Question 1

________ portfolio construction starts with selecting attractively priced securities.

Accepted Answer

A)  Bottom-up
B)  Top-down
C)  Upside-down
D)  Side-to-sideE) A) and B)
F) A) and C)

Question 2

Methods to encourage managers to act in shareholders' best interest include
I. Threat of takeover
II. Proxy fights for control of the Board of Directors
III. Tying managers' compensation to share price performance

Accepted Answer

A)  I only
B)  I and II only
C)  II and III only
D)  I, II and IIIE) A) and D)
F) B) and D)

Question 3

An example of a real asset is ________.
I. a college education
II. customer goodwill
III. a patent

Accepted Answer

A)  I only
B)  II only
C)  I and III only
D)  I, II and IIIE) B) and D)
F) A) and D)

Question 4

________ is a mechanism to mitigate potential agency problems.

Accepted Answer

A)  Tying income of managers to the success of the firm
B)  Directors defending top management
C)  Anti-takeover strategies
D)  The straight-voting method of electing the board of directorsE) B) and D)
F) None of the above

Question 5

Real assets in the economy include all but which one of the following?

Accepted Answer

A)  Land
B)  Buildings
C)  Consumer durables
D)  Common sharesE) A) and C)
F) None of the above

Question 6

An important trend that has changed the contemporary investment market is ________.

Accepted Answer

A)  financial engineering
B)  globalisation
C)  securitisation
D)  all of these answersE) B) and D)
F) B) and C)

Question 7

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

Accepted Answer

A)  Transferring risk from one party to another
B)  Investing for a short time period to earn a small rate of return
C)  Investing for retirement
D)  Earning interest incomeE) A) and B)
F) A) and C)

Question 8

Financial markets allow for all but which one of the following?

Accepted Answer

A)  Shifting of consumption through time from higher income periods to lower
B)  Pricing of securities according to their riskiness
C)  Channelling of funds from lenders of funds to borrowers of funds
D)  Most participants to routinely earn high returns with low riskE) B) and C)
F) A) and D)

Question 9

Firms that specialise in helping companies raise capital by selling securities to the public are called ________.

Accepted Answer

A)  pension funds
B)  investment banks
C)  savings banks
D)  REITsE) B) and D)
F) C) and D)

Question 10

The value of a derivative security ________.

Accepted Answer

A)  depends on the value of other related security
B)  affects the value of a related security
C)  is unrelated to the value of a related security
D)  can only be integrated by calculus professorsE) All of the above
F) None of the above

Question 11

In 2011 mortgages represented approximately ________ per cent of the total liabilities and net worth of Australian households.

Accepted Answer

A)  12%
B)  20%
C)  28%
D)  42%E) None of the above
F) B) and C)

Question 12

According to Australian household balance sheet, the largest financial asset of Australian households is ________.

Accepted Answer

A)  mutual fund shares
B)  corporate equity
C)  insurance and superannuation reserves
D)  personal trustsE) All of the above
F) A) and C)

Question 13

Stone Harbor Products takes out a bank loan. It receives $100 000 and signs a promissory note to pay back the loan over 5 years.

Accepted Answer

A)  A new financial asset was created in this transaction.
B)  A financial asset was traded for a real asset in this transaction.
C)  A financial asset was destroyed in this transaction.
D)  A real asset was created in this transaction.E) A) and B)
F) A) and C)

Question 14

Security selection refers to ________.

Accepted Answer

A)  choosing specific securities within each asset-class
B)  deciding how much to invest in each asset-class
C)  deciding how much to invest in the market portfolio versus the riskless asset
D)  deciding how much to hedgeE) All of the above
F) A) and D)

Question 15

Asset allocation refers to the ________.

Accepted Answer

A)  allocation of the investment portfolio across broad asset classes
B)  analysis of the value of securities
C)  choice of specific assets within each asset class
D)  none of the answers define asset allocationE) All of the above
F) B) and D)

Question 16

Debt securities promise ________.
I. a fixed stream of income
II. a stream of income that is determined according to a specific formula
III. a share in the profits of the issuing entity

Accepted Answer

A)  I only
B)  I or II only
C)  I and III only
D)  II or III onlyE) A) and C)
F) A) and B)

Question 17

After considering current market conditions an investor decides to place 60% of their funds in equities and the rest in bonds. This is an example of ________.

Accepted Answer

A)  asset allocation
B)  security analysis
C)  top down portfolio management
D)  passive managementE) None of the above
F) C) and D)

Question 18

Financial assets represent ________ of total assets of Australian households in 2011.

Accepted Answer

A)  over 35%
B)  over 90%
C)  under 10%
D)  about 30%E) A) and B)
F) A) and C)

Question 19

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

Accepted Answer

A)  investment bankers, financial assets
B)  investment bankers, real assets
C)  productive capacity, financial assets
D)  productive capacity, real assetsE) All of the above
F) A) and C)

Question 20

After much investigation an investor finds that Intel shares are currently under-priced. This is an example of ________.

Accepted Answer

A)  asset allocation
B)  security analysis
C)  top-down portfolio management
D)  passive managementE) A) and C)
F) A) and D)

Exam 1: Investments: Background and Issues

________ is a mechanism to mitigate potential agency problems.

Correct AnswerverifiedShow Answer

Asset allocation refers to the ________.

Correct AnswerverifiedShow Answer

Security selection refers to ________.

Correct AnswerverifiedShow Answer

________ portfolio construction starts with selecting attractively priced securities.

Correct AnswerverifiedShow Answer

Financial markets allow for all but which one of the following?

Correct AnswerverifiedShow Answer

Methods to encourage managers to act in shareholders' best interest include I. Threat of takeover II. Proxy fights for control of the Board of Directors III. Tying managers' compensation to share price performance

Correct AnswerverifiedShow Answer

An important trend that has changed the contemporary investment market is ________.

Correct AnswerverifiedShow Answer

Debt securities promise ________. I. a fixed stream of income II. a stream of income that is determined according to a specific formula III. a share in the profits of the issuing entity

Correct AnswerverifiedShow Answer

Financial assets represent ________ of total assets of Australian households in 2011.

Correct AnswerverifiedShow Answer

The value of a derivative security ________.

Correct AnswerverifiedShow Answer

After much investigation an investor finds that Intel shares are currently under-priced. This is an example of ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In 2011 mortgages represented approximately ________ per cent of the total liabilities and net worth of Australian households.

Correct AnswerverifiedShow Answer

Stone Harbor Products takes out a bank loan. It receives $100 000 and signs a promissory note to pay back the loan over 5 years.

Correct AnswerverifiedShow Answer

After considering current market conditions an investor decides to place 60% of their funds in equities and the rest in bonds. This is an example of ________.

Correct AnswerverifiedShow Answer

An example of a real asset is ________. I. a college education II. customer goodwill III. a patent

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Firms that specialise in helping companies raise capital by selling securities to the public are called ________.

Correct AnswerverifiedShow Answer

Real assets in the economy include all but which one of the following?

Correct AnswerverifiedShow Answer

According to Australian household balance sheet, the largest financial asset of Australian households is ________.

Correct AnswerverifiedShow Answer

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

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