Chapter 01 – The Investment Environment
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Chapter 01
The Investment Environment
Multiple Choice Questions
1. In 2007, ____________ was the most significant real asset of U.S. households in terms of
total value.
A. consumer durables
Difficulty: Easy
2. In 2007, ____________ was the least significant financial asset of U.S. households in terms
of total value.
A. real estate
Difficulty: Easy
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3. In 2007, ____________ was the most significant asset of U.S. households in terms of total
value.
E. pension reserves
Difficulty: Easy
4. In 2007, ____________ was the most significant liability of U.S. households in terms of
total value.
A. credit cards
E. other debt
Difficulty: Easy
5. The largest component of domestic net worth in 2007 was ____________.
A. non-residential real estate
E. equipment and software
Difficulty: Moderate
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6. In 2007, ____________ was the most significant real asset of U.S. nonfinancial businesses
in terms of total value.
A. equipment and software
B. inventory
Difficulty: Easy
7. In 2007, ____________ was the least significant real asset of U.S. nonfinancial businesses
in terms of total value.
A. equipment and software
Difficulty: Easy
8. In 2007, ____________ was the least significant liability of U.S. nonfinancial businesses in
terms of total value.
A. bonds and mortgages
Difficulty: Easy
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9. In terms of total value, the most significant liability of U.S. nonfinancial businesses in 2007
was _______.
A. bank loans
Difficulty: Easy
10. In 2007, ____________ was the most significant financial asset of U.S. nonfinancial
businesses in terms of total value.
Difficulty: Easy
11. The material wealth of a society is equal to the sum of _________.
A. all financial assets
Difficulty: Easy
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12. ____________ of an investment bank.
A. Citigroup is an example
Difficulty: Easy
13. _______ are financial assets.
A. Bonds
Difficulty: Easy
14. An example of a derivative security is ______.
A. a common share of General Motors
Difficulty: Easy
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15. _______ was the first to introduce mortgage pass-through securities.
A. Chase Manhattan
B. Citicorp
Difficulty: Easy
16. A bond issue is broken up so that some investors will receive only interest payments while
others will receive only principal payments, which is an example of ________.
A. bundling
B. credit enhancement
Difficulty: Easy
17. An example of a primitive security is __________.
A. a common share of General Motors
B. a call option on Mobil stock
Difficulty: Easy
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18. The ____________ refers to the potential conflict between management and shareholders
due to management’s control of pecuniary rewards as well as the possibility of incompetent
performance by managers.
D. solvency problem
E. regulatory problem
Difficulty: Easy
19. _________ financial asset(s).
A. Buildings are
B. Land is a
Difficulty: Easy
20. The value of a derivative security _______.
instruments
E. is worthless today
Difficulty: Easy
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21. Money market funds were a financial innovation partly inspired to circumvent _______.
A. Regulation B, which is still in existence
B. Regulation D
Difficulty: Easy
22. __________ are a way U.S. investor can invest in foreign companies.
D. GNMAs
E. Krugerrands
Difficulty: Easy
23. _______ are examples of financial intermediaries.
A. Commercial banks
B. Insurance companies
Difficulty: Easy
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24. Financial intermediaries exist because small investors cannot efficiently ________.
A. diversify their portfolios
B. gather all relevant information
Difficulty: Easy
25. Firms that specialize in helping companies raise capital by selling securities are called
________.
A. commercial banks
Difficulty: Easy
26. Financial assets ______.
A. directly contribute to the country’s productive capacity
Difficulty: Easy
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27. The sale of a mortgage portfolio by setting up mortgage pass-through securities is an
example of ________.
A. credit enhancement
Difficulty: Easy
28. Corporate shareholders are best protected from incompetent management decisions by
A. the ability to engage in proxy fights.
Difficulty: Moderate
29. The national net worth of the U.S. in 2007 was _________.
A. $15.411 trillion
B. $26.431 trillion
Difficulty: Moderate
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30. In 2007, _______ of the assets of U.S. households were financial assets as opposed to
tangible assets.
A. 20.4%
B. 34.2%
Difficulty: Moderate
31. Investment bankers perform the following role(s) ___________.
A. market new stock and bond issues for firms
Difficulty: Easy
32. Theoretically, takeovers should result in ___________.
A. improved management
B. increased stock price
Difficulty: Easy