Quiz Chapter 1

Real Assets

Financial Assets
Fixed-income (debt) securities
Equity
Derivative Securities
Agency Problems
Asset Allocation
Security Selection
Security Analysis
Risk-return trade-off
Passive Management

Assets used to produce goods and services

Claims on real assets or the income

generated by them
Pay a specified cash flow over a specific
period.
An ownership share in a corporation
Securities providing payoffs that depend
on the values of other assets.
Conflicts of interest between managers
and stockholders.
Allocation of an investment portfolio
across broad asset classes.
Choice of specific securities within each
asset class.
Analysis of the value of securities
Assets with higher expected returns entail
greater risk.
Buying and holding a diversified portfolio
without attempting to identify mispriced
securities or to forecast broad market

Active Management
Financial Intermediaries

trends.
Attempting to identify mispriced securities
or to forecast broad market trends.
Institutions that "connect" borrowers and
lenders by accepting funds from lenders
and loaning funds to borrowers.

Investment Companies

Firms managing funds for investors. An

investment company may manage several
mutual funds.

Investment Bankers

Firms specializing in the sale of new

securities to the public, typically by
underwriting the issue.

Primary Market

Tendency
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Secondary Market
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the integration of
international capital markets.

Secondary Market
Globalization

Previously issued securities are traded

among investors.
Tendency toward a worldwide investment
environment, and the integration of
international capital markets.

Pass-through Securities

Pools of loans (such as home mortgage

loans) sold in one package. Owners of
pass-throughs receive all of the principal
and interest payments made by the
borrowers.

Securitization

Pooling loans into standardized securities

backed by those loans, which can then be
traded like any other security.

Bundling, Unbundling

Creation of new securities either by

combining primitive and derivative
securities into one composite hybrid or by
separating returns on an asset into classes.

Quiz Chapter 2
Money Markets

a sub-sector of the debt market; consists of

short-term, highly liquid, and relatively
low-risk debt instruments

T-Bills

the most marketable of all money market

instruments, highly liquid; short-term
government securities issued at a discount
from face-value and returning the face
amount at maturity

asked price

bid price

the price you would have to pay to buy a Tbill from a securities dealer
the slightly lower price you would receive
if you wanted to sell a bill to a dealer

Certificates of Deposit
Commercial Paper

a time deposit with a bank

short-term unsecured debt notes issued by
large corporations; considered to be fairly
safe

Repurchase Agreements

short-term sales of government securities

with an agreement to repurchase the
securities at a higher price

Brokers' Calls

the interest rate at which banks make

loans to brokers in order to finance margin
loans for their clients; this rate is generally
about one percentage point higher than
the rate on short-term T-bills

the bond market

long-term borrowing or debt instruments;

include treasury notes and bonds,
corporate bonds, municipal bonds,
mortgage securities, and federal agency
debt

Treasury Notes

debt obligations of the federal government

issued with original maturities of up to 10
years

TIPS
municipal bonds

general obligation bonds

revenue bonds

inflation-protected Treasury bonds

tax-exempt bonds issued by state and local
governments
a type of municipal bond that is backed up
by the "full faith and credit" of the issuer
a type of municipal bond that is issued to
finance particular projects and are backed
either by revenues from that project or by

corporate bonds

the municipal agency operating the project

long-term debt issued by private
corporations typically paying semi-annual
coupons and returning the face value of
the bond at maturity

mortgage-backed security

an ownership claim in a pool of mortgages

or an obligation that is secured by such a
pool

common stocks

residual claim

ownership shares in a publicly held

corporation
characteristic of common stocks stating
that stockholders are the last in line of all
those who have a claim on the assets and

limited liability

income of the corporation

characteristic of common stocks stating
that the most shareholders can lose in the
event of the failure of the corporation is

dividend yield

their original investment

annual dividend per dollar paid for the
stock; part of the return on stock
investments that ignores prospective

preferred stock

capital gains
nonvoting shares in a corporation, usually
paying a fixed stream of dividends