INVESTMENTS – BODIE, KANE & MARCUS (13TH EDITION,
2025) Accredited Test Bank & Solutions | All 28
Chapters | 150 Advanced Multiple-Choice
Questions
Difficulty Level: Advanced / Hard / Mixed
Target Audience: College students, MBA candidates, CFA Level I–II candidates, and finance professionals
Format: Each question is preceded by a 🟢 green dot. The correct answer is marked with two small red
dots (🔴🔴). A detailed rationale follows each question.
TABLE OF CONTENTS
Chapter Title Questions
1 The Investment Environment 1–6
2 Asset Classes and Financial Instruments 7–12
3 How Securities Are Traded 13–18
4 Mutual Funds and Other Investment Companies 19–24
5 Risk, Return, and the Historical Record 25–31
6 Capital Allocation to Risky Assets 32–38
7 Efficient Diversification 39–45
8 Index Models 46–51
9 The Capital Asset Pricing Model 52–59
10 Arbitrage Pricing Theory and Multifactor Models 60–65
,Chapter Title Questions
11 The Efficient Market Hypothesis 66–72
12 Behavioral Finance and Technical Analysis 73–78
13 Empirical Evidence on Security Returns 79–84
14 Bond Prices and Yields 85–92
15 The Term Structure of Interest Rates 93–98
16 Managing Bond Portfolios 99–105
17 Macroeconomic and Industry Analysis 106–111
18 Equity Valuation Models 112–118
19 Financial Statement Analysis 119–124
20 Options Markets: Introduction 125–131
21 Option Valuation 132–137
22 Futures Markets 138–143
23 Futures, Swaps, and Risk Management 144–147
24 Portfolio Performance Evaluation 148–150
PART I: INTRODUCTION
Chapter 1: The Investment Environment
🟢 1. The material wealth of a society is ultimately determined by:
,A) The total value of all financial assets held by its citizens
B) The total value of all real assets in the economy
C) The combined value of financial and real assets
D) The money supply and central bank reserves
🔴🔴 Correct Answer: B
Rationale: Real assets—land, buildings, machines, and knowledge—determine the productive capacity
and net income of an economy. Financial assets are merely claims on real assets and do not directly
increase economy-wide productivity. As Bodie et al. state, "Real assets determine the material well-
being of an economy."
🟢 2. Which of the following is a financial asset?
A) Commercial real estate
B) Corporate bond
C) Factory equipment
D) Intellectual property
🔴🔴 Correct Answer: B
Rationale: A corporate bond is a financial asset—a claim on the income generated by real assets. Real
assets include commercial real estate, factory equipment, and intellectual property. Financial assets
appear on both sides of balance sheets, whereas real assets appear only on the asset side.
🟢 3. During the 2008–2009 financial crisis, which factor most directly contributed to the collapse of
major financial institutions?
A) Excessive holdings of tangible real assets
B) The securitization of subprime mortgages and subsequent failure of derivative markets
C) A sudden increase in the money supply
D) The complete absence of financial innovation
🔴🔴 Correct Answer: B
Rationale: The 2008 crisis was driven by the securitization of subprime mortgages into complex
derivatives (CDOs, MBS). When housing prices fell and defaults rose, these instruments became illiquid
and their values collapsed, triggering systemic failure. Bodie et al. discuss this in Chapter 1 as a case
study in financial market dysfunction.
🟢 4. An agency problem in corporate governance arises when:
A) Managers act in the best interests of shareholders
B) Managers prioritize their own interests over those of shareholders
, C) Shareholders exercise too much control over management
D) The board of directors is independent
🔴🔴 Correct Answer: B
Rationale: Agency problems occur when managers (agents) pursue personal benefits—such as
corporate jets, empire-building, or excessive compensation—at the expense of shareholders (principals).
Bodie et al. emphasize that "what's best for management isn't always what's best for shareholders."
🟢 5. Which of the following best describes the role of financial markets in the economy?
A) They create real assets that increase national wealth
B) They allow investors to allocate risk and channel savings to productive investments
C) They eliminate all investment risk
D) They replace the need for real asset production
🔴🔴 Correct Answer: B
Rationale: Financial markets facilitate the allocation of risk and the flow of capital from savers to
borrowers. They enable investors to choose how much risk to bear and allow firms to raise capital for
real investment. They do not create real assets or eliminate risk.
🟢 6. In a well-developed economy, individuals hold claims on real assets primarily through:
A) Direct ownership of all real assets
B) Financial assets such as stocks and bonds
C) Government-mandated allocations
D) Barter transactions
🔴🔴 Correct Answer: B
Rationale: Financial assets are the means by which individuals hold claims on real assets. Most
individuals cannot personally own auto plants or commercial real estate, so they hold stocks and bonds
that represent claims on the income generated by those real assets.
Chapter 2: Asset Classes and Financial Instruments
🟢 7. Which of the following is a money market instrument?
A) Corporate bond with 10-year maturity
B) Treasury bill with 90-day maturity
C) Common stock
D) Real estate investment trust (REIT)
🔴🔴 Correct Answer: B
2025) Accredited Test Bank & Solutions | All 28
Chapters | 150 Advanced Multiple-Choice
Questions
Difficulty Level: Advanced / Hard / Mixed
Target Audience: College students, MBA candidates, CFA Level I–II candidates, and finance professionals
Format: Each question is preceded by a 🟢 green dot. The correct answer is marked with two small red
dots (🔴🔴). A detailed rationale follows each question.
TABLE OF CONTENTS
Chapter Title Questions
1 The Investment Environment 1–6
2 Asset Classes and Financial Instruments 7–12
3 How Securities Are Traded 13–18
4 Mutual Funds and Other Investment Companies 19–24
5 Risk, Return, and the Historical Record 25–31
6 Capital Allocation to Risky Assets 32–38
7 Efficient Diversification 39–45
8 Index Models 46–51
9 The Capital Asset Pricing Model 52–59
10 Arbitrage Pricing Theory and Multifactor Models 60–65
,Chapter Title Questions
11 The Efficient Market Hypothesis 66–72
12 Behavioral Finance and Technical Analysis 73–78
13 Empirical Evidence on Security Returns 79–84
14 Bond Prices and Yields 85–92
15 The Term Structure of Interest Rates 93–98
16 Managing Bond Portfolios 99–105
17 Macroeconomic and Industry Analysis 106–111
18 Equity Valuation Models 112–118
19 Financial Statement Analysis 119–124
20 Options Markets: Introduction 125–131
21 Option Valuation 132–137
22 Futures Markets 138–143
23 Futures, Swaps, and Risk Management 144–147
24 Portfolio Performance Evaluation 148–150
PART I: INTRODUCTION
Chapter 1: The Investment Environment
🟢 1. The material wealth of a society is ultimately determined by:
,A) The total value of all financial assets held by its citizens
B) The total value of all real assets in the economy
C) The combined value of financial and real assets
D) The money supply and central bank reserves
🔴🔴 Correct Answer: B
Rationale: Real assets—land, buildings, machines, and knowledge—determine the productive capacity
and net income of an economy. Financial assets are merely claims on real assets and do not directly
increase economy-wide productivity. As Bodie et al. state, "Real assets determine the material well-
being of an economy."
🟢 2. Which of the following is a financial asset?
A) Commercial real estate
B) Corporate bond
C) Factory equipment
D) Intellectual property
🔴🔴 Correct Answer: B
Rationale: A corporate bond is a financial asset—a claim on the income generated by real assets. Real
assets include commercial real estate, factory equipment, and intellectual property. Financial assets
appear on both sides of balance sheets, whereas real assets appear only on the asset side.
🟢 3. During the 2008–2009 financial crisis, which factor most directly contributed to the collapse of
major financial institutions?
A) Excessive holdings of tangible real assets
B) The securitization of subprime mortgages and subsequent failure of derivative markets
C) A sudden increase in the money supply
D) The complete absence of financial innovation
🔴🔴 Correct Answer: B
Rationale: The 2008 crisis was driven by the securitization of subprime mortgages into complex
derivatives (CDOs, MBS). When housing prices fell and defaults rose, these instruments became illiquid
and their values collapsed, triggering systemic failure. Bodie et al. discuss this in Chapter 1 as a case
study in financial market dysfunction.
🟢 4. An agency problem in corporate governance arises when:
A) Managers act in the best interests of shareholders
B) Managers prioritize their own interests over those of shareholders
, C) Shareholders exercise too much control over management
D) The board of directors is independent
🔴🔴 Correct Answer: B
Rationale: Agency problems occur when managers (agents) pursue personal benefits—such as
corporate jets, empire-building, or excessive compensation—at the expense of shareholders (principals).
Bodie et al. emphasize that "what's best for management isn't always what's best for shareholders."
🟢 5. Which of the following best describes the role of financial markets in the economy?
A) They create real assets that increase national wealth
B) They allow investors to allocate risk and channel savings to productive investments
C) They eliminate all investment risk
D) They replace the need for real asset production
🔴🔴 Correct Answer: B
Rationale: Financial markets facilitate the allocation of risk and the flow of capital from savers to
borrowers. They enable investors to choose how much risk to bear and allow firms to raise capital for
real investment. They do not create real assets or eliminate risk.
🟢 6. In a well-developed economy, individuals hold claims on real assets primarily through:
A) Direct ownership of all real assets
B) Financial assets such as stocks and bonds
C) Government-mandated allocations
D) Barter transactions
🔴🔴 Correct Answer: B
Rationale: Financial assets are the means by which individuals hold claims on real assets. Most
individuals cannot personally own auto plants or commercial real estate, so they hold stocks and bonds
that represent claims on the income generated by those real assets.
Chapter 2: Asset Classes and Financial Instruments
🟢 7. Which of the following is a money market instrument?
A) Corporate bond with 10-year maturity
B) Treasury bill with 90-day maturity
C) Common stock
D) Real estate investment trust (REIT)
🔴🔴 Correct Answer: B
