Chapter 01 Test Bank - Static
Student: ___________________________________________________________________________
1. Financial assets represent _____ of total assets of U.S. households.
A. over 70%
B. over 90%
C. under 10%
D. about 30%
2. Real assets in the economy include all but which one of the following?
A. land
B. buildings
C. consumer durables
D. common stock
3. Net worth represents _____ of the liabilities and net worth of commercial banks.
A. about 51%
B. about 91%
C. about 11%
D. about 31%
4. According to the Flow of Funds Accounts of the United States, the largest single asset of U.S.
households is ___.
A. mutual fund shares
B. real estate
C. pension reserves
D. corporate equity
5. According to the Flow of Funds Accounts of the United States, the largest liability of U.S.
households is ________.
A. mortgages
B. consumer credit
C. bank loans
D. gambling debts
,6. ____ is not a derivative security.
A. A share of common stock
B. A call option
C. A futures contract
D. None of the options (All of the answers are derivative securities.)
7. According to the Flow of Funds Accounts of the United States, the largest financial asset of U.S.
households is ____.
A. mutual fund shares
B. corporate equity
C. pension reserves
D. deposits
8. Active trading in markets and competition among securities analysts helps ensure that:
I. Security prices approach informational efficiency.
II. Riskier securities are priced to offer higher potential returns.
III. Investors are unlikely to be able to consistently find under- or overvalued securities.
A. I only
B. I and II only
C. II and III only
D. I, II, and III
9. The material wealth of society is determined by the economy's _________, which is a function of
the economy's _________.
A. investment bankers; financial assets
B. investment bankers; real assets
C. productive capacity; financial assets
D. productive capacity; real assets
,10. Which of the following is not a money market security?
A. U.S. Treasury bill
B. 6-month maturity certificate of deposit
C. common stock
D. All of the options.
11. __________ assets generate net income to the economy, and __________ assets define
allocation of income among investors.
A. Financial, financial
B. Financial, real
C. Real, financial
D. Real, real
12. Which of the following are financial assets?
I. Debt securities
II. Equity securities
III. Derivative securities
A. I only
B. I and II only
C. II and III only
D. I, II, and III
13. __________ are examples of financial intermediaries.
A. Commercial banks
B. Insurance companies
C. Investment companies
D. All of the options
, 14. Asset allocation refers to _________.
A. the allocation of the investment portfolio across broad asset classes
B. the analysis of the value of securities
C. the choice of specific assets within each asset class
D. none of the options
15. Which one of the following best describes the purpose of derivatives markets?
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 income.
16. Security selection refers to the ________.
A. allocation of the investment portfolio across broad asset classes
B. analysis of the value of securities
C. choice of specific securities within each asset class
D. top-down method of investing
17. Which of the following is an example of an agency problem?
A. Managers engage in empire building.
B. Managers protect their jobs by avoiding risky projects.
C. Managers overconsume luxuries such as corporate jets.
D. All of the options are examples of agency problems.
18. _____ is a mechanism for mitigating potential agency problems.
A. Tying income of managers to success of the firm
B. Directors defending top management
C. Antitakeover strategies
D. All of the options.
19. __________ is (are) real assets.
A. Bonds
B. Production equipment
C. Stocks
D. Life insurance
Student: ___________________________________________________________________________
1. Financial assets represent _____ of total assets of U.S. households.
A. over 70%
B. over 90%
C. under 10%
D. about 30%
2. Real assets in the economy include all but which one of the following?
A. land
B. buildings
C. consumer durables
D. common stock
3. Net worth represents _____ of the liabilities and net worth of commercial banks.
A. about 51%
B. about 91%
C. about 11%
D. about 31%
4. According to the Flow of Funds Accounts of the United States, the largest single asset of U.S.
households is ___.
A. mutual fund shares
B. real estate
C. pension reserves
D. corporate equity
5. According to the Flow of Funds Accounts of the United States, the largest liability of U.S.
households is ________.
A. mortgages
B. consumer credit
C. bank loans
D. gambling debts
,6. ____ is not a derivative security.
A. A share of common stock
B. A call option
C. A futures contract
D. None of the options (All of the answers are derivative securities.)
7. According to the Flow of Funds Accounts of the United States, the largest financial asset of U.S.
households is ____.
A. mutual fund shares
B. corporate equity
C. pension reserves
D. deposits
8. Active trading in markets and competition among securities analysts helps ensure that:
I. Security prices approach informational efficiency.
II. Riskier securities are priced to offer higher potential returns.
III. Investors are unlikely to be able to consistently find under- or overvalued securities.
A. I only
B. I and II only
C. II and III only
D. I, II, and III
9. The material wealth of society is determined by the economy's _________, which is a function of
the economy's _________.
A. investment bankers; financial assets
B. investment bankers; real assets
C. productive capacity; financial assets
D. productive capacity; real assets
,10. Which of the following is not a money market security?
A. U.S. Treasury bill
B. 6-month maturity certificate of deposit
C. common stock
D. All of the options.
11. __________ assets generate net income to the economy, and __________ assets define
allocation of income among investors.
A. Financial, financial
B. Financial, real
C. Real, financial
D. Real, real
12. Which of the following are financial assets?
I. Debt securities
II. Equity securities
III. Derivative securities
A. I only
B. I and II only
C. II and III only
D. I, II, and III
13. __________ are examples of financial intermediaries.
A. Commercial banks
B. Insurance companies
C. Investment companies
D. All of the options
, 14. Asset allocation refers to _________.
A. the allocation of the investment portfolio across broad asset classes
B. the analysis of the value of securities
C. the choice of specific assets within each asset class
D. none of the options
15. Which one of the following best describes the purpose of derivatives markets?
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 income.
16. Security selection refers to the ________.
A. allocation of the investment portfolio across broad asset classes
B. analysis of the value of securities
C. choice of specific securities within each asset class
D. top-down method of investing
17. Which of the following is an example of an agency problem?
A. Managers engage in empire building.
B. Managers protect their jobs by avoiding risky projects.
C. Managers overconsume luxuries such as corporate jets.
D. All of the options are examples of agency problems.
18. _____ is a mechanism for mitigating potential agency problems.
A. Tying income of managers to success of the firm
B. Directors defending top management
C. Antitakeover strategies
D. All of the options.
19. __________ is (are) real assets.
A. Bonds
B. Production equipment
C. Stocks
D. Life insurance
