• Document: Review for Exam 1. Instructions: Please read carefully
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Review for Exam 1 Instructions: Please read carefully • The exam will have 20 multiple choice questions and 5 work problems. • Questions in the multiple choice section will be either concept or calculation questions. The calculation questions will be similar to those in the homework and review. However, the concept questions will be related to any topic we have covered in the class. The concept questions in the review are only some sample questions. You should NOT study only topics in the review. • For the work problems, you need to solve the problems without knowing the possible answers. The questions will be similar to those in the homework and the review except that the possible solutions are not given. • You can bring a formula sheet to the exam. However, you should not write definitions/concepts on the sheet. You should turn in the formula sheet together with the exam when finished. Chapter 1 1. There would be no _______________ in an efficient stock market. a. underpriced or overpriced stocks b. returns higher than 100% c. commission costs d. taxes 2. A _______________ represents an ownership share in a corporation. a. bond b. preferred stock c. common stock d. All of the above. 3. In securities markets, the risk-return trade-off implies that assets with higher risk will offer investors _______________ expected returns. a. higher b. lower c. the same d. None of the above. 4. Allocation of the investment portfolio across broad asset classes refers to the _______________. a. security analysis b. top-down portfolio construction c. asset allocation d. None of the above. 5. Commercial banks are _______________. a. lending institutions b. borrowing institutions c. commercial intermediaries d. financial intermediaries 6. Investors can purchase new issues of securities in the _______________ market. a. secondary b. primary c. new d. IPO 7. American Depository Receipts are claims to _______________. a. foreign stocks b. American stocks c. North American stocks d. European stocks 8. Firms that specialize in helping companies raise capital by selling securities are called _______________. a. industrial banks b. commercial banks c. investment banks d. None of the above 9. _______________ are financial assets. a. Options b. Factories c. Commercial properties d. All of the above are financial assets 10. Portfolio manager with a passive investment strategy will manage a portfolio by ______________. a. holding a diversified portfolio b. selecting mispriced securities c. timing the performance of securities d. None of the above. Chapter 2 11.A dollar denominated deposit at a London bank is called ______. A) eurodollars B) LIBOR C) fed funds D) banker's acceptance 12. Money market securities are sometimes referred to as "cash equivalent" because A) they are marketable B) they are liquid C) they are low-risk D) all of the above 13._____ computes over 50 country indexes. A) Dow Jones B) The Federal Reserve C) NASDAQ D) MSCI 14.Deposits of commercial banks at the Federal Reserve are called ______. A) bankers acceptances B) federal funds C) repurchase agreements D) time deposits 15.Commercial paper is a short-term security issued by __________ to raise funds. A) the Federal Reserve B) commercial banks C) large well-known companies D) the New York Stock Exchange 16.A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date. A) call option B) futures contract C) put option D) none of the above 17.The Dow Jones Industrial Average is computed by __________. A) adding the prices of 30 large "blue-chip" stocks and dividing by 30 B) calculating the total market value of the 30 firms in the index and dividing by 30 C) adding the prices of the 30 stocks in the index and dividing by a divisor D) adding the prices of the 500 stocks in the index and dividing by a divisor 18. Purchase of a futures contract involves __________ A) the right to buy an item at a specified price B) the right to sell an item at a specified price C) the obligation to buy an item at a specified price D) the obligation to sell an item at a specified price Chapter 3 19.Underwriting is one of the services provided by ____. A) the SEC B) investment bankers C) publicly traded companies D) FDIC 20.A level _____ subscriber to the NASDAQ system may enter bid and ask prices. A) 1 B) 2 C) 3 D) 4 21.__________ is a false statem

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