Chapter 2

Question 1

What is the essential nature of investment?

Answer 1

Reduce current consumption in hopes of greater future consumption

Question 2

What are real assets?

Answer 2

Used to produce g/s; ppe, human capital

Question 3

What are financial assets?

Answer 3

Claims on real assets or claims on asset income

Question 4

What are financial assets offset by?

Answer 4

All financial assets are offset by financial liability

Question 5

What is the net wealth of an economy?

Answer 5

Sum of its real assets

Question 6

What are the major classes of financial assets?

Answer 6

Debt:
- money market instruments
- bonds
- preferred stock
Common stock:
- ownership stake in equity
Derivative securities:
- Contract whose value is from underlying market condition

Question 7

What are efficient markets?

Answer 7

Securities should not be under or overpriced on average
Security prices should reflect all information available to investors

Question 8

What is securitization?

Answer 8

Loans are given as mortgages