Chapter 14 Quiz

Question 1

The proportional breakdown of cash and securities.

Answer 1

Cash and securities mix decision

Question 2

A policy that defines the company’s posture toward risk and return and specifies how the policy should be implemented.

Answer 2

Investment policy

Question 3

The possibility that the company will not be able to meet ongoing operating expenditures.

Answer 3

Business risk

Question 4

The possibility that the company will be unable to cover financing-related expenditures such as lease payments, interest, principal repayment, and preferred stock dividends.

Answer 4

Financial risk

Question 5

Risk that is relevant to diversified investors which is the degree of sensitivity of the company’s stock returns to market-wide returns.

Answer 5

Systematic risk

Question 6

The interest of the principals (stockholders) do not coincide with those of the agents (managers).

Answer 6

Agency problems

Question 7

Specialized account in which financial institution hold securities, automatically reinvests interest and other investment-related cash receipts, transfers funds per corporate instructions, monitors issuers actions such as calls and refundings, and provides a monthly statement on all account transactions

Answer 7

Custody account

Question 8

The investment manager must decide from among 6 options prior to investing.

Answer 8

1. Instruments
2. Issuers
3. Denominations
4. Maturities
5. Yields
   6 Risks

Question 9

A group of investment banks

Answer 9

Syndicate

Question 10

Refers to the number and size of parties that are potential buys of the instruments.

Answer 10

Market Breadth