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Unformatted text preview: Practice Quiz 1 1. The means by which individuals hold their claims on real assets in a well-developed economy are A. Investment assets. B. Depository assets. C. Derivative assets. D. Financial assets. E. Exchange-driven assets. 2. _______ are financial assets. A. Bonds B. Machines C. Stocks D. A and C E. A, B and C 3. A fixed-income security pays ____________. A. a fixed level of income for the life of the owner B. a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security C. a variable level of income for owners on a fixed income D. a fixed or variable income stream at the option of the owner E. none of the above 4. Money market securities ____________. A. are short term B. are highly marketable C. are generally very low risk D. all of the above E. B and C only. 5. An example of a derivative security is ______. A. a common share of Microsoft B. a call option on Intel stock C. a commodity futures contract D. B and C E. A and B 6. Although derivatives can be used as speculative instruments, businesses most often use them to A. attract customers. B. appease stockholders. C. offset debt. D. hedge risks. E. enhance their balance sheets. 7. Financial assets permit all of the following except ____________. A. consumption timing B. allocation of risk C. separation of ownership and control D. elimination of risk E. all of the above 8. The ____________ refers to the potential conflict between management and shareholders. A. agency problem B. diversification problem C. liquidity problem D. solvency problem E. regulatory problem 9. Which of the following are mechanisms that have evolved to mitigate potential agency problems? I) Compensation in the form of the firm's stock options II) Hiring bickering family members as corporate spies III) Underperforming management teams being forced out by boards of directors IV) Security analysts monitoring the firm closely V) Takeover threats A. II and V B. I, III, and IV C. I, III, IV, and V D. III, IV, and V E. I, III, and V 10. Theoretically, takeovers should result in ___________. A. improved management B. increased stock price C. increased benefits to existing management of taken over firm D. A and B E. A, B, and C 11. Asset allocation refers to ____________. A. choosing which securities to hold based on their valuation B. investing only in "safe" securities C. the allocation of assets into broad asset classes D. bottom-up analysis E. all of the above 12. Security selection refers to ____________. A. choosing which securities to hold based on their valuation B. investing only in "safe" securities C. the allocation of assets into broad asset classes D. top-down analysis E. all of the above 13. Financial intermediaries exist because small investors cannot efficiently ________....
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This note was uploaded on 02/29/2012 for the course FINA 6275 taught by Professor Gerganajostova during the Spring '12 term at GWU.
- Spring '12