ch1 investments: background and issues

Question 0

real assets

Answer 0

assets used to produce goods and services.

Question 1

investment

Answer 1

commitment of current resources in the expectation of driving greater resources in the future

Question 2

examples of real assets

Answer 2

patents, customer goodwill, college education

Question 3

financial assets

Answer 3

claims on real assets or the income generated by them

Question 4

examples of financial assets

Answer 4

lease obligations, a $5 bill

Question 5

fixed-income (debt) securities

Answer 5

pay a specified cash flow over a specific period

Question 6

equity

Answer 6

an ownership share in a corporation

Question 7

derivative securities

Answer 7

securities providing payoffs that depend on the values of other asssets

Question 8

agency problems

Answer 8

conflicts of interest between managers and stockholders

Question 9

asset allocation

Answer 9

allocation of an investment portfolio across broad asset classes

Question 10

security selection

Answer 10

choice of specific securities within each asset class

Question 11

security analysis

Answer 11

analysis of the value of securities

Question 12

risk-return trade-off

Answer 12

assets with higher expected returns entail greater risk

Question 13

passive management

Answer 13

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

Question 14

active management

Answer 14

attempting to identify mispriced securities or to forecast broad market trends

Question 15

financial intermediaries

Answer 15

institutions that “connect” borrowers and lenders by accepting funds from lenders and loaning funds to borrowers

Question 16

investment companies

Answer 16

firms managing funds for investors. an investment company may manage several mutual funds.

Question 17

investment banker

Answer 17

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

Question 18

primary market

Answer 18

a market in which new issues of securities are offered to the public

Question 19

secondary market

Answer 19

previously issued securities are traded among investors

Question 20

venture capital (VC)

Answer 20

money invested to finance a new firm

Question 21

private equity

Answer 21

investments in companies that are not traded on a stock exchange

Question 22

securitization

Answer 22

pooling loans into standardized securities backed by those loans, which can then be traded like any other security

Question 23

system risk

Answer 23

risk or breakdown in the financial system, particularly due to spillover effects from one market into others