Question 1

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

Accepted Answer

A real asset is a tangible or intangible asset that has intrinsic value. A college education, customer goodwill, and a patent all have intrinsic value and can contribute to generating future economic benefits.

Question 2

Real assets represent about ____ of total assets for financial institutions.

Accepted Answer

Financial institutions primarily hold financial assets rather than real assets, and real assets typically represent a very small portion, around 1%, of their total assets.

Question 3

In a perfectly efficient market the best investment strategy is probably a/an

Accepted Answer

In a perfectly efficient market, all available information is already reflected in the asset prices. This means that active management strategies aimed at identifying mispricings and taking advantage of them will not be effective. Instead, a passive investment strategy, such as investing in a low-cost index fund that replicates the performance of the entire market, will be the most effective way to capture market returns while minimizing costs and transaction fees. Asset allocation is also important to diversify risk across different asset classes, but the choice of assets will depend on individual goals and risk tolerance. Market timing is not a viable strategy in an efficient market because it is impossible to predict future market movements with accuracy.

Question 4

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

Accepted Answer

This is an example of security analysis, which involves evaluating individual securities to determine which ones are likely to provide good returns.

Question 5

In 2008 mortgages represented approximately __________ percent of total liabilities and net worth of American households.

Accepted Answer

The answer of In 2008 mortgages represented approximately __________ percent...

Question 6

Which of the following is not an example of a financial intermediary?

Accepted Answer

Financial intermediaries are institutions that channel funds between lenders and borrowers. Goldman Sachs, Allstate Insurance, and First Interstate Bank are all examples of financial intermediaries as they all participate in the transfer of funds between savers and borrowers. IBM, on the other hand, is not a financial intermediary as it is a technology company and does not engage in financial intermediation activities.

Question 7

Which of the following is not a financial intermediary?

Accepted Answer

A financial intermediary is an institution that channels funds from savers to borrowers. Mutual funds, insurance companies, and savings and loan companies all act as intermediaries between savers and borrowers. Real estate brokerage firms, on the other hand, facilitate the purchase and sale of real estate and do not typically channel funds from savers to borrowers, making them the odd one out.

Question 8

Securitization refers to the creation of new securities by _________.

Accepted Answer

Securitization involves taking an illiquid asset and creating a security, which is then sold to investors. This transforms the asset into a marketable security that can be easily traded on the secondary market. Choice A describes securitization of individual cash flows, while choice B describes the repackaging of cash flows, which is a related but distinct concept. Choice D is unrelated to securitization.

Question 9

In 2008 real assets represented approximately __________ percent of the total asset holdings of American households.

Accepted Answer

Real assets represented approximately 37% of the total asset holdings of American households in 2008.

Question 10

The 2002 law designed to improve corporate governance is titled the

Accepted Answer

The 2002 law designed to improve corporate governance is commonly known as the Sarbanes-Oxley Act, or SOX. The Pension Reform Act (A) primarily focuses on pension plans and retirement savings, while ERISA (B) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans. The Financial Services Modernization Act (C), also known as the Gramm-Leach-Bliley Act, is aimed at deregulating the financial industry and allowing for consolidation of different financial services.

Question 11

Brady bonds were an example of _________.

Accepted Answer

The answer of Brady bonds were an example of _________.
...

Question 12

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

The decision to allocate funds between equities and bonds is an example of asset allocation. Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash, with the goal of achieving a specific risk and return profile based on an individual's goals, risk tolerance, and investment time horizon.

Question 13

The efficient markets hypothesis suggests that _______.

Accepted Answer

The efficient markets hypothesis suggests that all information about a stock (including its price) is already reflected in the market, making it impossible to consistently outperform the market through active portfolio management. Therefore, passive portfolio management strategies such as index funds are believed to be the most appropriate investment strategies.

Question 14

Money Market securities are characterized by ________.
I.maturity less than one year
II.safety of the principal investment
III.low rates of return

Accepted Answer

Money Market securities typically have a maturity of less than one year, are considered safe investments with low risk to the principal, and generally offer low rates of return due to their short-term nature and safety.

Question 15

Liabilities equal approximately _____ of total assets for nonfinancial U.S.businesses.

Accepted Answer

According to the Federal Reserve's Flow of Funds report for Q2 2021, liabilities equal approximately 44% of total assets for nonfinancial U.S. businesses. This means that businesses have a significant amount of debt compared to their total assets.

Question 16

The combined liabilities of American households represent approximately __________ percent of combined assets.

Accepted Answer

The answer of The combined liabilities of American households represent...

Question 17

The average rate of return on U.S.Treasury bills since 1926 was _________.

Accepted Answer

The average rate of return on U.S. Treasury bills since 1926 has been 3.8%.

Question 18

Suppose an investor is considering one of two investments which are identical in all respects except for risk.If the investor anticipates a fair return for the risk of the security they invest in they can expect to

Accepted Answer

Investors typically require a higher return for taking on more risk, which means they would pay less for a security with higher risk to achieve a higher potential return.

Question 19

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

Accepted Answer

Financial engineering, globalization, and securitization have all had significant impacts on the contemporary investment market. Financial engineering has led to the creation of new financial products and strategies, while globalization has opened up new investment opportunities and increased competition. Securitization has also changed the way that assets are financed and invested in, making it easier for investors to access different types of assets. Therefore, all three choices are important trends that have changed the contemporary investment market.

Question 20

Individuals may find it more advantageous to purchase claims from a financial intermediary rather than directly purchasing claims in capital markets because
I.intermediaries are better diversified than most individuals
II.intermediaries can exploit economies of scale in investing that individual investors cannot
III.intermediated investments usually offer higher rates of return than direct capital market claims

Accepted Answer

Intermediaries are better diversified than most individuals and can exploit economies of scale in investing that individual investors cannot. However, there is no guarantee that intermediated investments usually offer higher rates of return than direct capital market claims.

Quiz 1: Investments: Background and Issues

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