Investments – Bodie [13th Edition] |
Accredited Test Bank & Solutions | All
Lessons Included | 2025
Exam
Chapters 1–3: The Investment Environment & Trading Mechanics
Q1. Real assets determine the material well-being of an economy, whereas
financial assets:
a) Are claims on real assets
b) Directly contribute to the productive capacity
c) Are only issued by the government
d) Have no relation to wealth
Answer: a
Rationale: Real assets (land, buildings, equipment) generate net income. Financial
assets represent claims on real asset income or proceeds.
Q2. Securitization leads to:
a) An increase in traditional bank lending
b) Disintermediation
c) Higher inflationary pressure
d) A decrease in market liquidity
Answer: b
Rationale: Securitization allows borrowers to access capital markets directly,
bypassing traditional intermediaries (disintermediation).
**Q3. A limit order to buy at 50𝑚𝑒𝑎𝑛𝑠:∗∗
𝑎)𝐵𝑢𝑦𝑖𝑚𝑚𝑒𝑑𝑖𝑎𝑡𝑒𝑙𝑦𝑎𝑡𝑎𝑛𝑦𝑝𝑟𝑖𝑐𝑒𝑏)𝐵𝑢𝑦𝑜𝑛𝑙𝑦𝑖𝑓𝑡ℎ𝑒𝑝𝑟𝑖𝑐𝑒𝑓𝑎𝑙𝑙𝑠𝑡𝑜50 or lower
c) Sell only if the price rises to $50
d) Cancel the order after one day
,Answer: b
Rationale: A limit buy order executes at the specified price or better (lower price),
providing price control but no execution guarantee.
Q4. Short selling involves:
a) Buying shares with borrowed money
b) Selling borrowed shares, hoping to buy them back later at a lower price
c) Holding shares for less than one day
d) Avoiding all risk
Answer: b
Rationale: Short sellers profit when price falls. They must "cover" by buying
shares to return to the lender.
Q5. A margin call is triggered when:
a) Stock price rises sharply
b) Account equity falls below the maintenance margin
c) Dividend is paid
d) Short interest increases
Answer: b
Rationale: The broker demands additional funds or securities when equity drops
below the required maintenance margin.
Q6. The "bid-ask spread" represents:
a) The broker’s commission
b) The difference between highest buyer bid and lowest seller ask
c) The total profit of the exchange
d) The historical volatility
Answer: b
Rationale: The spread is the transaction cost for immediate execution; bid is buy
price, ask is sell price.
Q7. Primary markets involve the issuance of new securities, while secondary
markets:
a) Only trade government securities
b) Trade existing securities between investors
, c) Issue municipal bonds
d) Are unregulated
Answer: b
Rationale: Primary = new issues (IPOs). Secondary = trading existing securities
among investors, providing liquidity.
Chapter 5: Risk, Return, and Historical Record
Q8. The excess return of an investment over the risk-free rate is called the:
a) Capital gain
b) Risk premium
c) Inflation premium
d) Yield to maturity
Answer: b
Rationale: Risk premium = E(r) – r_f, the extra return expected for bearing risk.
Q9. The standard deviation of returns measures:
a) Average return
b) Risk or volatility
c) Correlation between assets
d) Expected return
Answer: b
Rationale: Standard deviation quantifies dispersion around the mean; higher σ =
higher uncertainty.
Q10. Inflation impacts the investment environment primarily by:
a) Increasing corporate profits automatically
b) Decreasing the real return on investments
c) Eliminating investment risk
d) Stabilizing interest rates
Answer: b
Rationale: Real return = Nominal – Inflation. High inflation erodes purchasing
power.
Accredited Test Bank & Solutions | All
Lessons Included | 2025
Exam
Chapters 1–3: The Investment Environment & Trading Mechanics
Q1. Real assets determine the material well-being of an economy, whereas
financial assets:
a) Are claims on real assets
b) Directly contribute to the productive capacity
c) Are only issued by the government
d) Have no relation to wealth
Answer: a
Rationale: Real assets (land, buildings, equipment) generate net income. Financial
assets represent claims on real asset income or proceeds.
Q2. Securitization leads to:
a) An increase in traditional bank lending
b) Disintermediation
c) Higher inflationary pressure
d) A decrease in market liquidity
Answer: b
Rationale: Securitization allows borrowers to access capital markets directly,
bypassing traditional intermediaries (disintermediation).
**Q3. A limit order to buy at 50𝑚𝑒𝑎𝑛𝑠:∗∗
𝑎)𝐵𝑢𝑦𝑖𝑚𝑚𝑒𝑑𝑖𝑎𝑡𝑒𝑙𝑦𝑎𝑡𝑎𝑛𝑦𝑝𝑟𝑖𝑐𝑒𝑏)𝐵𝑢𝑦𝑜𝑛𝑙𝑦𝑖𝑓𝑡ℎ𝑒𝑝𝑟𝑖𝑐𝑒𝑓𝑎𝑙𝑙𝑠𝑡𝑜50 or lower
c) Sell only if the price rises to $50
d) Cancel the order after one day
,Answer: b
Rationale: A limit buy order executes at the specified price or better (lower price),
providing price control but no execution guarantee.
Q4. Short selling involves:
a) Buying shares with borrowed money
b) Selling borrowed shares, hoping to buy them back later at a lower price
c) Holding shares for less than one day
d) Avoiding all risk
Answer: b
Rationale: Short sellers profit when price falls. They must "cover" by buying
shares to return to the lender.
Q5. A margin call is triggered when:
a) Stock price rises sharply
b) Account equity falls below the maintenance margin
c) Dividend is paid
d) Short interest increases
Answer: b
Rationale: The broker demands additional funds or securities when equity drops
below the required maintenance margin.
Q6. The "bid-ask spread" represents:
a) The broker’s commission
b) The difference between highest buyer bid and lowest seller ask
c) The total profit of the exchange
d) The historical volatility
Answer: b
Rationale: The spread is the transaction cost for immediate execution; bid is buy
price, ask is sell price.
Q7. Primary markets involve the issuance of new securities, while secondary
markets:
a) Only trade government securities
b) Trade existing securities between investors
, c) Issue municipal bonds
d) Are unregulated
Answer: b
Rationale: Primary = new issues (IPOs). Secondary = trading existing securities
among investors, providing liquidity.
Chapter 5: Risk, Return, and Historical Record
Q8. The excess return of an investment over the risk-free rate is called the:
a) Capital gain
b) Risk premium
c) Inflation premium
d) Yield to maturity
Answer: b
Rationale: Risk premium = E(r) – r_f, the extra return expected for bearing risk.
Q9. The standard deviation of returns measures:
a) Average return
b) Risk or volatility
c) Correlation between assets
d) Expected return
Answer: b
Rationale: Standard deviation quantifies dispersion around the mean; higher σ =
higher uncertainty.
Q10. Inflation impacts the investment environment primarily by:
a) Increasing corporate profits automatically
b) Decreasing the real return on investments
c) Eliminating investment risk
d) Stabilizing interest rates
Answer: b
Rationale: Real return = Nominal – Inflation. High inflation erodes purchasing
power.
