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Q:
Surf City Software Company develops new surf forecasting software. It sells the software to Microsoft in exchange for 1,000 shares of Microsoft common stock. Surf City Software has exchanged a _____ asset for a _____ asset in this transaction.
A. real; real
B. financial; financial
C. real; financial
D. financial; real
Q:
Individuals may find it more advantageous to purchase claims from a financial intermediary rather than directly purchasing claims in capital markets because:
I. Intermediaries are better diversified than most individuals
II. Intermediaries can exploit economies of scale in investing that individual investors cannot
III. Intermediated investments usually offer higher rates of return than direct capital market claims
A. I only
B. I and II only
C. II and III only
D. I, II, and III
Q:
Venture capital is _________.
A. frequently used to expand the businesses of well-established companies
B. supplied by venture capital funds and individuals to start-up companies
C. illegal under current U.S. laws
D. most frequently issued with the help of investment bankers
Q:
Which of the following is (are) true about hedge funds?
I. They are open to institutional investors.
II. They are open to wealthy individuals.
III. They are more likely than mutual funds to pursue simple strategies.
A. I and II only
B. I and III only
C. II and III only
D. I, II, and III
Q:
Market signals will help to allocate capital efficiently only if investors are acting _____.
A. on the basis of their individual hunches.
B. as directed by financial experts.
C. as dominant forces in the economy.
D. on accurate information.
Q:
In a perfectly efficient market the best investment strategy is probably _____.
A. an active strategy.
B. a passive strategy.
C. asset allocation.
D. market timing.
Q:
The efficient market hypothesis suggests that _______.
A. active portfolio management strategies are the most appropriate investment strategies
B. passive portfolio management strategies are the most appropriate investment strategies
C. either active or passive strategies may be appropriate, depending on the expected direction of the market
D. a bottom-up approach is the most appropriate investment strategy
Q:
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 _____.
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.
Q:
After considering current market conditions, an investor decides to place 60% of her funds in equities and the rest in bonds. This is an example of _____.
A. asset allocation
B. security analysis
C. top-down portfolio management
D. passive management
Q:
After much investigation, an investor finds that Intel stock is currently underpriced. This is an example of ______.
A. asset allocation
B. security analysis
C. top-down portfolio management
D. passive management
Q:
Money market securities are characterized by:
I. Maturity less than 1 year
II. Safety of the principal investment
III. Low rates of return
A. I only
B. I and II only
C. I and III only
D. I, II, and III
Q:
Real assets represent about ____ of total assets for commercial banks.
A. 1%
B. 15%
C. 25%
D. 40%
Q:
Which of the following is not an example of a financial intermediary?
A. Goldman Sachs
B. Allstate Insurance
C. First Interstate Bank
D. IBM
Q:
Liabilities equal approximately _____ of total assets for nonfinancial U.S. businesses.
A. 10%
B. 25%
C. 48%
D. 75%
Q:
In 2011 mortgages represented approximately __________ of total liabilities and net worth of American households.
A. 12%
B. 14%
C. 28%
D. 42%
Q:
In 2011 real assets represented approximately __________ of the total asset holdings of American households.
A. 32%
B. 42%
C. 48%
D. 55%
Q:
The combined liabilities of American households represent approximately __________ of combined assets.
A. 11%
B. 19%
C. 25%
D. 33%
Q:
Which of the following is not a financial intermediary?
A. a mutual fund
B. an insurance company
C. a real estate brokerage firm
D. a savings and loan company
Q:
The 2002 law designed to improve corporate governance is titled the _____.
A. Pension Reform Act
B. ERISA
C. Financial Services Modernization Act
D. Sarbanes-Oxley Act
Q:
An example of a real asset is:
I. A college education
II. Customer goodwill
III. A patent
A. I only
B. II only
C. I and III only
D. I, II, and III
Q:
The average rate of return on U.S. Treasury bills since 1926 was _________.
A. less than 1%
B. less than 3%
C. less than 4%
D. less than 7%
Q:
The historical average rate of return on large company stocks since 1926 has been _____.
A. 5%
B. 8%
C. 12%
D. 20%
Q:
The success of common stock investments depends on the success of _________.
A. derivative securities
B. fixed-income securities
C. the firm and its real assets
D. government methods of allocating capital
Q:
The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but which one of the following?
A. Required that corporations have more independent directors
B. Required that the CFO 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. Required the creation of a new board to oversee the auditing of public companies
Q:
Debt securities promise:
I. A fixed stream of income
II. A stream of income that is determined according to a specific formula
III. A share in the profits of the issuing entity
A. I only
B. I or II only
C. I and III only
D. II or III only
Q:
Which one of the following firms falsely claimed to have a $4.8 billion bank account at Bank of America and vastly understated its debts, eventually resulting in the firm's bankruptcy?
A. WorldCom
B. Enron
C. Parmalat
D. Global Crossing
Q:
__________ portfolio construction starts with asset allocation.
A. Bottom-up
B. Top-down
C. Upside-down
D. Side-to-side
Q:
An example of a derivative security is _________.
A. a common share of General Motors
B. a call option on Intel stock
C. a Ford bond
D. a U.S. Treasury bond
Q:
Security selection refers to _________.
A. choosing specific securities within each asset class
B. deciding how much to invest in each asset class
C. deciding how much to invest in the market portfolio versus the riskless asset
D. deciding how much to hedge
Q:
When the market is more optimistic about a firm, its share price will ______; as a result, it will need to issue _______ shares to raise funds that are needed.
A. rise; fewer
B. fall; fewer
C. rise; more
D. fall; more
Q:
In securities markets, there should be a risk-return trade-off with higher-risk assets having _________ expected returns than lower-risk assets.
A. higher
B. lower
C. the same
D. The answer cannot be determined from the information given.
Q:
Firms that specialize in helping companies raise capital by selling securities to the public are called _________.
A. pension funds
B. investment banks
C. savings banks
D. REITs
Q:
Methods of encouraging managers to act in shareholders' best interest include:
I. Threat of takeover
II. Proxy fights for control of the board of directors
III. Tying managers' compensation to stock price performance
A. I only
B. I and II only
C. II and III only
D. I, II, and III
Q:
Financial intermediaries exist because small investors cannot efficiently _________.
A. diversify their portfolios
B. gather information
C. monitor their portfolios
D. all of these options
Q:
Financial markets allow for all but which one of the following?
A. Shift consumption through time from higher-income periods to lower
B. Price securities according to their riskiness
C. Channel funds from lenders of funds to borrowers of funds
D. Allow most participants to routinely earn high returns with low risk
Q:
__________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.
A. Active
B. Momentum
C. Passive
D. Market-timing
Q:
Commodity and derivative markets allow firms to adjust their _________.
A. management styles
B. focus from their main line of business to their investment portfolios
C. ways of doing business so that they'll always have positive returns
D. exposure to various business risks
Q:
The value of a derivative security _________.
A. depends on the value of another related security
B. affects the value of a related security
C. is unrelated to the value of a related security
D. can be integrated only by calculus professors
Q:
__________ represents an ownership share in a corporation.
A. A call option
B. Common stock
C. A fixed-income security
D. Preferred stock
Q:
In a market economy, capital resources are primarily allocated by ____________.
A. governments
B. the SEC
C. financial markets
D. investment bankers
Q:
__________ portfolio construction starts with selecting attractively priced securities.
A. Bottom-up
B. Top-down
C. Upside-down
D. Side-to-side
Q:
__________ is (are) real assets.
A. Bonds
B. Production equipment
C. Stocks
D. Commercial paper
Q:
_____ is a mechanism for mitigating potential agency problems.
A. Tying income of managers to success of the firm
B. Directors defending top management
C. Antitakeover strategies
D. The straight voting method of electing the board of directors
Q:
Which of the following 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 these options are examples of agency problems.
Q:
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
Q:
More than _____________ of currency is traded each day in the market for foreign exchange.
A. $300 million
B. $1 billion
C. $30 billion
D. $1 trillion
Q:
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
Q:
Asset allocation refers to _________.
A. the allocation of the investment portfolio across broad asset classes
B. the analysis of the value of securities
C. the choice of specific assets within each asset class
D. none of these options
Q:
__________ are examples of financial intermediaries.
A. Commercial banks
B. Insurance companies
C. Investment companies
D. All of these options
Q:
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
Q:
__________ 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
Q:
Which of the following is not a money market security?
A. U.S. Treasury bill
B. 6-month maturity certificate of deposit
C. Common stock
D. Bankers' acceptance
Q:
The material wealth of society is determined by the economy's _________, which is a function of the economy's _________.
A. investment bankers; financial assets
B. investment bankers; real assets
C. productive capacity; financial assets
D. productive capacity; real assets
Q:
Active trading in markets and competition among securities analysts helps ensure that:
I. Security prices approach informational efficiency
II. Riskier securities are priced to offer higher potential returns
III. Investors are unlikely to be able to consistently find under- or overvalued securities
A. I only
B. I and II only
C. II and III only
D. I, II, and III
Q:
According to the Flow of Funds Accounts of the United States, the largest financial asset of U.S. households is ____.
A. mutual fund shares
B. corporate equity
C. pension reserves
D. personal trusts
Q:
____ is not a derivative security.
A. A share of common stock
B. A call option
C. A futures contract
D. None of these options (All of the answers are derivative securities.)
Q:
According to the Flow of Funds Accounts of the United States, the largest liability of U.S. households is ________.
A. mortgages
B. consumer credit
C. bank loans
D. gambling debts
Q:
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
D. corporate equity
Q:
Net worth represents _____ of the liabilities and net worth of commercial banks.
A. about 51%
B. about 91%
C. about 11%
D. about 31%
Q:
Real assets in the economy include all but which one of the following?
A. Land
B. Buildings
C. Consumer durables
D. Common stock
Q:
Financial assets represent _____ of total assets of U.S. households.
A. over 60%
B. over 90%
C. under 10%
D. about 30%
Q:
___________ represent permanent capital funds that are donated to universities, churches, or civic organizations.
A.Trusts
B.Endowments
C.Commingled funds
D.Annuities
Q:
Organizations responsible for bringing together large pools of capital for purposes of reinvestment are called:
A.individual investors.
B.institutional investors.
C.social security clubs.
D.B and C
Q:
The largest category of institutional investors is:
A.foundations.
B.personal trusts.
C.mutual savings banks.
D.pension funds.
Q:
Which of the following are NOT examples of institutional investors?
A.Mutual funds and pension funds
B.Insurance companies
C.Commercial banks
D.All of the above are institutional investors
Q:
Foundations represent profitable organizations set up to accomplish social, educational, or charitable purposes.
Q:
Pension funds represent a declining segment of the institutional market.
Q:
A duplex was purchased for $120,000, and depreciation of $3,300 has been taken for the last seven years. The net proceeds from the sale of the property were $135,000.
a) Assuming the property qualifies for capital gains treatment at a 15% rate, what is the tax owed?
b) What are the net funds from the sale?
Q:
An apartment complex has net operating income of $15,000, depreciation of $8,000, and interest expense of $13,000. The tax rate is 30%.
a) What is taxable income or loss?
b) What is the tax shield benefit or tax owed?
Q:
Assume the real return in the economy is 5.0%. It is anticipated that the consumer price index will go from 340 to 363.8. Shares of common stock for the market in general are assumed to have a required rate of return one-fourth higher than the risk-free rate. Compute the required return on common stock..1583 or 15.83%
Q:
Assume the real rate of return for the economy is 3.75% and the expected rate of inflation is 6.75%. What is the risk-free rate?
Q:
Assume the real rate of return in the economy is 4.25%, the expected rate of inflation is 3.5%, and the risk premium is 6.75%. Compute the risk-free rate and required rate of return.Risk free rate = .079 or 7.9%orRf = 7.75%Required Rate of Return =.1518 or 15.18%orRequired Rate of Return = 14.50%
Q:
(a) The stock of Furniture Unlimited went from $90 to $99 last year. The firm also paid 80 cents in dividends. Compute the rate of return.(b) During the next year, the dividend paid was $1.60 per share and the stock closed at $93 per share, down from $99 per share at the beginning of the year. Compute the annual gain or loss for the second year holding period.(a) 10.9%(b) (4.4%) loss
Q:
For which year were estate taxes eliminated under the Economic Growth and Tax Reconciliation Act of 2001?A.2008B.2009C.2010D.2019E.The estate tax will not be eliminated.
Q:
Which of the following is not a form of real asset?
A.Rare paintings
B.Baseball cards
C.Diamonds
D.Real estate
E.Commodity futures
Q:
Historically, the real rate of return in the U.S. economy has been:
A.1-2%.
B.2-3%.
C.3-4%.
D.4-5%.
E.5-6%.
Q:
Which of the following is not a form of a financial asset?
A.Commercial paper
B.Commodity futures
C.Warrants
D.Personal residence
E.Money market fund
Q:
The two types of investments that provide the highest and lowest yields in the Ibbotson study of Stocks, Bonds, Bills and Inflation are:
A.large company stocks and U.S. treasury bills.
B.large company stocks and long-term government bonds.
C.small company stocks and U.S. treasury bills.
D.small company stocks and preferred stock.
E.U.S. treasury bills and small company stocks.
Q:
Because most investors are risk averse,
A.the riskier the investment, the more the investor will pay for it.
B.the riskier the investment, the less compensation the investor requires.
C.only financial institutions invest in risky assets.
D.they will require a higher rate of return for a riskier investment.
Q:
An investor in Duke Energy can expect:
A.low dividends.
B.high dividends.
C.low inflation.
D.fast stock price growth.
E.None of the above