Financial Assets and Agency Issues Quiz

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Questions and Answers

Which of the following assets is a financial asset?

  • $5 bill (correct)
  • Lease obligations
  • A college education
  • Patents

Which type of financial asset promises either a fixed stream of income or a stream of income determined by a specified formula?

  • Mutual funds
  • Stocks
  • Bonds (correct)
  • Money Market Securities

Among the options, what is a real asset?

  • $5 bill
  • Customer goodwill
  • Land (correct)
  • Lease obligations

Which of the following is NOT considered a financial asset?

<p>Customer goodwill (C)</p> Signup and view all the answers

What factors are typically analyzed during the evaluation and assessment of stocks or securities for investment potential?

<p>Financial statements, industry trends, market conditions, and company-specific information (A)</p> Signup and view all the answers

In the securities markets, what is the relationship between risk and returns?

<p>Higher-risk assets are priced to offer higher expected returns than lower-risk assets (C)</p> Signup and view all the answers

Which group is typically a net demander of capital in the Financial Markets?

<p>Firms (D)</p> Signup and view all the answers

What do Treasury Bills and certificate deposits represent in the capital market?

<p>Short-term securities (A)</p> Signup and view all the answers

How do Equity Derivative Securities differ from Treasury Bonds?

<p>Their payoffs are determined by the price of other assets (B)</p> Signup and view all the answers

What role do financial markets play in allowing individuals to shift their purchasing power over their lifetime?

<p>Imposing constraints based on current earnings (D)</p> Signup and view all the answers

What does a rise in a firm's share price indicate according to the text?

<p>Optimism about the firm's future prospects (B)</p> Signup and view all the answers

Why are potential conflicts of interest between managers and shareholders called agency problems?

<p>Because managers are hired as agents of the shareholders (B)</p> Signup and view all the answers

How do financial markets contribute to separating ownership and management?

<p>By allowing the easy buying and selling of financial assets (D)</p> Signup and view all the answers

What is essential for market signals to efficiently allocate capital?

<p>Accurate information for investors to act on (B)</p> Signup and view all the answers

Why is dividing investments among different assets important in the investment process?

<p>To achieve a diversified portfolio (C)</p> Signup and view all the answers

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