Chapter 1

________ specialize in helping companies raise capital by selling securities.

Investment bankers

An example(s) 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 material wealth of a society is a function of ________

all real assets.

In 2016, ________ was(were) the least significant liability(ies) of U.S. nonfinancial businesses in terms of total value.

bank loans

The means by which individuals hold their claims on real assets in a well-developed economy are ________

financial assets.

In 2016, ____________ were the most significant liability of U.S. households in terms of total value.

mortgages

Asset allocation refers to ________

the allocation of assets into broad asset classes.

The ________ refers to the potential conflict between management and shareholders.

Agency Problem

Money market securities ________

Are.. Short term Highly marketable Generally very low risk

________ are financial assets.

Bonds and stocks

Which of the following portfolio construction methods starts with security analysis?

Bottom-up

________ are examples of financial intermediaries

Commercial banks, insurance companies, investment companies, and credit unions

[Professor Cursio adds: "Some"] Financial intermediaries exist because [Professor Cursio adds: "most"] small investors cannot efficiently ______

Diversify their portfolios, assess credit risk of borrowers, advertise for needed investments, diversity their portfolios and assess credit risk of borrowers.

During the period between 2000 and 2002, a large number of scandals were uncovered. Most of these scandals were related to I) manipulation of financial data to misrepresent the actual condition of the firm. II) misleading and overly optimistic research reports produced by analysts. III) allocating IPOs to executives as a quid pro quo for personal favors. IV) greenmail.

I,II, and III

Which of the following is true about mortgage-backed securities? I) They aggregate individual home mortgages into homogeneous pools. II) The purchaser receives monthly interest and principal payments received from payments made on the pool. III) The banks that originated the mortgages maintain ownership of them. IV) The banks that originated the mortgages may continue to service them.

I,II, and IV

Theoretically, takeovers should result in ________

Improved management and increased stock price.

________ are real assets.

Land, machines, and knowledge

The Sarbanes-Oxley Act ________

Requires corporations to have more independent director. 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.

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.

The value of a derivative security ________

depends on the value of another related security

Although derivatives can be used as speculative instruments, businesses most often use them to ________

hedge risks.

Financial assets ________

indirectly contribute to the country's productive capacity

New issues of securities are sold in the ________ market(s).

primary