FIN EXAM 1 QUESTIONS WITH RIGHT ANSWERS
UPDATED 2025 - 2026
Real,Assets,,ANS,-
,assets,used,to,produce,goods,and,services,such,as,land,,buildings,,and,equipment.,Determine,the,wealth,
of,an,economy.
Financial,Assets,,ANS,-
,assets,such,as,stocks,or,bonds,that,are,claims,to,the,income,generated,by,real,assets,or,claims,on,income,
from,the,government.,Represent,claims,on,real,assets.
Three,types,of,financial,assets,,ANS,-,Fixed,income,,equity,and,derivatives
Fixed,Income,or,(debt,securities),,ANS,-
,a,type,of,financial,asset,that,promises,either,a,fixed,stream,of,income,or,a,stream,of,income,determined,
by,a,specified,formula.
Equity,,ANS,-
,represents,an,ownership,share,in,the,corporation.,For,example,,a,stock.,Performance,of,investment,or,as
set,is,directly,tied,to,the,company's,success.
Derivative,securities,,ANS,-
,a,security,whose,payoff,depends,on,the,value,of,other,financial,variables,such,as,stock,prices,,interest,rat
es,,or,exchange,rates.
Agency,problems,,ANS,-
,problems,that,arise,when,managers,,who,are,hired,as,agents,of,the,shareholders,pursue,their,own,intere
sts,instead.
How,to,mitigate,potential,agency,problems,,ANS,-
,1.,Compensation,plans,tie,the,income,of,managers,to,the,success,of,the,firm
2.,Monitoring,from,the,board,of,directors:,force,out,management,that,is,underperforming
3.,Security,analysts,and,Large,institutional,investors,monitoring,the,firm.,
, 4.,Threat,of,takeover,for,poor,performers
Proxy,contest,,ANS,-,shareholders,attempt,to,take,control,of,firm,by,voting,in,another,board
Enron,Scandal,,ANS,-
,the,company,presented,a,misleading,picture,of,its,financial,status,by,moving,debt,off,its,own,books.
Arthur,Andersen,,ANS,-
,Enron's,auditor,that,earned,more,money,for,consulting,for,Enron,than,by,auditing,it.
Sarbanes-Oxley,Act,(SOX),,ANS,-
,Law,passed,by,congress,in,2002,to,tighten,the,rules,of,corporate,governance,and,disclosure.,
1.Requires,corporations,to,have,more,independent,directors.
2.,Requires,CFOs,to,personally,vouch,for,the,corporation's,accounting,statements.
Asset,Allocation,,ANS,-,allocation,of,an,investment,portfolio,across,broad,asset,classes.,(categorial)
Security,selection,,ANS,-,the,choice,of,which,particular,securities,to,hold,within,each,asset,class.,(specific)
Security,analysis,,ANS,-,the,valuation,of,particular,securities,that,might,be,included,in,the,portfolio
Risk-return,trade,off,,ANS,-,assets,with,higher,expected,return,entail,greater,risk
Diversification,,ANS,-
,many,assets,are,held,in,the,portfolio,so,that,exposure,to,any,particular,asset,is,limited
Passive,management,,ANS,-,buying,a,diversified,portfolio,,often,a,broad-
based,market,index,,without,attempting,to,identify,mispriced,securities
UPDATED 2025 - 2026
Real,Assets,,ANS,-
,assets,used,to,produce,goods,and,services,such,as,land,,buildings,,and,equipment.,Determine,the,wealth,
of,an,economy.
Financial,Assets,,ANS,-
,assets,such,as,stocks,or,bonds,that,are,claims,to,the,income,generated,by,real,assets,or,claims,on,income,
from,the,government.,Represent,claims,on,real,assets.
Three,types,of,financial,assets,,ANS,-,Fixed,income,,equity,and,derivatives
Fixed,Income,or,(debt,securities),,ANS,-
,a,type,of,financial,asset,that,promises,either,a,fixed,stream,of,income,or,a,stream,of,income,determined,
by,a,specified,formula.
Equity,,ANS,-
,represents,an,ownership,share,in,the,corporation.,For,example,,a,stock.,Performance,of,investment,or,as
set,is,directly,tied,to,the,company's,success.
Derivative,securities,,ANS,-
,a,security,whose,payoff,depends,on,the,value,of,other,financial,variables,such,as,stock,prices,,interest,rat
es,,or,exchange,rates.
Agency,problems,,ANS,-
,problems,that,arise,when,managers,,who,are,hired,as,agents,of,the,shareholders,pursue,their,own,intere
sts,instead.
How,to,mitigate,potential,agency,problems,,ANS,-
,1.,Compensation,plans,tie,the,income,of,managers,to,the,success,of,the,firm
2.,Monitoring,from,the,board,of,directors:,force,out,management,that,is,underperforming
3.,Security,analysts,and,Large,institutional,investors,monitoring,the,firm.,
, 4.,Threat,of,takeover,for,poor,performers
Proxy,contest,,ANS,-,shareholders,attempt,to,take,control,of,firm,by,voting,in,another,board
Enron,Scandal,,ANS,-
,the,company,presented,a,misleading,picture,of,its,financial,status,by,moving,debt,off,its,own,books.
Arthur,Andersen,,ANS,-
,Enron's,auditor,that,earned,more,money,for,consulting,for,Enron,than,by,auditing,it.
Sarbanes-Oxley,Act,(SOX),,ANS,-
,Law,passed,by,congress,in,2002,to,tighten,the,rules,of,corporate,governance,and,disclosure.,
1.Requires,corporations,to,have,more,independent,directors.
2.,Requires,CFOs,to,personally,vouch,for,the,corporation's,accounting,statements.
Asset,Allocation,,ANS,-,allocation,of,an,investment,portfolio,across,broad,asset,classes.,(categorial)
Security,selection,,ANS,-,the,choice,of,which,particular,securities,to,hold,within,each,asset,class.,(specific)
Security,analysis,,ANS,-,the,valuation,of,particular,securities,that,might,be,included,in,the,portfolio
Risk-return,trade,off,,ANS,-,assets,with,higher,expected,return,entail,greater,risk
Diversification,,ANS,-
,many,assets,are,held,in,the,portfolio,so,that,exposure,to,any,particular,asset,is,limited
Passive,management,,ANS,-,buying,a,diversified,portfolio,,often,a,broad-
based,market,index,,without,attempting,to,identify,mispriced,securities
