Answer d difficulty moderate rationale proxy fights

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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. _x000C_ 24 T he national net worth of the U. S. in 2005 was _________. A) $15.411 trillion B) $26.431 trillion C) $42.669 trillion D) $55.651 trillion E) $70.983 trillion Answer: C Difficulty: Moderate Rationale: See T able 1.2. A) B) C) D) E) 25 In 2005, _______ of the assets of U. S. households were financial assets as opposed to tangible assets. 20.40% 34.20% 60.70% 71.70% 82.50% Answer: C Difficulty: Moderate Rationale: See T able 1.1. A) B) C) D) 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) B) C) D) E) 27 T heoretically, takeovers should result in ___________. improved management 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. _x000C_ A) B) C) D) E) 28 Important trends changing the contemporary investment environment are globalization. securitization. information and computer networks. financial engineering. all of the above Answer: E Difficulty: Easy Rationale: All of these are examples of important trends in the contemporary investment environment. A) B) C) D) E) 29 T he means by which individuals hold their claims on real assets in a well-developed economy are investment assets. depository assets. derivative assets financial assets. 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) B) C) D) E) 30 Which of the following financial assets makes up the greatest proportion of the financial assets held by U.S. households? pension reserves life insurance reserves mutual fund shares debt securities personal trusts Answer: A Difficulty: Moderate Rationale: See T able 1.1. _x000C_ 31 Which of the following are mechanisms that have evolved to mitigate potential agency problems? I) II) III) IV) 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 takeover threats A) B) C) D) 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) B) C) D) E) 32 Commercial banks differ from other businesses in that both their assets and their liabilities are mostly illiquid. financial. real. owned by the government. regulated. Answer: B Difficulty: Easy Rationale: See T able 1.3. _x000C_ 33 Which of the following is true about GNMA pass-throughs? I) II) III) 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. A) B) C) D) E) II, III, and IV I, II, and IV II and IV I, III, and IV I, II, I...
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