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Chapter one 1. Which of the following is the best definition of wealth? a. the sum of all current and future income b. the total of all assets and all income c. the total of assets and income less any liabilities. d. the sum of current income and the present value of future income. 2. Stocks and bonds would be classified as: a. b. c. d. real assets indirect assets personal assets financial assets 3. Technically, investments include: a. b. c. d. only financial assets. only marketable assets. financial and real assets that are marketable or non-marketable. only financial and real assets that are marketable. 4. Underlying all investments is the tradeoff between: a. b. c. d. expected return and actual return low risk and high risk actual return and high risk expected return and risk 5. Which of the following would be considered a risk-free investment? a. b. c. d. gold equity in a house high-grade corporate bonds U.S. Treasury bills 6. In general, the ex ante risk-return tradeoff a. b. c. d. slopes upward. slopes downward is flat is impossible to determine. 7. Investment decision making traditionally consists of two steps: a. b. c. d. investment banking and security analysis buying and selling risk and expected return. security analysis and portfolio management. 8. Which of the following is the foundation for making investment decisions? a) Buying the right investment products. b) The trade-off between expected return and risk. c) Making the most money. d) Minimizing taxes, commissions and storage costs. 9. What is meant by the statement “investors are risk averse”? a) Investors never invest in assets with even the smallest risk. b) Investors invest in risky assets only if they expect a greater return. c) All investors choose risky assets. d) All investors will choose to invest in the same assets. 10. The risk-free rate of return (RFR) equals: a. 3.5% b. the return on long-term Treasury bonds c. the average of the last 3 years’ inflation rate d. the return on short-term Treasury bills 11. Which of the following best describes the relationship between individual and institutional investors? a) Although individual investors have relatively small accounts, the combined value of all their accounts is about two-thirds of the total value of the NYSE. b) Institutional investors have much better access to the managers of major public companies. c) Individual investors sometimes invest directly, and sometimes indirectly through mutual funds and pension funds managed by large institutional investors. d) Individual investors can never compete successfully with institutional investors.