Finance 363 Quiz 1 Name_______KEY_________________________

1) The material wealth of a society is a function of

A) all physical assets.
B) all financial and real assets.
C) all financial assets.
D) all real assets.

2) The means by which individuals hold their claims on real assets in a well-developed economy are
A) financial assets.
B) depository assets.
C) investment assets.
D) derivative assets.
E) exchange-driven assets.

3) Investment bankers perform which of the following roles?

A) Provide advice to the firms as to market conditions, price, etc.
B) Design securities with desirable properties
C) Market new stock and bond issues for firms
D) All of the options
E) None of the options

4) Financial assets permit all of the following except

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

5) A debt security pays

A) a fixed or variable income stream at the option of the owner.
B) a fixed level of income for the life of the owner.
C) a variable level of income for owners on a fixed income.
D) a fixed stream of income or a stream of income that is determined according to a specified formula for the life
of the security.

6) Indicate the maturity (short-term, long-term, infinite) and source of income/return received for each of the following:
A) Common stock
Common stock never matures (infinite maturity) and the investors return comes from changes in the stock price
(capital appreciation) and dividend income. Divided income is not guaranteed.
B) Preferred stock
Preferred stock never matures (infinite maturity) and the investors return comes mainly from dividend income, but
could also come from capital appreciation. Preferred stockholders generally receive fixed dividend payments that are
cumulative.
C) Treasury bill
Treasury bills have a maturity of less than one year (short-term). T-bills do not pay coupons due to their short
maturity, so the return to the investor comes from buying the t-bill at a low price (discount to face value) and selling it
back at a higher price (face value) at maturity.
D) Corporate bond
Corporate bonds can have various maturities, short- or long-term. They be zero coupon bonds, similar to t-bills, or
they can make periodic payments that are fixed or variable. The return to investors is generated from the coupon
payments (if made) and/or capital appreciation.