Investment Man. Quiz 2 review

Suppose that in a wave of pessimism, housing prices fall by 10% across the entire economy. 1. Has the stock of real assets of the economy changed? A. Yes B. No 2. Are individuals less wealthy? A. Yes B. No

1.) B. No 2.) A. Yes

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

A. choosing specific securities within each asset class

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.

B. pay less for the security that has higher risk.

__________ 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

C. Passive

______ 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

C. Real, Financial

__________ are examples of financial intermediaries. A. Commercial banks B. Insurance companies C. Investment companies D. All of the options

D. All of the options

Real assets in the economy include all but which one of the following? A. Land B. Buildings C. Consumer Durables D. Common Stock

D. Common Stock

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

D. I, II, and III

The material wealth of society is determined by the economy's ______, which is a function of the ecnonomy's _______. A. Investment Bankers; Financial Assets B. Investment Bankers; Real Assets C. Productive Capacity; Financial Assets D. Productive Capacity; Real Assets

D. Productive Capacity; Real Assets

JUST READ. Choose the correct answer in the following statements about financial and real assets. a. Toyota takes out a bank loan to finance the construction of a new factory. Toyota creates a real asset—the factory. The loan is a financial asset that is created in the transaction. b. Toyota pays off its loan. When the loan is repaid, the financial asset is destroyed but the real asset continues to exist. c. Toyota uses $10 million of cash on hand to purchase additional inventory of spare auto parts. The cash is a financial asset that is traded in exchange for a real asset, inventory.

JUST READ