Chapter 1
Introducti on
EASY
C 1. An investment
a. must have risk.
b. has an expected return at the forecasted inflation rate.
c. involves the sacrifice of present dollars for future dollars.
d. must involve the purchase of a real asset.
C 2. A real investment would be the purchase of a
a. common stock.
b. treasury bill.
c. piece of production equipment.
d. call option.
A 3. Within the investment environment the term security means
a. a legal representation of the right to receive future payments
under stated conditions.
b. an interest in an asset held by a trustee for the benefit of
another person.
c. the value of a portfolio.
d. the return to an investment manager.
,C 4. The percentage change in the investor’s wealth from the beginning to
the end of the year is known as the
a. retention ratio
b. payout ratio
c. rate of return
d. discount rate
D 5. Investors who wish to lend money to the U.S. Treasury on a short-
term basis would purchase
a. Treasury bonds
b. municipal bonds
c. government-agency bonds
d. Treasury bills
,A 6. A fairly long-term loan commitment by the investor would accompany
the purchase of
a. corporate bonds
b. Treasury bills
c. Common stocks
d. Certificates of deposit
B 7. Another type of security available in the investment environment
which represents a commitment by a corporation to pay periodic and
variable cash dividends is known as a
a. corporate T-bill
b. common stock
c. preferred stock
d. corporate bond
C 8. A characteristic of an efficient market is
a. significant trends in security returns
b. prices which are slow to adjust to new information
c. randomness in security returns
d. the past pattern predicts the future pattern of prices
D 9. The fundamental principle in the investment environment, which
states that securities with various degrees of risk combined into a
portfolio result in portfolios with lower levels of total risk, is known
as
a. fragmentation
b. the efficient frontier
, c. the investor’s paradox
d. diversification
A 10. Securities markets that can be distinguished by the life span of
financial assets are most often known as the
a. money and capital markets
b. New York Stock and the American Stock Exchanges
c. short and long term markets
d. bond and stock markets
B 11. Setting the investment policy involves determining the investor’s
objectives and
a. risk tolerance
b. investable wealth
c. the ability to make “a lot of money”
d. setting the risk of the potential reduction in household income
Introducti on
EASY
C 1. An investment
a. must have risk.
b. has an expected return at the forecasted inflation rate.
c. involves the sacrifice of present dollars for future dollars.
d. must involve the purchase of a real asset.
C 2. A real investment would be the purchase of a
a. common stock.
b. treasury bill.
c. piece of production equipment.
d. call option.
A 3. Within the investment environment the term security means
a. a legal representation of the right to receive future payments
under stated conditions.
b. an interest in an asset held by a trustee for the benefit of
another person.
c. the value of a portfolio.
d. the return to an investment manager.
,C 4. The percentage change in the investor’s wealth from the beginning to
the end of the year is known as the
a. retention ratio
b. payout ratio
c. rate of return
d. discount rate
D 5. Investors who wish to lend money to the U.S. Treasury on a short-
term basis would purchase
a. Treasury bonds
b. municipal bonds
c. government-agency bonds
d. Treasury bills
,A 6. A fairly long-term loan commitment by the investor would accompany
the purchase of
a. corporate bonds
b. Treasury bills
c. Common stocks
d. Certificates of deposit
B 7. Another type of security available in the investment environment
which represents a commitment by a corporation to pay periodic and
variable cash dividends is known as a
a. corporate T-bill
b. common stock
c. preferred stock
d. corporate bond
C 8. A characteristic of an efficient market is
a. significant trends in security returns
b. prices which are slow to adjust to new information
c. randomness in security returns
d. the past pattern predicts the future pattern of prices
D 9. The fundamental principle in the investment environment, which
states that securities with various degrees of risk combined into a
portfolio result in portfolios with lower levels of total risk, is known
as
a. fragmentation
b. the efficient frontier
, c. the investor’s paradox
d. diversification
A 10. Securities markets that can be distinguished by the life span of
financial assets are most often known as the
a. money and capital markets
b. New York Stock and the American Stock Exchanges
c. short and long term markets
d. bond and stock markets
B 11. Setting the investment policy involves determining the investor’s
objectives and
a. risk tolerance
b. investable wealth
c. the ability to make “a lot of money”
d. setting the risk of the potential reduction in household income
