A b c d e ii iii and iv i ii and iv ii and iv i iii

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Unformatted text preview: II, and IV Answer: B Difficulty: Moderate Rationale: III is not correct because the bank no longer owns the mortgage investments. A) B) C) D) E) 34 Although derivatives can be used as speculative instruments, businesses most often use them to attract customers. appease stockholders. offset debt. hedge. enhance their balance sheets. Answer: D Difficulty: Easy Rationale: Firms may use forward contracts and futures to protect against currency fluctuations or changes in commodity prices. Interest-rate options help companies control financing costs. _x000C_ A) B) C) D) E) 35 A WEBS security limits the diversification potential of investors who hold it. may be traded only in the primary market. is linked directly to the value of a composite index of futures contracts. must be earned as a performance bonus within a corporation rather than purchased. tracks the performance of an index of share returns for a particular country. Answer: E Difficulty: Moderate Rationale: WEBS (World Equity Benchmark Shares) allow investors to trade portfolios of foreign stocks in a selected country. T hey can be traded by investors in secondary markets (Amex) and allow U.S. investors to diversify their portfolios of foreign stocks. 36 During the period between 2000 and 2002, a large number of scandals were uncovered. Most of these scandals were related to I) II) III) IV) Manipulation of financial data to misrepresent the actual condition of the firm. Misleading and overly optimistic research reports produced by analysts. Allocating IPOs to executives as a quid pro quo for personal favors. Greenmail. A) B) C) D) E) II, III, and IV I, II, and IV II and IV I, III, and IV I, II, and III Answer: E Difficulty: Moderate Rationale: I, II, and III are all mentioned as causes of recent scandals. A) B) C) D) E) 37 A disadvantage of using stock options to compensate managers is that it encourages mangers to undertake projects that will increase stock price. it encourages managers to engage in empire building. it can create an incentive for mangers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firms true prospects. all of the above. none of the above. A) B) C) D) E) 38 In 2005, ____________ was the most significant real asset of U. S. households in terms of total value. consumer durables automobiles real estate mutual fund shares bank loans Answer: C Rationale: A is a desired characteristic. B is not necessarily a good or bad thing in and of itself. C creates an agency problem. _x000C_ Answer: C Difficulty: Easy Rationale: See T able 1.1. A) B) C) D) E) 39 T he largest component of domestic net worth in 2005 was ____________. non-residential real estate residential real estate inventories consumer durables equipment and software Answer: B Difficulty: Moderate Rationale: See T able 1.2. A) B) C) D) E) 40 A fixed-income security pays ____________. a fixed level of income for the life of the owner a fixed level of income for the life of the security a variable level of income for owners on a fixed income a fixed or variable income stream at the option of the owner none of the above Answer: B Difficulty: Easy Rationale: Only answer B is correct. A) B) C) D) E) 41 Money market securities ____________. are short term pay a fixed income are highly marketable generally very low risk all of the above Answer: E Difficulty: Easy Rationale: All answers are correct. _x000C_ A) B) C) D) E) 42 Financial assets permit all of the following except ____________. consumption timing allocation of risk separation of ownership and control elimination of risk all of the above Answer: D Difficulty: Moderate Rationale: Financial assets do not allow risk to be eliminated. However, they do permit allocation of risk, consumption timing, and separation of ownership and control....
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This document was uploaded on 02/06/2014.

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