1. Which of the following is a characteristic of an efficient financial market?
   1. Absence of underpriced or overpriced securities
   2. Abundance of bargain opportunities
   3. Necessity of active portfolio management
   4. Focus on security analysis

2. Primary market refers to the market ____________.
   1. that attempts to identify mispriced securities and arbitrage opportunities
   2. in which investors trade already issued securities
   3. where new issues of securities are offered
   4. in which securities with custom-tailored characteristics are designed

3. Which term refers to the valuation of securities included in a portfolio?
   1. Unbundling
   2. Security analysis
   3. Security allocation
   4. Security selection

4. Which of the following observations concerning financial assets is true?
   1. They generate net income to the economy.
   2. They include the knowledge that can be used to produce goods and services.
   3. They are claims to the income generated by real assets.
   4. They contribute directly to the productive capacity of the economy.

5. Which of the following statements is true about derivative securities?
   1. Derivatives are frequently used to hedge risks.
   2. The term "derivatives" stems from the fact that these securities derive their value only from options and futures contracts.
   3. Only sellers of derivatives take speculative positions in the underlying assets.
   4. Derivatives are used to reduce leveraging.

6. A stand-alone investment bank specializes in ____________.
   1. identifying mispriced securities
   2. purchasing securities on behalf of investors
   3. managing investor funds
   4. underwriting new securities

7. _____________ securities promise either a fixed stream of income or a stream of income that is determined according to a specified formula.
   1. Equity
   2. Fixed-income
   3. Preferred stock
   4. Mutual Fund

8. In the financial markets, financial intermediaries ____________.
   1. are considered "major players" who are net lenders
   2. are considered "major players" who are net borrowers
   3. bring lenders and borrowers together
   4. raise funds by borrowing in order to invest in real assets

9. A portfolio manager with a passive investment strategy manages a portfolio by ______________.
   1. holding a diversified portfolio without expending effort to improve performance
   2. selecting mispriced securities in order to improve performance
   3. using a "bottom-up" strategy
   4. emphasizing asset allocation and security selection

10. Agency problems within a corporation are _______________.
    1. conflicts among stockholders with differing objectives
    2. conflicts between stockholders and financial intermediaries
    3. conflicts among managers with competing interests
    4. conflicts between managers and stockholders

11. Which of the following is not an example of a real asset?
    1. A factory building
    2. Machinery
    3. Desks
    4. Corporate stock

12. Which of the following is not a financial intermediary?
    1. Credit unions
    2. Insurance companies
    3. Mutual funds
    4. Investment bankers

13. Financial intermediaries which pool and manage the money of many investors are called _________________.
    1. financial engineers
    2. investment companies
    3. investment bankers
    4. credit unions

14. Which of the following are net suppliers of capital?
    1. Firms
    2. Governments that run deficits
    3. Households
    4. Investment bankers

15. Which of the following is an example of a money market instrument?
    1. Mortgage-backed securities
    2. Federal funds
    3. Treasury notes
    4. Federal agency debt

16. Which of the following observations about preferred stock dividends is true?
    1. For tax purposes, preferred stock payments are treated as interest on debt.
    2. Preferred dividends are usually noncumulative.
    3. Preferred stock payments are not tax-deductible expenses for the firm paying the dividend.
    4. Preferred dividends must be paid in full after the dividends are be paid to holders of common stock.

17. Callable bonds give the issuing company the option to _______________.
    1. pay no coupon on the bonds until maturity
    2. cancel the company's obligation to pay bond interest
    3. convert the bonds to common stock
    4. repurchase the bonds

18. Which of the following observations concerning repos is correct?
    1. They are short-term sales of government securities.
    2. They do not involve repurchase clauses.
    3. They are considered unsafe in terms of credit risk.
    4. The term of the transaction is usually one year or more.

19. A trader who takes a long position in a corn futures contract has _______________ to ______________ a specified quantity of corn on the delivery date, at an agreed upon price.
    1. an obligation; buy
    2. an obligation; sell
    3. the right; sell
    4. the right; buy

20. The price which the owner of a put option receives from selling the stock named in the option contract is called the _______________.
    1. cut-off price
    2. expiration price
    3. exercise price
    4. market price