Question 1

Investment objectives

Accepted Answer

A)   must be consistent with investment constraints.
B)   must be in direct contrast with investment constraints.
C)   and investment constraints determine investment policies.
D)   a and b.
E)   a and c.F) A) and B)
G) C) and D)

Question 2

_______ is/are a real asset(s) .

Accepted Answer

A)   Only land
B)   Only machines
C)   Only stocks and bonds
D)   Only knowledge
E)   Land,machines and knowledge are real assetsF) A) and E)
G) B) and E)

Question 3

In what roles do investment bankers perform?

Accepted Answer

A)   design securities with desirable properties
B)   market new stock and bond issues for firms
C)   provide advice to the firms as to market conditions,price,etc.
D)   none of these
E)   all of theseF) None of the above
G) D) and E)

Question 4

Collateralized mortgage obligations were created to

Accepted Answer

A)   aggregate individual mortgages into relatively homogeneous pools
B)   meet the demand for mortgage-backed securities with a range of maturities
C)   rebundle separate branches into a single unit
D)   circumvent the requirements of Regulation Q
E)   provide government insurance for mortgagesF) A) and B)
G) A) and E)

Question 5

The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of ________.

Accepted Answer

A)   credit enhancement
B)   securitization
C)   unbundling
D)   derivatives
E)   none of theseF) A) and B)
G) A) and C)

Question 6

Important trends changing the contemporary investment environment are

Accepted Answer

A)   globalization
B)   securitization
C)   bundling and unbundling
D)   financial engineering
E)   all of theseF) None of the above
G) B) and E)

Question 7

The material wealth of a society is a function of _________.

Accepted Answer

A)   all financial assets
B)   all real assets
C)   all financial and real assets
D)   all physical assets
E)   all commoditiesF) A) and E)
G) A) and D)

Question 8

Discuss the agency problem in detail.

Accepted Answer

Managers are the agents of the sharehold...

Question 9

The stage an individual is in his/her life cycle will affect his/her __________.

Accepted Answer

A)   return requirements
B)   risk tolerance
C)   asset allocation
D)   a and b
E)   a,b,and cF) B) and E)
G) A) and B)

Question 10

What are the objectives of businesses issuing securities to the public?

Accepted Answer

A)   To get the best possible price for their securities.
B)   To market the issues to the public at the lowest cost.
C)   To issue fairly simple securities requiring little incremental analysis.
D)   All of these are true.
E)   None of these is true.F) A) and E)
G) All of the above D

Question 11

Firms that specialize in helping companies raise capital by selling securities are called ________.

Accepted Answer

A)   chartered banks
B)   investment banks
C)   trust companies
D)   credit unions
E)   all of these.F) A) and D)
G) A) and E)

Question 12

Financial intermediaries exist because small investors cannot efficiently ________.

Accepted Answer

A)   diversify their portfolios
B)   gather information
C)   monitor their portfolios
D)   advertise for needed investments
E)   all of these.F) B) and C)
G) All of the above E

Question 13

Stripped Treasury securities are

Accepted Answer

A)   examples of tax-induced innovations.
B)   examples of derivative assets.
C)   separated into an income component and a principal component.
D)   targeted to meet the needs of investors in different income brackets
E)   all of these are trueF) B) and D)
G) A) and D)

Question 14

A fixed-income security pays ____________.

Accepted Answer

A)   a fixed level of income for the life of the owner
B)   a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security
C)   a variable level of income for owners on a fixed income
D)   a fixed or variable income stream at the option of the owner
E)   a riskless return that is fixed for lifeF) C) and D)
G) B) and D)

Question 15

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

Accepted Answer

A)   attract customers.
B)   appease stockholders.
C)   offset debt.
D)   hedge.
E)   enhance their balance sheets.F) A) and B)
G) A) and E)

Question 16

____________ of an investment bank.

Accepted Answer

A)   BMO Nesbitt Burns is an example
B)   CIBC is an example
C)   Scotia Capital is an example
D)   a and b are examples
E)   a and c are examplesF) B) and C)
G) None of the above

Question 17

The value of a derivative security _______.

Accepted Answer

A)   depends on the value of the related primitive security
B)   can only cause increased risk.
C)   is unrelated to the value of the related primitive security
D)   has been enhanced due the recent misuse and negative publicity regarding these instruments
E)   is worthless todayF) C) and E)
G) C) and D) A

Question 18

Financial intermediaries differ from other businesses in that both their assets and their liabilities are mostly

Accepted Answer

A)   illiquid.
B)   owned by government.
C)   real.
D)   financial.
E)   regulated.F) C) and D)
G) None of the above

Question 19

Investors seeking to diversify are likely to find that their largest investment is in

Accepted Answer

A)   stocks.
B)   bonds.
C)   their job.
D)   foreign securities.
E)   cash.F) C) and E)
G) A) and B)

Question 20

Money market securities ____________.

Accepted Answer

A)   are short term
B)   are highly marketable
C)   are generally very low risk
D)   are short term,highly marketable,and generally very low risk
E)   highly marketable and generally very low riskF) A) and B)
G) A) and E)

Exam 1: Investments: Background and Issues

Investment objectives

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_______ is/are a real asset(s) .

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In what roles do investment bankers perform?

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Collateralized mortgage obligations were created to

Correct AnswerverifiedShow Answer

The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of ________.

Correct AnswerverifiedShow Answer

Important trends changing the contemporary investment environment are

Correct AnswerverifiedShow Answer

The material wealth of a society is a function of _________.

Correct AnswerverifiedShow Answer

Discuss the agency problem in detail.

Correct AnswerverifiedManagers are the agents of the sharehold...View AnswerShow Answer

The stage an individual is in his/her life cycle will affect his/her __________.

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What are the objectives of businesses issuing securities to the public?

Correct AnswerverifiedD

Firms that specialize in helping companies raise capital by selling securities are called ________.

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Financial intermediaries exist because small investors cannot efficiently ________.

Correct AnswerverifiedE

Stripped Treasury securities are

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A fixed-income security pays ____________.

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

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____________ of an investment bank.

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The value of a derivative security _______.

Correct AnswerverifiedA

Financial intermediaries differ from other businesses in that both their assets and their liabilities are mostly

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Investors seeking to diversify are likely to find that their largest investment is in

Correct AnswerverifiedShow Answer

Money market securities ____________.

Correct AnswerverifiedShow Answer

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Managers are the agents of the sharehold...
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D

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E

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A

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