FIN 320 - INVESTMENT
ENVIRONMENT AND FINANCIAL
INSTRUMENTS QUESTIONS &
ACCURATE ANSWERS PASSED 100%
Investment - Correct Answer ✔✔ current commitment of money or other resources in
expectation of reaping future benefits. Investments are assets.
examples include:
real assets - Correct Answer ✔✔ assets used to produce goods and services such as
land, buildings and equipment
financial assets - Correct Answer ✔✔ claims to the income generated by real assets or
claims on income from the government
securities - Correct Answer ✔✔ instruments that hold some form of monetary value and
can be traded.
fixed-income (debt) securities - Correct Answer ✔✔ assets that promise either a fixed
stream of income or a stream of income determined by a specific formula.
examples of debt securities - Correct Answer ✔✔ while various, initial ones include:
money market securities
- US treasury bills
- bank certificates of deposit
capital market securities
- treasury bonds
equity securities - Correct Answer ✔✔ also known as common stock, it represents an
ownership share in a corp. receive dividends the firm must pay and have prorated
ownership in real assets of firm. riskier than debt securities.
derivative securities - Correct Answer ✔✔ options and future contracts that provide
payoffs that are determined by the price of other assets such as bond or stock prices.
their values derive from the prices of other assets. the value of a call option depends on
the price of a stock.
, uses of derivatives - Correct Answer ✔✔ - hedging risks/transferring them to other
parties
- taking highly speculative positions
informational role of financial markets - Correct Answer ✔✔ the prospect of big profits if
something pays off prompts investors to allocate funds. not always right, but
consistently good considering the alternatives
Consumption timing - Correct Answer ✔✔ in high-earning periods, you can invest
savings in financial assets such as stocks and bonds. in low-earning periods, you can
sell these assets to provide funds for your consumption needs.
Proxy contests - Correct Answer ✔✔ kind of like a board of directors coup
portfolio - Correct Answer ✔✔ collection of investment assets
edits to portfolio - Correct Answer ✔✔ - selling existing securities and using proceeds to
by new securities
- investing additional funds to increase overall portfolio size
- selling securities to decrease overall portfolio sides
asset allocation - Correct Answer ✔✔ allocating a portfolio across broad asset classes
security selection - Correct Answer ✔✔ choice of specific securities within a given asset
class. the choice of which particular securities to hold within each asset class.
top down strategy - Correct Answer ✔✔ starts with asset allocation and then turning to
the securities to be held in each asset class
bottom up strategy - Correct Answer ✔✔ constructed from attractively priced securities
without as much concern for asset allocation
security analysis - Correct Answer ✔✔ the valuation of particular securities that might
be included in the portfolio.
risk-return trade-off - Correct Answer ✔✔ return and risk are directly correlated. higher
risk, higher return, lower risk, lower return
diversification - Correct Answer ✔✔ when many assets are held in a portfolio so that the
exposure to any particular asset is limited
modern portfolio theory - Correct Answer ✔✔ argues that any given investment's risk
and return characteristics should not be viewed alone but should be evaluated by how it
affects the overall portfolio's risk and return.
ENVIRONMENT AND FINANCIAL
INSTRUMENTS QUESTIONS &
ACCURATE ANSWERS PASSED 100%
Investment - Correct Answer ✔✔ current commitment of money or other resources in
expectation of reaping future benefits. Investments are assets.
examples include:
real assets - Correct Answer ✔✔ assets used to produce goods and services such as
land, buildings and equipment
financial assets - Correct Answer ✔✔ claims to the income generated by real assets or
claims on income from the government
securities - Correct Answer ✔✔ instruments that hold some form of monetary value and
can be traded.
fixed-income (debt) securities - Correct Answer ✔✔ assets that promise either a fixed
stream of income or a stream of income determined by a specific formula.
examples of debt securities - Correct Answer ✔✔ while various, initial ones include:
money market securities
- US treasury bills
- bank certificates of deposit
capital market securities
- treasury bonds
equity securities - Correct Answer ✔✔ also known as common stock, it represents an
ownership share in a corp. receive dividends the firm must pay and have prorated
ownership in real assets of firm. riskier than debt securities.
derivative securities - Correct Answer ✔✔ options and future contracts that provide
payoffs that are determined by the price of other assets such as bond or stock prices.
their values derive from the prices of other assets. the value of a call option depends on
the price of a stock.
, uses of derivatives - Correct Answer ✔✔ - hedging risks/transferring them to other
parties
- taking highly speculative positions
informational role of financial markets - Correct Answer ✔✔ the prospect of big profits if
something pays off prompts investors to allocate funds. not always right, but
consistently good considering the alternatives
Consumption timing - Correct Answer ✔✔ in high-earning periods, you can invest
savings in financial assets such as stocks and bonds. in low-earning periods, you can
sell these assets to provide funds for your consumption needs.
Proxy contests - Correct Answer ✔✔ kind of like a board of directors coup
portfolio - Correct Answer ✔✔ collection of investment assets
edits to portfolio - Correct Answer ✔✔ - selling existing securities and using proceeds to
by new securities
- investing additional funds to increase overall portfolio size
- selling securities to decrease overall portfolio sides
asset allocation - Correct Answer ✔✔ allocating a portfolio across broad asset classes
security selection - Correct Answer ✔✔ choice of specific securities within a given asset
class. the choice of which particular securities to hold within each asset class.
top down strategy - Correct Answer ✔✔ starts with asset allocation and then turning to
the securities to be held in each asset class
bottom up strategy - Correct Answer ✔✔ constructed from attractively priced securities
without as much concern for asset allocation
security analysis - Correct Answer ✔✔ the valuation of particular securities that might
be included in the portfolio.
risk-return trade-off - Correct Answer ✔✔ return and risk are directly correlated. higher
risk, higher return, lower risk, lower return
diversification - Correct Answer ✔✔ when many assets are held in a portfolio so that the
exposure to any particular asset is limited
modern portfolio theory - Correct Answer ✔✔ argues that any given investment's risk
and return characteristics should not be viewed alone but should be evaluated by how it
affects the overall portfolio's risk and return.
