ESSENTIALS OF INVESTMENTS
CHAPTERS 1-3 QUESTIONS WITH
CORRECT ANSWERS 2025-2026
Investment - correct answer-Trading present resources for future payoff.
Real Assets - correct answer-Used to produce goods and services.
Ex. Land, buildings, equipment and knowledge.
Financial Assets - correct answer-Claims on real assets.
Ex. Bank loans, stocks, bonds and options.
RepresentP60% of total assets of U.S. households.
Consumption Smoothing - correct answer-Saving for the rainy days: retirement account, insurance
Allocation of risks - correct answer-
Diversification over a larger ownership. Repackaging risk to match investor's risk appetite.
Agency Problem - correct answer-Separation of ownership and management
Market Efficiency - correct answer-
Does not require that the market price be equal to true value at every point in time. All it requires is that
errors in the market price be unbiased.
Active Management - correct answer-Inefficient markets
-Finding undervalued securities
-Market timing
Passive Management - correct answer-Efficient Markets
-No attempt to find undervalued securities
CHAPTERS 1-3 QUESTIONS WITH
CORRECT ANSWERS 2025-2026
Investment - correct answer-Trading present resources for future payoff.
Real Assets - correct answer-Used to produce goods and services.
Ex. Land, buildings, equipment and knowledge.
Financial Assets - correct answer-Claims on real assets.
Ex. Bank loans, stocks, bonds and options.
RepresentP60% of total assets of U.S. households.
Consumption Smoothing - correct answer-Saving for the rainy days: retirement account, insurance
Allocation of risks - correct answer-
Diversification over a larger ownership. Repackaging risk to match investor's risk appetite.
Agency Problem - correct answer-Separation of ownership and management
Market Efficiency - correct answer-
Does not require that the market price be equal to true value at every point in time. All it requires is that
errors in the market price be unbiased.
Active Management - correct answer-Inefficient markets
-Finding undervalued securities
-Market timing
Passive Management - correct answer-Efficient Markets
-No attempt to find undervalued securities
