C)  LIBOR spread.
D)  TED spread.E) A) and B)
F) A) and D)

Question 2

_______ are financial assets.

Accepted Answer

A)  Bonds
B)  Machines
C)  Stocks
D)  Bonds and stocks
E)  Bonds, machines, and stocksF) B) and C)
G) None of the above

Question 3

The national net worth of the U.S.in 2012 was

Accepted Answer

A)  $15.411 trillion.
B)  $26.431 trillion.
C)  $42.669 trillion.
D)  $48.616 trillion.
E)  $70.983 trillion.F) B) and D)
G) A) and B) D

Question 4

Discuss the similarities and differences between real and financial assets.

Accepted Answer

Real assets represent the productive capacity of the firm and appear as assets on the firm's balance sheet.Financial assets are claims against the firm and thus appear as liabilities on the firm's balance sheet.On the other hand, financial assets are listed on the asset side of the balance sheet of the individuals who own them.Thus, when financial statements are aggregated across the economy, the financial assets cancel out, leaving only the real assets, which directly contribute to the productive capacity of the economy.Financial assets contribute indirectly only.
Feedback: The purpose of this question is to ascertain if the student understands the difference between real and financial assets, both in the aggregate balance sheet context and the relative contribution of the two types of assets to the productive capacity of the economy.

Question 5

Which of the following portfolio construction methods starts with security analysis

Accepted Answer

A)  Top-down
B)  Bottom-up
C)  Middle-out
D)  Buy and hold
E)  Asset allocationF) B) and D)
G) A) and C)

Question 6

A debt security pays

Accepted Answer

A)  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 option 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.E) A) and C)
F) None of the above

Question 7

In 2012, ____________ was(were)  the most significant real asset(s)  of U.S.nonfinancial businesses in terms of total value.

Accepted Answer

A)  equipment and software
B)  inventory
C)  real estate
D)  trade credit
E)  marketable securitiesF) A) and B)
G) C) and D)

Question 8

________ are in essence an insurance contract against the default of one or more borrowers.

Accepted Answer

A)  Credit default swaps
B)  CMOs
C)  ETFs
D)  Collateralized debt obligations
E)  All of the optionsF) C) and D)
G) A) and B)

Question 9

In 2012, ____________ was the most significant liability of U.S.households in terms of total value.

Accepted Answer

A)  credit cards
B)  mortgages
C)  bank loans
D)  student loans
E)  other debtF) A) and D)
G) A) and B)

Question 10

_______ are examples of financial intermediaries.

Accepted Answer

A)  Commercial banks
B)  Insurance companies
C)  Investment companies
D)  Credit unions
E)  All of the optionsF) A) and D)
G) A) and B)

Question 11

Which of the following are mechanisms that have evolved to mitigate potential agency problems
I. Using the firm's stock options for compensation
II. Hiring bickering family members as corporate spies
III. Boards of directors forcing out underperforming management
IV. Security analysts monitoring the firm closely
V. Takeover threats

Accepted Answer

A)  II and V
B)  I, III, and IV
C)  I, III, IV, and V
D)  III, IV, and V
E)  I, III, and VF) D) and E)
G) A) and B)

Question 12

In 2012, ____________ was(were)  the least significant financial asset(s)  of U.S.nonfinancial businesses in terms of total value.

Accepted Answer

A)  cash and deposits
B)  trade credit
C)  trade debt
D)  inventory
E)  marketable securitiesF) B) and D)
G) B) and C)

Question 13

In 2012 _______ of the assets of U.S.households were financial assets as opposed to tangible assets.

Accepted Answer

A)  20.4%
B)  34.2%
C)  68.8%
D)  71.7%
E)  82.5%F) A) and B)
G) All of the above

Question 14

The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of

Accepted Answer

A)  credit enhancement.
B)  securitization.
C)  unbundling.
D)  derivatives.E) All of the above
F) None of the above

Question 15

Investment bankers perform which of the following role(s)

Accepted Answer

A)  Market new stock and bond issues for firms
B)  Provide advice to the firms as to market conditions, price, etc.
C)  Design securities with desirable properties
D)  All of the options
E)  None of the optionsF) B) and D)
G) C) and D)

Question 16

Corporate shareholders are best protected from incompetent management decisions by

Accepted Answer

A)  the ability to engage in proxy fights.
B)  management's control of pecuniary rewards.
C)  the ability to call shareholder meetings.
D)  the threat of takeover by other firms.
E)  one-share/one-vote election rules.F) C) and D)
G) A) and E)

Question 17

________ were designed to concentrate the credit risk of a bundle of loans on one class of investor, leaving the other investors in the pool relatively protected from that risk.

Accepted Answer

A)  Stocks
B)  Bonds
C)  Derivatives
D)  Collateralized debt obligations
E)  All of the optionsF) C) and E)
G) A) and B)

Question 18

The smallest component of domestic net worth in 2012 was

Accepted Answer

A)  nonresidential real estate.
B)  residential real estate.
C)  inventories.
D)  consumer durables.
E)  equipment and software.F) C) and D)
G) A) and B) C

Question 19

_________ financial asset(s) .

Accepted Answer

A)  Buildings are
B)  Land is a
C)  Derivatives are
D)  U.S.agency bonds are
E)  Derivatives and U.S.agency bonds areF) A) and D)
G) B) and C)

Question 20

Theoretically, takeovers should result in

Accepted Answer

A)  improved management.
B)  increased stock price.
C)  increased benefits to existing management of taken-over firm.
D)  improved management and increased stock price.
E)  All of the optionsF) A) and B)
G) A) and D)

Exam 1: The Investment Environment

The spread between the LIBOR and the Treasury-bill rate is called the

Correct Answer
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_______ are financial assets.

Correct Answer
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The national net worth of the U.S.in 2012 was

Correct Answer
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D

Discuss the similarities and differences between real and financial assets.

Which of the following portfolio construction methods starts with security analysis

Correct Answer
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A debt security pays

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In 2012, ____________ was(were) the most significant real asset(s) of U.S.nonfinancial businesses in terms of total value.

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________ are in essence an insurance contract against the default of one or more borrowers.

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In 2012, ____________ was the most significant liability of U.S.households in terms of total value.

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_______ are examples of financial intermediaries.

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In 2012, ____________ was(were) the least significant financial asset(s) of U.S.nonfinancial businesses in terms of total value.

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In 2012 _______ of the assets of U.S.households were financial assets as opposed to tangible assets.

Correct Answer
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The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of

Correct Answer
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Investment bankers perform which of the following role(s)

Correct Answer
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Corporate shareholders are best protected from incompetent management decisions by

Correct Answer
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________ were designed to concentrate the credit risk of a bundle of loans on one class of investor, leaving the other investors in the pool relatively protected from that risk.

Correct Answer
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The smallest component of domestic net worth in 2012 was

Correct Answer
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C

_________ financial asset(s) .

Correct Answer
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Theoretically, takeovers should result in

Correct Answer
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Exam 1: The Investment Environment

The spread between the LIBOR and the Treasury-bill rate is called the

Correct AnswerverifiedShow Answer

_______ are financial assets.

Correct AnswerverifiedShow Answer

The national net worth of the U.S.in 2012 was

Correct AnswerverifiedD

Discuss the similarities and differences between real and financial assets.

Which of the following portfolio construction methods starts with security analysis

Correct AnswerverifiedShow Answer

A debt security pays

Correct AnswerverifiedShow Answer

In 2012, ____________ was(were) the most significant real asset(s) of U.S.nonfinancial businesses in terms of total value.

Correct AnswerverifiedShow Answer

________ are in essence an insurance contract against the default of one or more borrowers.

Correct AnswerverifiedShow Answer

In 2012, ____________ was the most significant liability of U.S.households in terms of total value.

Correct AnswerverifiedShow Answer

_______ are examples of financial intermediaries.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In 2012, ____________ was(were) the least significant financial asset(s) of U.S.nonfinancial businesses in terms of total value.

Correct AnswerverifiedShow Answer

In 2012 _______ of the assets of U.S.households were financial assets as opposed to tangible assets.

Correct AnswerverifiedShow Answer

The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of

Correct AnswerverifiedShow Answer

Investment bankers perform which of the following role(s)

Correct AnswerverifiedShow Answer

Corporate shareholders are best protected from incompetent management decisions by

Correct AnswerverifiedShow Answer

________ were designed to concentrate the credit risk of a bundle of loans on one class of investor, leaving the other investors in the pool relatively protected from that risk.

Correct AnswerverifiedShow Answer

The smallest component of domestic net worth in 2012 was

Correct AnswerverifiedC

_________ financial asset(s) .

Correct AnswerverifiedShow Answer

Theoretically, takeovers should result in

Correct AnswerverifiedShow Answer

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D

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C

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