FINC 409 - MOD 9&10 Conceptual Questions

Primary market financial instruments include stock issues from firms allowing their equity shares to be publicly traded on the stock market for the first time. We usually refer to these first-time issues as which of the following? initial public offerings direct transfers money market transfers over-the-counter stocks

initial public offerings

In the United States, which of these financial institutions arrange most primary market transactions for businesses? investment banks asset transformer direct transfer agents over-the-counter agents

investment banks

Which of these is the portion of total risk that is attributable to overall economic factors? firm-specific risk market risk modern portfolio risk total risk

market risk

Which of the following is the concept and procedure for combining securities into a portfolio to minimize risk? firm-specific theory modern portfolio theory optimal portfolio theory total portfolio theory

modern portfolio theory

Which of these feature debt securities or instruments with maturities of one year or less? money markets primary markets secondary markets over-the-counter stocks

money markets

Which of these is defined as a combination of investment assets held by an investor? market basket portfolio bundle All of these choices are correct.

portfolio

Which of these provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds? investment banks money markets primary markets secondary markets

primary markets

Once firms issue financial instruments in primary markets, these same stocks and bonds are then traded in which of these? initial public offerings direct transfers secondary markets over-the-counter stocks

secondary markets

Which of these does NOT perform vital functions to securities markets of all sorts by channeling funds from those with surplus funds to those with shortages of funds? commercial banks secondary markets insurance companies mutual funds

secondary markets

Which of these is a measure of risk to reward earned by an investment over a specific period of time? market deviation total variation coefficient of variation standard deviation

coefficient of variation

Which of the following is NOT a money market instrument? treasury bills commercial paper corporate bonds bankers' acceptances

corporate bonds

Which of the following is a measurement of the co-movement between two variables that ranges between −1 and +1? coefficient of variation correlation standard deviation total risk

correlation

Which of these is the term for portfolios with the highest return possible for each risk level? efficient portfolios modern portfolios optimal portfolios total portfolios

efficient portfolios

Which of the following is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification? total risk modern portfolio risk firm-specific risk market risk

firm-specific risk

Which of these is a measure summarizing the overall past performance of an investment? average return dollar return market return percentage return

average return

Financial intermediaries provide which of the following? Purchase the financial claims that fund users issue. Finance purchases by selling financial claims to household investors and other fund suppliers. Both a and b None of the above

Both a and b

How is the shadow banking system the same as the traditional banking system? It intermediates the flow of funds between net savers and net borrowers. It serves as a middle man. The complete credit intermediation is performed through a series of steps involving many nonbank financial service firms. The complete credit intermediation is performed by a single bank.

It intermediates the flow of funds between net savers and net borrowers.

Which of the following is an index that tracks 500 companies, which allows for a great deal of diversification? S&P 500 Nasdaq Fortune 500 Wall Street Journal

S&P 500

Which statement is true? The larger the standard deviation, the lower the total risk. The larger the standard deviation, the higher the total risk. The larger the standard deviation, the more portfolio risk. The standard deviation is not an indication of total risk.

The larger the standard deviation, the higher the total risk.

Which of these statements is true? When people purchase a stock, they know the short-term return, but not the long-term return. Many people purchase stocks as they find comfort in the certainty for this safe form of investing. When people purchase a stock, they do not know what their return is going to be—either short term or in the long run. When people purchase a stock, they know exactly what their dollar and percent return are going to be.

When people purchase a stock, they do not know what their return is going to be—either short term or in the long run.

Which of the following makes this a true statement: The shape of the efficient frontier implies that: diminishing returns apply to risk-taking in the investment world. increasing returns apply to risk-taking in the investment world. returns are not impacted by risk-taking in the investment world. None of these choices complete the sentence to make it true.

diminishing returns apply to risk-taking in the investment world.

To find the percentage return of an investment: multiply the dollar return by the investment's value at the beginning of the period. divide the dollar return by the investment's value at the beginning of the period. multiply the dollar return by the investment's value at the end of the period. divide the dollar return by the investment's value at the end of the period.

divide the dollar return by the investment's value at the beginning of the period.

Which of these includes any capital gain (or loss) that occurred as well as any income that you received from a specific investment? dollar return average return market return portfolio

dollar return

Which of the following is another term for market risk? firm-specific risk modern portfolio risk non-diversifiable risk total risk

non-diversifiable risk

Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level? efficient portfolio modern portfolio optimal portfolio total portfolio

optimal portfolio

Which of these is the dollar return characterized as a percentage of money invested? percentage return average return dollar return market return

percentage return

Which of the following is defined as the volatility of an investment, which includes firm-specific risk as well as market risk? total risk diversifiable risk standard deviation market risk

total risk