finance homework 1

Which one of the following is a true statement regarding corporate bonds?

A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares.

__ is a mechanism for mitigating potential agency problems.

A. Tying income of managers to success of the firm

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

A. they are safe and marketable

Financial markets allow for all but which one of the following

Allow most participants to routinely earn high returns with low risk

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

Which one of the following is a true statement?

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

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 A. I only B. I and II only C. II and III only D. I, II, and III

D

Debt Security

I. A fixed stream of income. II. A stream of income that is determined according to a specific formula.

Which of the following is (are) true about hedge funds?

I. They are open to institutional investors. II. They are open to wealthy individuals.

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

Productive capacity; real assets

_________ assets generate net income to the economy, and __________ assets define allocation of income among investors.

Real, financial

The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but which one of the following?

Required that firms could no longer employ investment bankers to sell securities to the public

After much investigation, an investor finds that Intel stock is currently underpriced. This is an example of ______.

Security Analysis

Which of the following are true statements about T-bills?

T-bills typically sell in denominations of $10,000 Income earned on T-bills is exempt from state and local taxe

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

Transferring risk from one party to another

TIPS are ______.

Treasury bonds that protect investors from inflation

Currently, the Dow Jones Industrial Average is computed by _________.

adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends

Which of the following are financial assets? I. Debt securities II. Equity securities III. Derivative securities

all of em

Security selection refers to the ________.

choice of specific securities within each asset class

Which of the following is not a money market security

common stock

Commercial paper is a short-term security issued by __________ to raise funds.

large well known companies

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

pay less for the security that has higher risk.

Venture Capital is

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