Foundations of Financial Markets and Institutions, 4e (Fabozzi/Modigliani/Jones) Chapter 9 Properties and

Pricing of Financial Assets

Multiple Choice Questions
1 Properties of Financial Assets
1) Which of the below is NOT one of the eleven properties of financial assets?
A) moneyness
B) multiplicity and denomination
C) reversibility
D) cash flow
Answer: B
Comment: The eleven properties of financial assets are (1) moneyness, (2) divisibility and denomination, (3)
reversibility, (4) cash flow, (5) term to maturity, (6) convertibility, (7) currency, (8) liquidity, (9) return predictability, (10)
complexity, and (11) tax status. Diff: 2
Topic: 9.1 Properties of Financial Assets
Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination;
reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk;
complexity; and tax status
2) Which of the below is NOT one of the eleven properties of financial assets?
A) convertibility
B) currency
C) liquidity predictability
D) tax status
Answer: C

Comment: The eleven properties of financial assets are (1) moneyness, (2) divisibility and denomination, (3)
reversibility, (4) cash flow, (5) term to maturity, (6) convertibility, (7) currency, (8) liquidity, (9) return predictability, (10)
complexity, and (11) tax status. Diff: 2
Topic: 9.1 Properties of Financial Assets
Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination;
reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk;
complexity; and tax status
1
3) Which of the below are THREE of the eleven properties of financial assets?
A) return predictability, complexity, and tax status
B) convertibility, currency, liquidity
C) liquidity, reversibility, and cash flow
D) money, divisibility, and denomination
Answer: D
Comment: The 11 properties of financial assets are (1) moneyness, (2) divisibility and
denomination (these are only ONE property and not TWO), (3) reversibility, (4) cash flow,
(5) term to maturity, (6) convertibility, (7) currency, (8) liquidity, (9) return predictability, (10) complexity, and (11)
tax status.
Diff: 2
Topic: 9.1 Properties of Financial Assets
Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination;
reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk;
complexity; and tax status
4) Which of the below statements is TRUE?
A) "Near money" is a financial asset that is used as a medium of exchange or in settlement of transactions.

B) In the United States, money consists of currency and a very few forms of deposits that permit check writing.
C) "Near money" is very close to "money" in that it can be transformed into money at little cost, delay, or risk.
D) "Faraway money", in the case of the United States, includes (i) time and savings deposits and (ii) a security
issued by the U.S. government called a Treasury bill.
Answer: C
Comment: Money is a financial asset that is used as a medium of exchange or in settlement of transactions. In
the United States, money consists of currency and all forms of deposits that permit check writing. "Near money", in
the case of the United States, includes (i) time and savings deposits and (ii) a security issued by the U.S. government
called a Treasury bill. Diff: 2
Topic: 9.1 Properties of Financial Assets
Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination;
reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk;
complexity; and tax status
2
5) ________ relates to the minimum size in which a financial asset can be liquidated and exchanged for money.
A) Reversibility
B) Denomination
C) Convertibility
D) Divisibility
Answer: D
Diff: 1
Topic: 9.1 Properties of Financial Assets
Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination;
reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk;
complexity; and tax status

6) Reversibility is referred to as ________.

A) the cost of investing in a financial asset and then getting out of it but not back into cash again.
B) the cost of investing in a financial asset instead of investing in cash.
C) one-way cost
D) turnaround cost
Answer: D
Comment: Reversibility refers to the cost of investing in a financial asset and then getting out of it and back into
cash again. Consequently, reversibility is also referred to as turnaround cost or round-trip cost.
Diff: 2
Topic: 9.1 Properties of Financial Assets
Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination;
reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk;
complexity; and tax status
7) The ________, the greater the probability of the market maker ________ in excess of a stated bound
between the time of buying and reselling the financial asset.
A) greater the variability; incurring a loss
B) lesser the variability; incurring a loss
C) lesser the variability; incurring a large gain
D) greater the variability; incurring no loss or gain
Answer: A
Comment: The greater the variability, the greater the probability of the market maker incurring a loss in excess
of a stated bound between the time of buying and reselling the financial asset.
Diff: 2
Topic: 9.1 Properties of Financial Assets

Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination;
reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk;
complexity; and tax status
3
8) The return that an investor will realize by holding a financial asset depends on all the ________ that the
financial asset will pay its owners; this includes dividends on shares and coupon payments on bonds.
A) stock distributions
B) cash distributions
C) cash convertibility
D) liquid inventories
Answer: B
Diff: 1
Topic: 9.1 Properties of Financial Assets
Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination;
reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk;
complexity; and tax status
9) Return ________ is a basic property of financial assets, in that it is a major determinant of their value.
A) convertibility
B) divisibility
C) predictability
D) complexity
Answer: C
Diff: 1
Topic: 9.1 Properties of Financial Assets

Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination;
reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk;
complexity; and tax status
10) A ________ asset is one that provides options for the issuer or the investor, or both, and so represents a
combination of simpler assets.
A) complex
B) taxable
C) predictable and divisible
D) liquid
Answer: A
Diff: 1
Topic: 9.1 Properties of Financial Assets
Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination;
reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk;
complexity; and tax status
4