Question 1

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 
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 D

Question 2

________ 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 
A) Stocks 
B) Bonds 
C) Derivatives 
D) Collateralized debt obligations D

Question 3

In 2016, ____________ was(were) the least 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 
A) equipment and software 
B) inventory 
C) real estate 
D) trade credit B

Question 4

_______ is in an insurance contract against the default of one or more borrowers.

Accepted Answer

A) Collateralized debt obligation 
B) credit default swap 
C) Freddie Mac 
D) Adjustable-rate mortgage 
A) Collateralized debt obligation 
B) credit default swap 
C) Freddie Mac 
D) Adjustable-rate mortgage

Question 5

The value of a derivative security

Accepted Answer

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. 
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.

Question 6

Theoretically, takeovers should result in

Accepted Answer

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. 
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.

Question 7

In 2016, ____________ was(were) the least significant liability(ies) of U.S.nonfinancial businesses in terms of total value.

Accepted Answer

A) bonds and mortgages 
B) bank loans 
C) inventories 
D) trade debt 
A) bonds and mortgages 
B) bank loans 
C) inventories 
D) trade debt

Question 8

In terms of total value, the most significant liability(ies) of U.S.nonfinancial businesses in 2016 was(were)

Accepted Answer

A) bank loans. 
B) bonds and mortgages. 
C) trade debt. 
D) other loans. 
A) bank loans. 
B) bonds and mortgages. 
C) trade debt. 
D) other loans.

Question 9

________ 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 
A) Credit default swaps 
B) CMOs 
C) ETFs 
D) Collateralized debt obligations

Question 10

A disadvantage of using stock options to compensate managers is that

Accepted Answer

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. 
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.

Question 11

Security selection refers to

Accepted Answer

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. 
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.

Question 12

Systemic risk is

Accepted Answer

A) credit risk. 
B) an insurance contract against the default of one or more borrowers. 
C) firm-specific risk. 
D) default risk. 
E) the potential breakdown of the financial system when problems in one market spill over and disrupt others. 
A) credit risk. 
B) an insurance contract against the default of one or more borrowers. 
C) firm-specific risk. 
D) default risk. 
E) the potential breakdown of the financial system when problems in one market spill over and disrupt others.

Question 13

Although derivatives can be used as speculative instruments, businesses most often use them to

Accepted Answer

A) attract customers. 
B) appease stockholders. 
C) offset debt. 
D) hedge risks. 
A) attract customers. 
B) appease stockholders. 
C) offset debt. 
D) hedge risks.

Question 14

Financial assets

Accepted Answer

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. 
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.

Question 15

_______ are financial assets.

Accepted Answer

A) Bonds 
B) Machines 
C) Stocks 
D) Bonds and stocks 
A) Bonds 
B) Machines 
C) Stocks 
D) Bonds and stocks

Question 16

The attempt to improve performance either by identifying mispriced securities or by timing the performance of broad asset classes is a characteristic of:

Accepted Answer

A) Active management 
B) Passive management 
C) Both active and passive management 
D) Risk-return trade-off 
A) Active management 
B) Passive management 
C) Both active and passive management 
D) Risk-return trade-off

Question 17

Which one of the following is a not role of the financial markets?

Accepted Answer

A) Consumption timing 
B) Information 
C) Separation of ownership and control 
D) Increasing wealth of the economy 
A) Consumption timing 
B) Information 
C) Separation of ownership and control 
D) Increasing wealth of the economy

Question 18

Compared to investments in debt securities, equity investments tend to be

Accepted Answer

A) equally risky. 
B) riskier. 
C) less risky. 
D) more important. 
A) equally risky. 
B) riskier. 
C) less risky. 
D) more important.

Question 19

_______ are examples of financial intermediaries.

Accepted Answer

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

Question 20

In 2016, ____________ was(were) the most significant liability(ies) of U.S.commercial banks in terms of total value.

Accepted Answer

A) loans and leases 
B) cash 
C) real estate 
D) deposits 
A) loans and leases 
B) cash 
C) real estate 
D) deposits

Exam 1: The Investment Environment

Investment bankers perform which of the following role(s)?

________ 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.

In 2016, ____________ was(were) the least significant real asset(s) of U.S.nonfinancial businesses in terms of total value.

_______ is in an insurance contract against the default of one or more borrowers.

The value of a derivative security

Theoretically, takeovers should result in

In 2016, ____________ was(were) the least significant liability(ies) of U.S.nonfinancial businesses in terms of total value.

In terms of total value, the most significant liability(ies) of U.S.nonfinancial businesses in 2016 was(were)

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

A disadvantage of using stock options to compensate managers is that

Security selection refers to

Systemic risk is

Although derivatives can be used as speculative instruments, businesses most often use them to

Financial assets

_______ are financial assets.

The attempt to improve performance either by identifying mispriced securities or by timing the performance of broad asset classes is a characteristic of:

Which one of the following is a not role of the financial markets?

Compared to investments in debt securities, equity investments tend to be

_______ are examples of financial intermediaries.

In 2016, ____________ was(were) the most significant liability(ies) of U.S.commercial banks in terms of total value.

Financial Markets, Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioural Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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