Investments Test 1

Debt securities promise: 1. a fied stream of income 2. a stream of income that is determined according to a specific formula 3. a share in the profits of the issuing entity

1 or 2 only

Active trading in markets and competition among securities analysts helps ensure that: I. Security prices approach informational efficiency. II. Riskier securities are priced to offer higher potential returns. III. Investors are unlikely to be able to consistently find under- or overvalued securities.

1, 2, and 3

an example of a real asset is: 1. a college education 2. customer goodwill 3. a patent

1, 2, and 3

money market securities are characterized by: 1. maturity less than 1 year 2. safety of the principal investment 3. low rates of return

1, 2, and 3

which of the following indexes are market value-weighted? 1. the NYSE composite 2. the S&P 500 3. the Wilshire 5000

1, 2, and 3

which of the following is (are) true about dark pools? 1. they allow anonymity in trading 2. they often involve large blocks of stocks 3. trades made through them might not be reported

1, 2, and 3

the maximum maturity on commercial paper is ____.

270 days, because a longer maturity would cause the issue to be non-exempt

when computing the bank discount yield, you would use ____ days in the year.

360

More than ______ of all trading is believed to be initiated by computer algorithms.

50%

Explicit costs of a stock IPO tend to be around ____ of the funds raised.

7%

_____ is not a derivative security.

A share of common stock

The _____ price is the price at which a dealer is willing to purchase a security.

Bid

the german stock market is measured by which market index?

DAX

The U.K. stock index is the _____.

FTSE

which one of the following statements about IPOs is not true?

IPOs generally provide superior long-term performance as compared to other stocks

the interest rate charged by large banks in London to lend money among themselves is called____.

LIBOR

Which of the following is an example of an agency problem?

Managers engage in empire building, managers protect their jobs by avoiding risky projects, Managers overconsume luxuries such as corporate jects (all of the above)

An order to buy or sell a security at the current price is a _____.

Market order

______ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.

Passive

the efficient market hypothesis suggests that ____.

Passive portfolio management strategies are the most appropriate investment strategies.

which of the following is not a typical characteristic of common stock ownership?

Unlimited liability

in a perfectly efficient market the best investment strategy is probably _____.

a passive strategy

_______ is not a money market instrument

a treasury bond

Advantages of ECNs over traditional markets include all but which one of the following?

ability to handle very large complex orders

the historical average rate of return on large company stock since 1926 has been_____.

about 12%

Financial assets represent _____ of total assets of U.S. households in 2019.

about 70%

Accounting scandals can often be attributes to a concept in the study of finance known as the ______.

agency problem

an intermediary that pools and manages funds for many investors is called ____.

an investment company

The ____price is the price at which a dealer is willing to sell a security.

ask

After considering current market conditions, an investor decides to place 60% of her funds in equities and the rest in bonds. This is an example of ______.

asset allocation

the difference between the price at which a dealer is willing to buy and the price at which a dealer is willing to sell is called the ____.

bid-ask spread

the process of polling investors regarding their interest in a forthcoming initial public offering (IPO) is called _____.

book building

_____ portfolio construction starts with selecting attractively priced securities.

bottom-up

an investor in a T-bill earns interest by ____.

buying the bill at a discount from the face value to be received at maturity

______ are examples of financial intermediaries.

commercial banks, insurance companies, investment companies (all of the above)

which one of the following is a true statement?

common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock

Real assets in the economy include all but which one of the following?

common stock

Which of the following is not a money market security?

common stock

_____ represents an ownership share in a corporation.

common stock

The value of a derivative security _________.

depends on the value of another related security

Financial intermediaries exist because small investors cannot efficiently _____.

diversify their portfolios, gather information, assess and monitor the credit risk of borrows (all of the above)

a typical bond price quote includes all but which one of the following?

dividend yield

which of the following mortgage scenarios will benefit the homeowner the most?

fixed rate mortgage when interest rate rises.

the average depth of the limit order book is ______.

higher for the large stocks in the S&P 500 index than for the smaller stocks in the Russell 2000 index

the bulk of most initial public offerings (IPOs) of equity securities goes to ____.

institutional investors

underwriting is one of the services provided by ____.

investment bankers

Firms that specialize in helping companies raise capital by selling securities to the public are called _________.

investment banks

which one of the following is a true statement regarding the Dow Jones Industrial Average?

it is a price - weighted average of 30 large industrial stocks

the yield on tax-exempt bond is _____.

less than the yield on taxable bonds

The CFA Institute Standards of Professional Conduct requires that members ______.

place their clients' interest before their own, disclose conflicts of interest to clients, inform their employers that they are obligated to comply with the Standards of Professional Conduct. (all of the above)

which of the following is not a money market instrument?

preferred stock

The material wealth of society is determined by the economy's _________, which is a function of the economy's _________.

productive capacity ; real assets

According to the Flow of Funds Accounts of the United States, the largest liability of U.S. households is ________.

real estate

The Dodd-Frank Reform Act does all of the following except:

reduces capitals requirements for banks

ownership of a call option entitles the owner to the ____ to ____ a specific stock, on or before a specific data, at a specific price.

right ; buy

When the market is more optimistic about a firm, its share price will ____; as a result, it will need to issue ______ shares to raise funds that are needed.

rise ; fewer

If an investor places a _________ order, the stock will be sold if its price falls to the stipulated level. If an investor places a __________ order, the stock will be bought if its price rises above the stipulated level.

stop-loss ; buy stop

Venture capital is _____.

supplied by venture capital funds and individuals to start - up companies

the largest non-governmental regulator of securities firms in the United States is _____.

the Financial Industry Regulatory Authority

asset allocation refers to ____.

the allocation of the investment portfolio across broad asset classes

the term inside quotes refers to _______.

the difference between the highest bid price and the lowest ask price in the limit order book.

the bid-ask spread exist because of _____.

the need for dealers to cover expenses and make a profit.

The bid price of a Treasury bill is ____.

the price at which the dealer in Treasury bills is willing to buy the bill

Which of the following is (are) true about nonconforming mortgage loans?

they are also known as subprime loans, they have higher default risk than conforming loans, they were able to be offered without due diligence (all of the above)

Money market securities are sometimes referred to as cash equivalents because _____.

they are safe, marketable, and offer low return

Which one of the following best describes the purpose of derivatives markets?

transferring risk from one party to another

Initial public offerings (IPOs) are usually _______ relative to the levels at which their prices stabilize after they begin trading in the secondary market.

underpriced

Under firm - commitment underwriting, the ____ assume the full risk that the shares cannot be sold to the public at the stipulated offering price.

underwriter