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Investments & Securities
Q:
________ 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.
A. Stocks
B. Bonds
C. Derivatives
D. Collateralized debt obligations
E. All of the options
Q:
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 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 may continue to service them.
A. II, III, and IV
B. I, II, and IV
C. II and IV
D. I, III, and IV
E. I, II, III, and IV
Q:
The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of
A. credit enhancement.
B. credit swap.
C. unbundling.
D. derivatives.
Q:
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. GNMA
B. FNMA
C. FHLMC
D. FNMA and FHLMC
E. GNMA and FNMA
Q:
The spread between the LIBOR and the Treasury-bill rate is called the
A. term spread.
B. T-bill spread.
C. LIBOR spread.
D. TED spread.
Q:
Until 1999, the ________ Act(s) prohibited banks in the United States from both accepting deposits and underwriting securities.
A. Sarbanes-Oxley
B. Glass-Steagall
C. SEC
D. Sarbanes-Oxley and SEC
E. None of the options
Q:
Investment bankers perform which of the following role(s)?
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 options
Q:
Investors trade previously issued securities in the ________ market(s).
A. primary
B. secondary
C. primary and secondary
D. derivatives
Q:
New issues of securities are sold in the ________ market(s).
A. primary
B. secondary
C. over-the-counter
D. primary and secondary
Q:
In 2016, ____________ was(were) the least significant financial asset(s) of U.S. nonfinancial businesses in terms of total value.
A. cash and deposits
B. trade credit
C. trade debt
D. inventory
E. marketable securities
Q:
In terms of total value, the most significant liability(ies) of U.S. nonfinancial businesses in 2016 was(were)
A. bank loans.
B. bonds and mortgages.
C. trade debt.
D. other loans.
E. marketable securities.
Q:
In 2016, ____________ was(were) the least significant liability(ies) of U.S. nonfinancial businesses in terms of total value.
A. bonds and mortgages
B. bank loans
C. inventories
D. trade debt
E. marketable securities
Q:
In 2016, ____________ was(were) the least significant real asset(s) of U.S. nonfinancial businesses in terms of total value.
A. equipment and software
B. inventory
C. real estate
D. trade credit
E. marketable securities
Q:
In 2016, ____________ was(were) the most significant real asset(s) of U.S. nonfinancial businesses in terms of total value.
A. equipment and software
B. inventory
C. real estate
D. trade credit
E. marketable securities
Q:
In 2016, ____________ was(were) the most significant liability(ies) of U.S. commercial banks in terms of total value.
A. loans and leases
B. cash
C. real estate
D. deposits
E. investment securities
Q:
In 2016, ____________ was(were) the most significant financial asset(s) of U.S. commercial banks in terms of total value.
A. loans and leases
B. cash
C. real estate
D. deposits
E. investment securities
Q:
Commercial banks differ from other businesses in that both their assets and their liabilities are mostly
A. illiquid.
B. financial.
C. real.
D. owned by the government.
E. regulated.
Q:
________ specialize in helping companies raise capital by selling securities.
A. Commercial bankers
B. Investment bankers
C. Investment issuers
D. Credit raters
Q:
Financial intermediaries exist because small investors cannot efficiently
A. 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 options.
Q:
_______ are examples of financial intermediaries.
A. Commercial banks
B. Insurance companies
C. Investment companies
D. Credit unions
E. All of the options
Q:
Which of the following portfolio construction methods starts with asset allocation?
A. Top-down
B. Bottom-up
C. Middle-out
D. Buy and hold
E. Asset allocation
Q:
Which of the following portfolio construction methods starts with security analysis?
A. Top-down
B. Bottom-up
C. Middle-out
D. Buy and hold
E. Asset allocation
Q:
Security selection refers to
A. 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. top-down analysis.
Q:
Asset allocation refers to
A. 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.
Q:
The Sarbanes-Oxley Act
A. requires corporations to have more independent directors.
B. requires the firm's CFO to personally vouch for the firm's accounting statements.
C. prohibits auditing firms from providing other services to clients.
D. requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements.
E. All of the above.
Q:
During the period between 2000 and 2002, a large number of scandals were uncovered. Most of these scandals were related to
I) manipulation of financial data to misrepresent the actual condition of the firm.
II) misleading and overly optimistic research reports produced by analysts.
III) allocating IPOs to executives as a quid pro quo for personal favors.
IV) greenmail.
A. II, III, and IV
B. I, II, and IV
C. II and IV
D. I, III, and IV
E. I, II, and III
Q:
Theoretically, takeovers should result in
A. improved management.
B. increased stock price.
C. increased benefits to existing management of the taken-over firm.
D. improved management and increased stock price.
E. All of the options.
Q:
Corporate shareholders are best protected from incompetent management decisions by
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.
Q:
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
A. II and V
B. I, III, and IV
C. I, III, IV, and V
D. III, IV, and V
E. I, III, and V
Q:
A disadvantage of using stock options to compensate managers is that
A. it encourages managers to undertake 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 firm's true prospects.
D. All of the above.
Q:
The ____________ refers to the potential conflict between management and shareholders.
A. agency problem
B. diversification problem
C. liquidity problem
D. solvency problem
E. regulatory problem
Q:
Financial assets permit all of the following except
A. consumption timing.
B. allocation of risk.
C. separation of ownership and control.
D. elimination of risk.
Q:
Although derivatives can be used as speculative instruments, businesses most often use them to
A. attract customers.
B. appease stockholders.
C. offset debt.
D. hedge risks.
E. enhance their balance sheets.
Q:
The value of a derivative security
A. 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.
Q:
An example of a derivative security is
A. 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.
Q:
Money market securities
A. are short term.
B. are highly marketable.
C. are generally very low risk.
D. are highly marketable and are generally very low risk.
E. All of the options.
Q:
A debt security pays
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.
Q:
A fixed-income security pays
A. 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. a variable level of income for owners on a fixed income.
D. a fixed or variable income stream at the option of the owner.
Q:
The domestic net worth of the U.S. in 2016 was
A. $15.411 trillion.
B. $26.431 trillion.
C. $42.669 trillion.
D. $64.747 trillion.
E. $70.983 trillion.
Q:
The smallest component of domestic net worth in 2016 was
A. nonresidential real estate.
B. residential real estate.
C. inventories.
D. consumer durables.
E. equipment and software.
Q:
The largest component of domestic net worth in 2016 was
A. nonresidential real estate.
B. residential real estate.
C. inventories.
D. consumer durables.
E. equipment and software.
Q:
In 2016, _______ of the assets of U.S. households were financial assets as opposed to tangible assets.
A. 20.4%
B. 34.2%
C. 69.4%
D. 71.7%
E. 82.5%
Q:
In 2016, which of the following financial assets make up the greatest proportion of the financial assets held by U.S. households?
A. Pension reserves
B. Life insurance reserves
C. Mutual fund shares
D. Debt securities
E. Personal trusts
Q:
In 2016, ____________ were the most significant liability of U.S. households in terms of total value.
A. credit cards
B. mortgages
C. bank loans
D. student loans
E. other forms of debt
Q:
In 2016, ____________ was the most significant asset of U.S. households in terms of total value.
A. real estate
B. mutual fund shares
C. debt securities
D. life insurance reserves
E. pension reserves
Q:
In 2016, ____________ was the most significant financial asset of U.S. households in terms of total value.
A. real estate
B. mutual fund shares
C. debt securities
D. life insurance reserves
E. pension reserves
Q:
In 2016, ____________ was the least significant financial asset of U.S. households in terms of total value.
A. real estate
B. mutual fund shares
C. debt securities
D. life insurance reserves
E. pension reserves
Q:
In 2016, ____________ was the most significant real asset of U.S. households in terms of total value.
A. consumer durables
B. automobiles
C. real estate
D. mutual fund shares
E. bank loans
Q:
Financial assets
A. directly contribute to the country's productive capacity.
B. indirectly contribute to the country's productive capacity.
C. contribute to the country's productive capacity, both directly and indirectly.
D. do not contribute to the country's productive capacity, either directly or indirectly.
E. are of no value to anyone.
Q:
_________ financial asset(s).
A. Buildings are
B. Land is a
C. Derivatives are
D. U.S. agency bonds are
E. Derivatives and U.S. agency bonds are
Q:
_______ are financial assets.
A. Bonds
B. Machines
C. Stocks
D. Bonds and stocks
E. Bonds, machines, and stocks
Q:
The means by which individuals hold their claims on real assets in a well-developed economy are
A. investment assets.
B. depository assets.
C. derivative assets.
D. financial assets.
E. exchange-driven assets.
Q:
_______ are real assets.
A. Land
B. Machines
C. Stocks and bonds
D. Knowledge
E. Land, machines, and knowledge
Q:
The material wealth of a society is a function of
A. all financial assets.
B. all real assets.
C. all financial and real assets.
D. all physical assets.
Q:
*Significant at the 5 percent levelConsider the five funds shown below: Fund _a_ _b_ R2_ 1 4.0 0.9 0.90 2 -1.6* 1.2 0.95 3 2.5 0.9 0.90 4 1.2 0.8 0.89 5 0.9* 1.3 0.90a. Which fund's returns are best explained by the market's returns?b. Which fund had the largest total risk?c. Which fund had the lowest market risk? The highest?d. Which fund(s), according to Jensen's alpha, outperformed the market?
Q:
The following data are available for three portfolios and the market for a recent 10-year period: Average Annual StandardPortfolio Return (%) Deviation Beta R2_1 14 21 1.15 0.702 16 24 1.00 0.983 20 28 1.25 0.90S&P 500 12 20RF 6 Rank these portfolios using the Sharpe measure (3 = highest).Rank these portfolios using the Treynor measure.Which of these portfolios outperformed the market?
Q:
What are some of the problems associated with using risk-adjusted portfolio performance measures?
Q:
A retired couple's assets consist of a $100,000 house, a $400,000 securities portfolio, a $15,000 car, and personal effects. Would they be more concerned with the Sharpe performance measure or the Treynor performance measure for the portfolio?
Q:
What is performance attribution?
Q:
Sharpe's RVAR measures the slope of the line between RF and the portfolio being evaluated. If the line is plotted between RF and a market index, where would superior portfolios lie? Inferior portfolios?
Q:
Explain the characteristic line in excess return form for the Jensen alpha measure.
Q:
What are the appropriate uses of the Sharpe and the Treynor performance measures?
Q:
How is regression analysis used to measure portfolio diversification?
Q:
Time-weighted as opposed to dollar-weighted return captures rate of return actually earned by the portfolio manager.
Q:
What is the major difference between the Sharpe and Treynor models?
Q:
Discuss how constraints on portfolio managers affect the portfolio results.
Q:
GIPS® requirements include: uniformity in certain performance calculations and disclosures; inclusion of all actual fee-paying discretionary portfolios in composites with similar objectives; compliant history for at least 5 years, or since inception if less than 5 years.
Q:
The coefficient of determination is also known as R-squared, is used to denote the degree of diversification.
Q:
GIPS® was created to obtain global acceptance of a standard for fair presentation.
Q:
GIPS requires compliant history for at least 10 years, or since inception, if less than 10 years.
Q:
The purpose of performance attribution is to assess the risk of a portfolio.
Q:
Performance attribution seeks to determine the detailed investment style adopted by a money manager.
Q:
Modigliani-squared is a return adjusted for volatility that allows returns between portfolios to be compared.
Q:
Jensen's alpha measures the contribution of the portfolio manager.
Q:
Investors who have all their assets in one portfolio of securities should rely on the Sharpe measure rather than the Treynor measure.
Q:
The use of RVOL implies that total risk is the proper measure of risk in performance evaluation.
Q:
Jensen's measure of performance is based on the CAPM.
Q:
Treynor's measure is a ratio of excess return to systematic risk.
Q:
Sharpe's measure is a ratio of excess return to total risk.
Q:
The higher the RVAR, the better the risk-adjusted portfolio performance.