Chapter 1
Which of the following portfolio construction methods starts with security analysis?
Bottom-Up
An example of a derivative security is...
a call option on intel stock and a commodity futures contract
A fixed income security pays...
a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security.
The ____ refers to potential conflict between management and stockholders
agency problem
Mortgage backed securities...
aggregate individual home mortgages into homogenous pools, the purchaser receives monthly interest and principal payments received from payments made on the pool, the banks that originated the mortgages may continue to service them
The material wealth of a society is a function of...
all real assets
Money market securities...
are short term, highly marketable, generally very low risk
In 2016, ____ were the least significant liability of US non-financial businesses in terms of total value
bank loans
Bonds and Stocks are...
financial assets
During the period between 2000-2002, a large number of scandals were uncovered. Most of them were related to...
manipulation of financial data to misrepresent the actual condition of the firm, misleading and overly optimistic research reports produced by analysts, allocating IPO's to executives as a quid pro quo for personal favors
In 2016, ______ were the most significant liability of US households in terms of total value
mortgages
Land, Machines, Knowledge are...
real assets
The Sarbanes-Oxley Act
requires corporations to have more independent directors, requires the firms CFO to personally vouch for the firms accounting statements, prohibits auditing firms from providing other services to clients
Investment Bankers...
specialize in helping companies raise capital by selling securities
Asset allocation refers to...
the allocation of assets into broad asset classes
The means by which individuals hold their claims on real assets in a well-developed economy are...
Financial Assets
Which of the following portfolio construction methods starts with asset allocation?
Top-down
A debt security pays
a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security.
What are examples of financial intermediaries?
commercial banks, insurance companies, investment companies, credit unions
The value of a derivative security...
depends on the value of the related security
Some financial intermediaries exist because most small investors cannot efficiently...
diversify their portfolios, assess credit risk of borrowers, advertise for needed investments,
Although derivatives can be used as speculative instruments, businesses most often use them to
hedge risk
Theoretically, takeovers should result in...
improved management and increased stock price
Financial Assets...
indirectly contribute to the country's productive capacity
New issues of securities are sold in the ____ market?
primary