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Unformatted text preview: s are expensive and seldom successful, and management may often control the board or own significant shares. It is the threat of takeover of underperforming firms that has the strongest ability to keep management on their toes.
24 T he national net worth of the U. S. in 2005 was _________.
Answer: C Difficulty: Moderate
Rationale: See T able 1.2. A)
E) 25 In 2005, _______ of the assets of U. S. households were financial assets as opposed to tangible assets.
82.50% Answer: C Difficulty: Moderate
Rationale: See T able 1.1. A)
E) 26 Investment bankers perform the following role(s) ___________.
market new stock and bond issues for firms
provide advice to the firms as to market conditions, price, etc
design securities with desirable properties
all of the above
none of the above Answer: D Difficulty: Easy
Rationale: Investment bankers perform all of the roles described above for their clients. A)
E) 27 T heoretically, takeovers should result in ___________.
increased stock price
increased benefits to existing management of taken over firm
A and B
A, B, and C Answer: D Difficulty: Easy
Rationale: T heoretically, when firms are taken over, better managers come in and thus increase the price of the stock; existing management often must either leave the firm, be demoted, or suffer a loss of existing benefits.
E) 28 Important trends changing the contemporary investment environment are
information and computer networks.
all of the above Answer: E Difficulty: Easy
Rationale: All of these are examples of important trends in the contemporary investment environment. A)
E) 29 T he means by which individuals hold their claims on real assets in a well-developed economy are
exchange-driven assets Answer: D Difficulty: Easy
Rationale: Financial assets allocate the wealth of the economy. Book example: it is easier for an individual to own shares of an auto company than to own an auto company directly. A)
E) 30 Which of the following financial assets makes up the greatest proportion of the financial assets held by U.S. households?
life insurance reserves
mutual fund shares
personal trusts Answer: A Difficulty: Moderate
Rationale: See T able 1.1.
31 Which of the following are mechanisms that have evolved to mitigate potential agency problems?
V) compensation in the form of the firm's stock options
hiring bickering family members as corporate spies
underperforming management teams being forced out by boards of directors
security analysts monitoring the firm closely
E) II and V
I, III, and IV
I, III, IV, and V
III, IV, and V
I, III, and V Answer: C Difficulty: Moderate
Rationale: All but the second option have been used to try to limit agency problems. A)
E) 32 Commercial banks differ from other businesses in that both their assets and their liabilities are mostly
owned by the government.
regulated. Answer: B Difficulty: Easy
Rationale: See T able 1.3.
33 Which of the following is true about GNMA pass-throughs?
IV) T hey aggregate individual home mortgages into heterogeneous pools.
T he purchaser of a GNMA receives monthly interest and principal payments received from payments made on the pool.
T he banks that originated the mortgages maintain ownership of them.
T he banks that originated the mortgages continue to service them.
E) II, III, and IV
I, II, and IV
II and IV
I, III, and IV
I, II, I...
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- Spring '14