Chapter 1- Investments

Question 1

Investment

Answer 1

Commitment of current resources in the expectation of deriving greater resources in the future

Question 2

Real Assets

Answer 2

Assets used to produce goods and services
( land, buildings equipment or knowledge )

Question 3

Financial Assets

Answer 3

Claims on real assets or income generated by them ( stocks or bonds)

Question 4

Fixed Income

Answer 4

Pay a specified cash flow over a specific period ( debt securities)

Question 5

Equity

Answer 5

An ownership share in a corporation

Question 6

Derivative Securities

Answer 6

Securities provide payoffs that depend on the values of other assets

Question 7

Asset Collection

Answer 7

Portfolio choice among broad investment class

Question 8

Security Collection

Answer 8

Choice of specific securities within each asset class

Question 9

Security Analysis

Answer 9

Analysis of the value of securities

Question 10

Risk-return Trade off

Answer 10

Assets with higher expected returns entail greater risk

Question 11

Passive Management

Answer 11

Buying and holding a diversified portfolio without attempting to identify mispriced securities

Question 12

Active Management

Answer 12

Attempting to identify mispriced securities or to forecast broad market trends

Question 13

Financial Intermediaries

Answer 13

Institutions that connect borrowers and lenders by accepting funds from lenders and loaning funds from borrowers

Question 14

Investment Companies

Answer 14

Financial intermediaries that invest the funds of individual investors in securities or other assets

Question 15

Investment Bankers

Answer 15

Firms specializing in the sale of new securities to the public typically by underwriting the issue

Question 16

Primary Market

Answer 16

Market for new issues of securities

Question 17

Secondary Market

Answer 17

Market for pre-existing securities

Question 18

Venture Capital

Answer 18

Money invested to finance a new privately held firm

Question 19

Private Equity

Answer 19

Investments in companies whose shares are not traded in the public sock capital

Question 20

Securitization

Answer 20

Pooling loans into standardized securities backed by loans which can be traded

Question 21

Systemic Risk

Answer 21

Risk of breakdown in the financial system normally due to spillover