CS 101 EXAM QUESTIONS WITH ANSWERS 100% SOLVED 2023 A+ GUARANTEED SUCCESS, Exams of Nursing

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Lesson #1 Quiz

1. Which of the following professions has the highest projected employment for 2024? Teacher Economist Truck driver Financial Advisor
2. Which of the following is NOT a learning objective in this course? Applying psychology and sociology to finance How to make money Regulating financial markets How we incentivize people to get things done
3. According to Andrew Carnegie, what should somebody do once she is wealthy? Throw extravagant parties to help her wealth trickle down Pass it on to her children Retire early and commit to philanthropy while young Retire late to accumulate as much wealth as possible, and then give the wealth away
4. Why is it relevant that finance tends to attract large amounts of money? Money can be used for good or evil Finance attracts people from around the globe Financial markets are a critical components of economic success All of the above Lesson #2 Quiz
5. A stress test: (check all that apply)

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Tries to incorporate all the interconnections between financial institutions. Aims to test the behavior of historical returns and their fluctuations during all sorts of potential financial crises. Tries to incorporate all potential economic and financial crises, such as recessions, appreciation and depreciation of currency, liquidity crisis, etc. Does not look at historical returns, and looks at all the details of the portfolios and their vulnerabilities during all sorts of potential financial crises.

2. A 5% 3-month Value At Risk (VaR) of $1 million represents: A 5% decline in the value of the asset after 3 month, per each $1 million of notional. A 5% chance of the asset increasing in value by $1 million during the 3-month time frame. A 5% chance of the asset declining in value by $1 million during the 3-month time frame. The likelihood of a 5% of $1 million decline in the asset over the next 3-month. 3.In the Capital Asset Pricing Model (CAPM), a measure of systematic risk is captured by: The standard deviation of returns. The variance of returns. The Beta. The Alpha.
3. Market (or systematic) risk whereas idiosyncratic risk . Is the risk for an asset to not be able to be traded in the market at a later time Is the risk for an asset to experience losses due to factors that affect the entire stock market Is the risk for an asset to experience losses due to factors that affect the entire stock market Is the risk which is endemic to a specific asset and therefore not the market as a whole Is the risk for an asset to experience losses due to factors that affect the entire stock market Is the risk which is endemic to the industry of the asset and therefore not the market as a whole Is the risk for an asset to experience losses due factors that solely affect the industry associated with the asset Is the risk which is endemic to a specific asset and therefore not the market as a whole

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5. Why might an investor not normally invest large sums of money into Walmart or Apple stock? Both companies have received extensive media coverage The stock prices are very stable, making it difficult to gain large sums of money Their stock prices are highly volatile, and thus carry a lot of risk Their stock prices closely track the S&P
6. Why is the normal distribution not a good model of some financial data? Extreme events occur in it too often The standard deviation is too high It does not have many outliers The standard deviation is too low Lesson #3 Quiz
7. Which of these best describes risk pooling? If individual events are not independent, risk can be decreased by averaging across all of the events If individual events are independent, risk can be decreased by averaging across all of the events Insurance companies must avoid situations whereby customers are incentivized to intentionally cause an incident (e.g. burning their house down) Sick people are more likely to sign up for health insurance, and healthy people will not purchase the policy because this will make the premium more expensive
8. Which of the following was NOT a factor which led to the proliferation of life insurance? Insurance salespeople Increased life expectancy Statistical data on life expectancy New sales pitches

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3. What happens in the United States if your insurance company goes bankrupt? There is no protection from the government against insurance company failure Consumers are insured from insurance company failure at the state level Insurance companies are partially owned by the government, and thus are not allowed to fail. Just like the FDIC protects consumers from bank failures, the federal government insures against insurance company failures
4. What problem does the US Affordable Care Act (“Obamacare”) attempt to address and how does it do so? It addresses selection bias by forcing everybody to buy health insurance or else face a tax penalty. It addresses selection bias by creating a healthcare system which is fully publicly-funded. It addresses moral hazard by forcing hospitals to provide emergency services to those who cannot pay for it. It addresses moral hazard by allowing hospitals to refuse treatment to those who cannot pay for it.
5. One of the main reasons why many homeowners did not have flood insurance before the advent of Hurricane Katrina in 2005 was: Many homeowners were relying on the government instead. Many homeowners were not aware that flood insurance existed in the first place. Insurance premiums in Louisiana went up by 70% between 1997-2005, causing many people to cancel their insurance. Homeowners thought that the likelihood of a flood was too low to justify buying a flood insurance. Lesson #4 Quiz
6. Under the “Don’t put all your eggs in one basket” analogy, the eggs represent individual investments and the basket represents the overall investment portfolio. Spreading your “eggs” around allows you to: Minimize the possibility that bad luck for a single investment adversely affects your overall portfolio. Maximize the possibility that good luck for a single investment positively affects your overall portfolio.

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Maximize the return of your overall portfolio. Increase the uncertainty of your overall portfolio so you can try to generate an extra return.

2. Risk diversification can be better achieved: (check all that apply) With only low risk assets in your portfolio. By including in your portfolio all classes of assets traded in the market, independently of their risks. With mutual funds or unit investment trusts if you hold a small number of assets. With only stocks in your portfolio.
3. Short selling, which is defined as the sale of a security that the seller has borrowed, is motivated by the belief that: The price of the security will rise. The price of the security will decline. Short selling is never prompted by speculation. The price of the security will stay the same.
4. The expected return of a portfolio is computed as and the standard deviation of a portfolio is . the simple average of the expected returns of each asset in the portfolio NOT the weighted average of the standard deviations of each individual asset the weighted average of the expected returns of each asset in the portfolio, weighted by the investment in each asset NOT the weighted average of the standard deviations of each individual asset the weighted average of the expected returns of each asset in the portfolio, weighted by the investment in each asset the weighted average of the standard deviations of each individual asset the simple average of the expected returns of each asset in the portfolio the weighted average of the standard deviations of each individual asset

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5. An efficient portfolio is a combination of assets which: Achieves the highest return for a given risk. Minimizes risk by ensuring only diversifiable risk remains. Offers a risk free rate of return by minimizing the risk of the portfolio. Achieves the highest possible covariance among its assets. Week- Lesson #5 Quiz
6. While discussing what the future of financial markets will look like, the following arguments were mentioned (check all that apply): It is hard to predict the nature of future financial markets, this evolution will depend on the involvement of young generations within the financial community. Financial markets will evolve following simple ideas and ideals, such as the ones historically mentioned by Karl Marx or Robert Owen. It is hard to predict the nature of future financial markets, since human species is the product of a complex evolution. Financial markets are likely to stay the way they are now for the next three decades. 2.In his work, David Moss describes how investors’ psychology favored limited liability after the early 19th century New York experiment. In fact, the comparison between investors’ psychologies in the context of unlimited liability and lottery tickets is: Symmetrical. Unlimited liability and lottery tickets investors tend to overestimate the minimum probability of loss. Asymmetrical. Unlimited liability investors tend to overestimate the minimum probability of loss, whereas in lottery tickets, they overestimate the minimum probability of win. Symmetrical depending on the amount of money involved. For large amounts, both unlimited liability and lottery tickets investors tend to overestimate the minimum probability of loss. There is no such comparison between lottery tickets and unlimited liability investors.
7. The introduction of inflation indexed debt was motivated by: (check all that apply)

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An incentive to hedge from inflation volatility. The idea to generate profits when inflation is equal to 0. Historical examples of nominal debt being wiped out in real terms by high inflation. An incentive to have a debt contract fixed in real terms.

4. Why did Chile introduce the Unidad de Fomento? To provide stimulus to the economy. To create a unit of account indexed to inflation, in order to counteract the impact of hyperinflation. To bolster international trade. To replace the peso as the official currency because of hyperinflation.
5. The concept of equity-protected mortgages consists in: Mortgages that include fire insurance. Mortgages that include casualty insurance. Mortgages that include house price insurance. Mortgages that include accident insurance. Lesson #6 Quiz 1.In the S&P 500 forecasting exercise, many subjects seemed to be subject to the representativeness heuristic. This concept of behavioral finance posits that: Most people don’t behave like forecasters, they tend to be affected by their recurring thoughts at the time. Most people don’t behave like forecasters, they tend to interpret new evidence as a confirmation of their existing beliefs or theories. Most people don’t behave like forecasters, what they saw in the past is representative of the future. Most people don’t behave like forecasters, they tend to rely too heavily on the first piece of new information offered when making decisions.
6. An efficient market is defined as one in which: All participants have the same opportunity to generate the same returns.

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Asset prices quickly and fully reflect all available information. Asset prices are often in line with the intrinsic value. Transactions are ultimately costless.

3. The Dividend Discount Model (or Gordon Growth Model) can be stated as follows. Let the investor’s discount rate be equal to r .If earnings equal dividends, and if dividends grow at the long-run rate g, then the price of the stock P can be written as follows: P = E/(r+g) P = (Eg)/(r) P = E/(r-g) P = (Er)/(g)
4. Human judgment and experience can play a role in the advent of stock market crash because: Investors with an experience of financial crises are better at staying out of the market in turbulent times. A lot of people who have lived through financial crises have reported that, as a consequence of these crises and their narratives, their faiths in the market have diminished. Investors with an experience of financial crises are better at diversifying their portfolios. Investors with an experience of financial crises are better at exploiting profit opportunities. Lesson #7 Quiz
5. Which of the following best describes the “invisible hand”? Subtle government economic interventions can lead to the inefficient allocation of resources. The free market, guided by self-interest, is mislead to inefficiently allocate resources. Subtle government economic interventions can ensure the sufficient production of goods to meet society’s demands. The free market, guided by self-interest, ensures the sufficient production of goods to meet society’s demands.
6. What problems does prospect theory solve? (check all that apply)

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People can underestimate high probabilities and overestimate low probabilities People do not treat gambles as equivalent to their expected utility People will make big gambles to avoid losses People will often make purchases impulsively

3. What is the wishful thinking bias? People think that, if they hope for something strongly enough, it will be more likely to happen. People over-estimate probabilities of things they would like to be true. People do not consider the probability of the things they want most. People hope that their sports team or political candidate will win
4. Ricardo thinks that, since society seems similar to what it was in the late 1920s, a second Great Depression is coming soon. To which cognitive bias is Ricardo falling victim? Representativeness heuristic The framing effect The disjunction effect Attention anomalies
5. What is Newcomb’s paradox? People behave irrationally when faced with decisions which involve large sums of money. People will behave differently if playing games against a computer compared to playing them with a human opponent. People sometimes change their behavior when they learn about a prediction which has been made about the future. People prefer a small chance at winning $1 million than a high chance of winning $1000.
6. Which of the following is NOT a common trait of somebody with Antisocial Personality Disorder? Lack of empathy Lack of desire to interact with others Manipulative

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Heightened self-esteem Week- Lesson #8 Quiz

1. Which of the following describes current short term interest rates? They are approximately equal to zero They are very high They are strongly negative They are changing for the first time in the last 100 years
2. What is the Federal Funds Rate and how long does it take to mature? The longest term interest rate in the federal government, which takes one year to mature. The shortest term interest rate in the federal government, which takes one hour to mature. The shortest term interest rate in the federal government, which takes one month to mature. The shortest term interest rate in the federal government, which takes one day to mature. 3.If you put $1000 into an account with a 20% interest rate, how much money will you have at the end of the year if interest is compounded ONCE per year? 200 1200 1210 1440
3. How do coupon bonds work? You purchase a bond for the same price you eventually sell it for, but if you have a “coupon”, you may buy it for less money. You purchase a bond for the same price you eventually sell it for, but while it reaches maturity, you may clip “coupons” off the bond and exchange them for money.

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You purchase a bond for the same price you eventually sell it for, but bond owners are eligible for special offers from the federal government, also known as “coupons”, which incentivize the purchase of the bonds. You purchase a bond for one price, but the final price you may sell it for depends on the type of “coupons” that are released to account for inflation.

5. What is the main difference between a consol and an annuity? The consol has a fixed price of $1 at inception whereas the annuity price is given by the market. A consol pays a constant quantity (coupon) forever, whereas the annuity also pays a constant quantity but only until a fixed time T called the maturity date. An annuity pays a constant quantity (coupon) forever, whereas the consol also pays a constant quantity but only until a fixed time T called the maturity date. A consol is not subject to market risk.
6. The forward rate is: The expected rate (yield) on a bond several months or years from now. The (inflation-adjusted) rate on a bond. Equal to the yield to maturity of the bond. Equal to the nominal rate of the bond.
7. The real interest rate is calculated by: Subtracting the inflation rate from the nominal interest rate. Adding the inflation rate and the nominal interest rate. Subtracting the nominal interest rate from the inflation rate. Adding the nominal interest rate and the yield to maturity. 8.Irving Fisher’s Debt Deflation Theory starts from the observation that: Deflation redistributed real wealth from creditors to debtors. Deflation has no impact on the real wealth of debtors.

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Deflation redistributed real wealth from debtors to creditors.

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Deflation has no impact on the real wealth of creditors. Lesson #9 Quiz 1.Market capitalization is calculated by using: The total number of employee of a company. The earnings of a company. The price per share and the total number of outstanding shares. The dividends of a company.

2. The greater an investor’s ownership in a corporation is, the greater: is the amount of taxes to be paid by the company. is the total number of shares he/she owns with respect to the total number of shares outstanding. is the profitability of the company. is the total number of shares he/she owns.
3. A firm must make its dividend payments to before it makes any dividend payments to its . preferred shareholders common shareholders its Chief Executive Officer preferred shareholders the members of the board bondholders bondholders preferred shareholders
4. The basic corporate charter: (check all that apply) does not say that the firm ever has to raise debt. The board decides. says that the firm must pay dividends during its lifetime. says that the firm must repurchase some of its shares beyond a certain threshold of issuance. does not say that the firm ever has to issue warrants, convertible debt or any other debt securities.

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5. In the Pecking Order Theory, the companies prioritize their sources of financing in the following order: (1) Debt, (2) Internal financing, (3) Equity. (1) Internal financing, (2) debt issuance, (3) Equity. (1) Equity, (2) Debt issuance, (3) Internal financing. (1) Equity, (2) Internal financing, (3) Debt. 6.A dilution is: The issuance of new debt by a company. A sale of an investor’s shares. A reduction in the ownership percentage of a share of stock caused by the issuance of new shares. An increase in the ownership percentage of a share of stock caused by the issuance of new shares.
6. A share repurchase is: (check all that apply) An alternative to paying dividends in order to return cash to investors. The reverse of a dilution. A program by which investors buy back their previously sold shares of a given company. A program by which a company buys backs its own shares from the marketplace or from its shareholders (at a fixed price). 8.The price-to-earnings ratio: (check all that apply) Indicates the percentage of profit that is paid out as dividends. Shows how much an investor is willing to pay for the stock of the company for each dollar of the company’s earnings. Effectively shows the number of years of earnings at which the company is valued given the current level of the share price. Measures the funds provided by creditors versus the funds provided by owners.
7. Generally, a reduction in dividend is interpreted by investors as:

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A non-event. Good news, with often an increase of the stock price. Bad news, with often a drop in the stock price. A sign of future increase in profitability. Lesson 10

1. Which of the following is FALSE of Direct Participation Programs (DPPs)? They are for accredited investors only They may skip corporate profits tax. They must operate for at least some minimum amount of time. A major example of a DPP is a real estate partnerships. 2.If Sabine is “under water”, what can we say about her situation? She has no choice but to declare bankruptcy. She does not have enough money to make payments on her home. The value of her home is less than the value of her mortgage. She has sent her keys to the bank and abandoned her house.
2. Why does the 30 year mortgage rate so closely match the 10 year treasury bond YTM? There are similar psychological causes which influence both the 30 year mortgage rate and the 10 year treasury YTM. The interest rate of 30 year mortgages and the price of 10 year treasury bonds are set by the same organization. People could choose to finance their home with 10 year treasury bonds instead of with 30 year mortgages. Banks intentionally track the 10 year treasury bond YTM.
3. Who pays for private mortgage insurance on a mortgage?

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The US government Thank banks The homeowner Fannie Mae and Freddie Mac

5. Before the recession in 2007, why were banks giving out mortgages to people who could not afford them? Many people faked documents in order to get a mortgage, known as a “liar loan” Banks had no way to verify whether people would be able to pay. CMOs were incentivized to buy mortgages which were likely to default, since these would only affect their lowest tranche. Banks would resell to mortgages to CMOs, and thus they were not incentivized to make sure their mortgages were unlikely to default.
6. Select TWO key causes of the housing bubble which crashed in 2007: Fraudulent mortgage lending Hyper-inflation Corruption within the government Over-optimistic mortgage lending HE REPHRASED THIS ONE A IT BUT SAME QUESTION
7. During the housing bubble of 2007, which of the following tended to fluctuate with home price index? The percentage of new homeowners who think that investing in real estate is a good long term investment. The percentage of new homeowners who have been evicted from their home. The percentage of new homeowners who regretted their decision. The percentage of new homeowners who think investing in real estate is a bad long term investment.
8. What in 2005 indicated the housing market might be a bubble?

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Time magazine predicted that the housing market was a bubble. Media was discussing how people were no longer purchasing houses. The expected 10 year home price appreciation dropped below the 30 year mortgage rate. Media was discussing a home-buying mania in the American public. Lesson 11

1. Why might companies like the idea of regulation? which they do not have to use (potentially unethical or unfair) special tricks to avoid letting their competitors gain a competitive advantage.Regulation could be used to give them a legal monopoly over a particular sector. Companies have enough money to bribe government officials to create regulation that favors them. It helps them ensure they are representing the interests of their customers. It allows them to compete on a level at which they do not have to use (potentially unethical or unfair) special tricks to avoid letting their competitors gain a competitive advantage.
2. What is tunneling? When management of a company transfers cash from a corporate account to a personal account. Any trick that somebody in the company uses to steal money from the company. When a member of the board of directors fires a high ranking employee so that a family member can take their place. When a small group of majority shareholders in a company allow the company to be bought out for a very low price by another company in which the small group are also majority shareholders.
3. Ideally, who must the board of directors be loyal to? The government The shareholders The general public The CEO

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4. What is a fixed commission? Fixed taxes imposed on brokerages if they wished to operate in the stock market. A fixed rate charged by all brokerages to buy or sell shares on the stock market. The rate charged in order to join a trade groups. The opposite of dividends, i.e. fixed per-share prices charged by companies to shareholders.
5. Which of the following describes the contrast of federal vs state regulation in the US? Securities are primarily regulated by federal government but corporate regulation is primarily by the state governments. Securities regulation and corporate regulation are both primarily controlled by the federal government. Securities are primarily regulated by state governments but corporate regulation is primarily by the federal government. Securities regulation and corporate regulation are both primarily controlled by the state governments.
6. What is the US Securities and Exchange Commission (SEC) NOT responsible for doing? To manage the EDGAR database. To authorize companies to be traded publicly on the stock market. To force organizations to maintain financial transparency. To provide reliable and timely information on the performance of securities.
7. Which of the following is NOT an example of insider trading? Mohammed is a secretary for a large corporation and overhears that they are about to take over a smaller corporation. He tells his wife, who purchases a large number of shares in the company immediately before the acquisition is announced. Martha receives private information about a company from her stock broker. As a result, she sells all of her shares in this company, which fall substantially in price the next day. Leah is a short sells shares for a company she used to work for and then creates a fake press release with bad news from the company.

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Chenxiang, the CEO of a company, directs the purchase and company-wide deployment of software written by his brother.

8. What happened when Goodbody and Company failed? None of the retail investors lost any money. Goodbody and Company had to mail everybody their stocks before they failed. Because Goodbody and Company held the shares for their clients, people lost most or all of their stocks. People began to distrust brokerages and pulled their money out of stocks.
9. Which of the following describes the Bank for International Settlements (BIS)? A bank for citizens of any country which allows them to deal in other currencies. A former financial institution which was replaced by the G20. The English name for the national bank of Switzerland, which strategically fosters relationships between banks internationally. A bank for central banks which provides an intermediary for the central banks to deal with each other. Lesson 12
10. What is the effect of traders storing grain to wait for higher prices? Most shortages could have been prevented if traders had not speculated on grain prices. It is essential in preventing grain shortages. Most grain ends up getting moldy in storage. Traders are able to monopolize the market.
11. In commodities trading, what is the role of forwards and futures? Warehouses buy from the farmer in forwards, and then hedge on futures.

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Farmers and warehouses sell exclusively in futures. Farmers and warehouses sell crops in both forwards and futures. Farmers sell in forwards and warehouses sell in futures.

3. When an investor uses margin to buy or sell securities, how are the securities paid for? A combination of an investor’s own funds and futures On money borrowed from a broker only On money borrowed from a broker whereby the broker may tell the investor at any time to sell securities or contribute money. A combination of an investor’s own funds and money borrowed from a broker.
4. What is the primary purpose of purchasing futures if they are rarely delivered? To protect against price fluctuations. To allow a corporation to buy and sell commodities, which would be impossible without futures. To negotiate the best price on a commodity with a farmer. To purchase the industry standard of a commodity, such as those put out by the Chicago Board of Trade (CBOT)
5. What often happens to futures at the time of the crop for commodities with a specific well- defined harvest window? They tend to be traded below the expected spot price at the contract’s maturity. They tend to be traded above the expected spot price at the contract’s maturity. Due to defaults, investors could lose a lot of money. They tend to be traded exactly at the expected spot price at the contract’s maturity, making it difficult to profit as an investor.
6. How is it possible to have a future based on the S&P500? There is a large fine on anyone who still holds the security on the final day.

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Anyone still holding the security on the final day will receive a proportionate number of shares in an S&P500 index fund. On the last day there is a final settlement of the difference between the futures price and the actual index. On the last day, there is a final settlement of a combination of the other commodities on the futures market.

7. What is the fair value of a futures contract with a storage cost of 3%, an interest rate of 5%, and a spot price of $1000 over a 1 year time period? $1080.00 $1800.00 $1081.50 $1000.00
8. How can you determine whether a future is in backwardation or contango? If the price rises over time (has a positive derivative), it is backwardation, but if it falls (a negative derivative), it is contango. If the price falls over time (has a negative derivative), it is backwardation, but if it rises (a positive derivative), it is contango. If the price is rising at an increasingly fast rate (has a positive second derivative), it is backwardation, but if it is falling at an increasingly fast rate (has a negative second derivative), it is contango If the price is falling at an increasingly fast rate (has a negative second derivative), it is backwardation, but if it is rising at an increasingly fast rate (has a positive second derivative), it is contango.
9. What is the Federal Funds Futures Market? Futures contracts created by an exchange board which are settled at the end of each year for 100 minus the federal funds rate averaged over the month. Futures contracts created by the government which are settled at the end of each month for 100 minus the federal funds rate averaged over the month. Futures contracts created by the government which are settled at the end of each year for 100 minus the federal funds rate averaged over the month. Futures contracts created by an exchange board which are settled at the end of each month for 100 minus the federal funds rate averaged over the month

price goes down, the manager will come across as thinking ahead and watching out for their clients.

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Lesson 13

1. What are the two types of options? A “call” option is the right to buy and a “put” option is the right to sell. A “put” option is the right to buy and a “call” option is the right to sell. A “get” option is the right to buy and a “push” option is the right to sell. A “push” option is the right to buy and a “get” option is the right to sell.
2. Why do some stock options have an exercise price which is more than the cost of the stock? For “call” options, this provides the option to buy at this price if the stock goes up before the exercise date. These options are “put” options, giving you the option to sell at a higher price. The stock options sell for negative prices, because the investor will lose money if the stock price does not fluctuate. New investors often mistake “put” and “call” options, leading to an easy profit for the dealer.
3. Which of the following is NOT a behavioral reason why people buy options? People will pay attention to specific aspects of their portfolio more so than others, so they will buy options when they hear about volatility in the market to protect certain components of their portfolio. They are fooled by salespeople. Portfolio managers will usually buy options for clients without them knowing so that if the stock People will feel better about themselves if their stocks go down if they have purchased a put option on them, regardless of whether or not they gained or lost overall.
4. Are mortgages in the US similar to options from the perspective of the homeowner? No in recourse states, yes in non-recourse states.

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Yes, because they can be sold by banks to Fannie Mae and Freddie Mac. No, because defaulting does not eliminate liability. Yes, because people always have the option to default.

5. What is the put-call parity relationship? Another name for the Black-Scholes model. A relationship between the put price, the call price, and the stock price for European-style stock options. A method of arbitrage for options exchanges. A mathematical formula specifying that the put price of an option minus the call price of an option equals the price of the stock
6. What is a stop-loss order? An instruction to your broker indicating that they should sell your shares once it drops below some price. The same thing as a put option, except you do not have to pay for it. An instruction to your broker indicating that they should sell your shares once they get above a certain price. A type of stock that will protect you against losses. Lesson 14
7. Which of the following two options are deals that underwriters make with corporations? Best efforts: the underwriters tries to sell shares at some price, and the deal collapses if they don’t. Short cut: the underwriters will cut the price of the shares if some of them remain unsold. Loss safe: the underwriter will pay a penalty to the company if not all of the shares sell. Bought deal: the underwriter will purchase all unsold shares.
8. Why do underwriters usually underprice IPOs?

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They don’t know how much the company is really worth They want to create public excitement They do not want the company to make as much money as it could. They want their favorite customers to be able to buy shares for cheaper

3. Which of the following was NOT a feature that Charles Ellis believed made Goldman Sachs successful? Becoming prestigious Making money Absolute loyalty to the firm Personal anonymity – Machlokes (This is what Basch had as the answer…)
4. What is a rating agency? Any agency which refuses to take money from corporations for rating their securities. An agency which assigns credit scores to individuals. An agency which rates the business practices of corporations. An agency which publishes its ratings on the reliability of securities.
5. Why was the Glass-Steagall Act of 1933 repealed in 1999? American banks claimed that it made it hard to compete with European banks, which offered both investment and commercial banking services. Investment banking was too costly for some companies, which could not manage both investment and commercial banking services. Investors felt inconvenienced that a single bank could not function as both an investment and a commercial bank. It was ruled unconstitutional by the supreme court.
6. What were the two biggest assets of the average (not median) US household in 2015?

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Real estate and mutual funds Real estate and corporate equities Mutual funds and corporate equities Real estate and pension funds

7. Which best describes the “prudent person” rule? A new rule for fund managers which is starting to apply to newer regulations. A law which mandates that investment managers must do what another educated, experienced investment manager might do in a similar circumstance. A law which limits the amount of risk with which funds managers may invest money A guideline that individuals should look for funds managers who show prudence.
8. Which of the following is NOT true of mutual funds? Mutual funds are closed end funds. They are defined and regulated by the SEC. You join the fund at 4:00 PM on the day you decide to invest. Massachusetts Investment Trust was an early model for mutual funds in the US.