Practice Test 1 Multiple Choice

Asset allocation refers to... choosing which securities to hold based on their valuation. investing only in "safe" securities. the allocation of assets into broad asset classes. bottom-up analysis.

The allocation of assets into broad asset classes

Security selection refers to choosing which securities to hold based on their valuation. investing only in "safe" securities. the allocation of assets into broad asset classes. top-down analysis.

choosing which securities to hold based on their valuation

Shelf registration is a way of placing issues in the primary market. allows firms to register securities for sale over a two-year period. increases transaction costs to the issuing firm. is a way of placing issues in the primary market and allows firms to register securities for sale over a two-year period. is a way of placing issues in the primary market and increases transaction costs to the issuing firm.

is a way of placing issues in the primary market and allows firms to register securities for sale over a two-year period.

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08 and a bid price of 104:04. As a buyer of the bond, what is the dollar price you expect to pay? $1,048.00 $1,042.50 $1,044.00 $1,041.25 $1,040.40

$1,042.50

Which of the following statement(s) is(are) true regarding municipal bonds? I) A municipal bond is a debt obligation issued by state or local governments. II) A municipal bond is a debt obligation issued by the federal government. III) The interest income from a municipal bond is exempt from federal income taxation. IV) The interest income from a municipal bond is exempt from state and local taxation in the issuing state. I and II only I and III only I, II, and III only I, III, and IV only I and IV only

1, 111, and IV

Specialists on stock exchanges perform which of the following functions? Act as dealers in their own accounts. Analyze the securities in which they specialize. Provide liquidity to the market. Act as dealers in their own accounts and analyze the securities in which they specialize. Act as dealers in their own accounts and provide liquidity to the market.

Act as dealers in their own accounts and provide liquidity to the market.

The Dow Jones Industrial Average (DJIA) is computed by adding the prices of 30 large "blue-chip" stocks and dividing by 30. calculating the total market value of the 30 firms in the index and dividing by 30. adding the prices of the 30 stocks in the index and dividing by a divisor. adding the prices of the 500 stocks in the index and dividing by a divisor. adding the prices of the 30 stocks in the index and dividing by the value of these stocks as of some base date period.

Adding the prices of the 30 stocks in the index and dividing by a divisor

Money market securities... are short term. are highly marketable. are generally very low risk. are highly marketable and are generally very low risk. All of the options

All of the Above

The Sarbanes-Oxley Act requires corporations to have more independent directors. requires the firm's CFO to personally vouch for the firm's accounting statements. prohibits auditing firms from providing other services to clients. requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements. All of the options

All of the Options

Financial intermediaries exist because small investors cannot efficiently diversify their portfolios. assess credit risk of borrowers. advertise for needed investments. diversify their portfolios and assess credit risk of borrowers. All of the options

All of the options

Which of the following would increase the net asset value of a mutual fund share, assuming all other things remain unchanged? An increase in the number of fund shares outstanding An increase in the fund's accounts payable A change in the fund's management An increase in the value of one of the fund's stocks

An increase in the value of one of the fund's stocks.

The means by which individuals hold their claims on real assets in a well-developed economy are investment assets. depository assets. derivative assets. financial assets. exchange-driven assets.

Financial Assets

Although derivatives can be used as speculative instruments, businesses most often use them to... attract customers. appease stockholders. offset debt. hedge risks. enhance their balance sheets.

Hedge Risks

Which of the following characteristics apply to unit investment trusts? I) Most are invested in fixed-income portfolios. II) They are actively managed portfolios. III) The sponsor pools securities, then sells public shares in the trust. IV) The portfolio is fixed for the life of the fund. I and IV I and II I, III, and IV I, II, and III I, II, III, and IV

I, III and IV

Commercial paper is a short-term security issued by ________ to raise funds. the Federal Reserve Bank commercial banks large, well-known companies the New York Stock Exchange state and local governments

Large, Well-known companies

Which of the following orders instructs the broker to buy at the current market price? Limit order Discretionary order Limit-loss order Stop-buy order Market order

Market Order

You want to buy 100 shares of Hotstock Inc. at the best possible price as quickly as possible. You would most likely place a stop-loss order. stop-buy order. market order. limit-sell order. limit-buy order.

Market order

Which of the following financial assets made up the greatest proportion of the financial assets held by U.S. households? Pension reserves Life insurance reserves Mutual fund shares Debt securities Personal trusts

Pension Reserves

Which of the following orders is most useful to short sellers who want to limit their potential losses? Limit order Discretionary order Limit-loss order Stop-buy order

Stop-buy order

What does the term negotiable mean with regard to negotiable certificates of deposit? The CD can be sold to another investor if the owner needs to cash it in before its maturity date. The rate of interest on the CD is subject to negotiation. The CD is automatically reinvested at its maturity date. The CD has staggered maturity dates built in. The interest rate paid on the CD will vary with a designated market rate.

The CD can be sold to another investor if the owner needs to cash it in before its maturity date.

Initial margin requirements are determined by the Securities and Exchange Commission. the Federal Reserve System. the New York Stock Exchange. the Federal Reserve System and the New York Stock Exchange.

The federal reserve system

Which of the following statements about money market mutual funds is true? They invest in commercial paper, CDs, and repurchase agreements. They usually offer check-writing privileges. They are highly leveraged and risky. They invest in commercial paper, CDs, and repurchase agreements, and they usually offer check-writing privileges. All of the options are true.

They invest in commercial paper, CDs, and repurchase agreements, and they usually offer check-writing privileges.

Which of the following portfolio construction methods starts with asset allocation? Top-down Bottom-up Middle-out Buy and hold Asset allocation

Top-down

The largest component of the bond market is _______ debt. Treasury asset-backed corporate tax-exempt mortgage-backed

Treasury

In a "firm commitment," the investment banker buys the stock from the company and resells the issue to the public. agrees to help the firm sell the stock at a favorable price. finds the best marketing arrangement for the investment banking firm. agrees to help the firm sell the stock at a favorable price and finds the best marketing arrangement for the investment banking firm.

buys the stock from the company and resells it to the public