FINANCE 322 EXAM 1 QUESTIONS
WITH CORRECT ANSWERS
A commitment of current resources in the expectation of
deriving greater resources in the future is the definition of a -
CORRECT ANSWER-investment
1) Which of the following would all be considered real assets?
-Bank accounts, insurance, and ...
A commitment of current resources in the expectation of
deriving greater resources in the future is the definition of a -
CORRECT ANSWER-investment
1) Which of the following would all be considered real assets?
-Bank accounts, insurance, and automobiles
-Land, buildings, and equipment
-Automobiles, land, and insurance
-Stocks, bonds, and insurance - CORRECT ANSWER-land,
buildings, and equipment
Financial assets include - CORRECT ANSWER-dollar bills,
stocks, and bonds
Real assets - CORRECT ANSWER-land and patents
The types of financial assets include - CORRECT ANSWER-
fixed income, equity, and derivatives
A security bond such as a bond that pays a specified cash flow
over a specific period is - CORRECT ANSWER-a fixed-income
or debt security
,Capital markets - CORRECT ANSWER-allow the risk inherent
in all investments to be borne by the investors most willing to
bear it
The material wealth of society, is - CORRECT ANSWER-
determined by the productive capacity of the economy is a
function of real assets of the economy
That managers of a public corporation often pursue their own
interests rather than the interests of the shareholders is
referred to as the - CORRECT ANSWER-agency problem
Financial assets are claims to - CORRECT ANSWER-the
income generated by real assets
The following are mechanisms to mitigate potential agency
problems: - CORRECT ANSWER--Compensation plans tie to
the income of managers to the success of the firm
-Poor or bad performers may be subjected to the threat of a
takeover
-Boards of directors can force out management teams that are
underperforming
What are the types of financial assets? - CORRECT ANSWER-
Derivatives, fixed income, and equity
Which securities are considered fixed income? - CORRECT
ANSWER-Floating-rate bonds and junk bonds
Financial assets allow the risk of a real asset to be borne by
investors whose preferences match the securities risk-return
characteristics and through - CORRECT ANSWER-the sale of
securities for the best prices
Market signals help to allocate capital efficiently only if
investors are acting on - CORRECT ANSWER-accurate
information
, True or false: Agency problems are easy to fix - CORRECT
ANSWER-False
Which of the following US firms manipulated and misstated
their accounts to the tune of billions of dollars? - CORRECT
ANSWER-Quest communications and HealthSouth
What are the requirements of the Sarbanes-Oxley Act? -
CORRECT ANSWER--The CFO must personally vouch for the
corporation's accounting statements
-Corporations must have more independent directors
When a securities market conveys accurate information,
thereby facilitating the most productive use of capital resources,
the market is said to be - CORRECT ANSWER-transparent
In constructing portfolios, the choice of which particular assets
to hold within an asset class is the - CORRECT ANSWER-
security selection decision
The risk-reward trade-off of an asset depends on its effect on
the risk of a diverse portfolio, that is, one with many assets so
that the exposure to any particular asset is - CORRECT
ANSWER-limited
Which of the following companies went bankrupt between the
years of 2000 and 2008? - CORRECT ANSWER-WorldCom,
Lehman Brothers, and Enron
In 2002 in response to the spate of ethics scandals, what act
did Congress pass to tighten the rules of corporate
governance? - CORRECT ANSWER-Sarbanes-Oxley Act
Holding highly diversified portfolios without spending effort or
other resources attempting to improve investment performance
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