1) The value of a derivative security

A) depends on the value of the related security. B) is unable to be calculated. C) is unrelated to the value of the related security. D) has been enhanced due to the recent misuse and negative publicity regarding these instruments. E) is worthless today.

2) Financial assets permit all of the following except

A) consumption timing. B) allocation of risk. C) separation of ownership and control. D) elimination of risk.

3) Which of the following are mechanisms that have evolved to mitigate potential agency problems? 1.I) Using the firm's stock options for compensation 2.II) Hiring bickering family members as corporate spies 3.III) Boards of directors forcing out underperforming management 4.IV) Security analysts monitoring the firm closely 5.V) Takeover threats

A) II and V B) I, III, and IV C) I, III, IV, and V D) III, IV, and V E) I, III, and V

4) Security selection refers to

A) choosing which securities to hold based on their valuation. B) investing only in "safe" securities. C) the allocation of assets into broad asset classes. D) top-down analysis.

5) Mortgage-backed securities were created when ________ began buying mortgage loans from originators and bundling them into large pools that could be traded like any other financial asset.

A) GNMA B) FNMA C) FHLMC D) FNMA and FHLMC E) GNMA and FNMA

6) The spread between the LIBOR and the Treasury-bill rate is called the

A) term spread. B) T-bill spread. C) LIBOR spread. D) TED spread.

7) Which one of the following is not a money market instrument?

A) Treasury bill B) Negotiable certificate of deposit C) Commercial paper D) Treasury bond E) Eurodollar account

8) Deposits of commercial banks at the Federal Reserve Bank are called

A) bankers' acceptances. B) repurchase agreements. C) time deposits. D) federal funds. E) reserve requirements.

9) Which of the following indices is (are) market-value weighted? 1.I) The New York Stock Exchange Composite Index 2.II) The Standard and Poor's 500 Stock Index 3.III) The Dow Jones Industrial Average

A) I only B) I and II only C) I and III only D) I, II, and III E) II and III only

10) The Dow Jones Industrial Average (DJIA) 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. E) adding the prices of the 30 stocks in the index and dividing by the value of these stocks as of some base date period.