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