CBE CBE Financial Markets and Instruments 2

Question 1

The equity risk premium (ERP) is best defined as:

Accepted Answer

The excess return investors demand for holding stocks over risk-free assets

Answer

The ERP is the additional return investors expect from equities above the risk-free rate as compensation for bearing greater risk.

Question 2

In the U.S. capital markets, which regulatory body oversees securities exchanges and broker-dealers?

Accepted Answer

SEC

Answer

The Securities and Exchange Commission (SEC) regulates U.S. securities markets, exchanges, and investment firms to protect investors.

Question 3

A futures contract differs from a forward contract primarily because futures contracts are:

Accepted Answer

Standardized and traded on exchanges

Answer

Futures contracts are standardized, exchange-traded agreements with daily mark-to-market settlement, unlike over-the-counter forward contracts.

Question 4

Which of the following best describes an asset-backed security (ABS)?

Accepted Answer

A bond secured by collateral in the form of pooled financial assets

Answer

An ABS is a financial instrument backed by a pool of underlying assets such as auto loans, credit card receivables, or mortgages.

Question 5

Market capitalization of a publicly traded company is calculated as:

Accepted Answer

Share price multiplied by total shares outstanding

Answer

Market capitalization equals the current share price multiplied by total shares outstanding, reflecting the market's total valuation of the company.

(CBE) Certified Business Economist Practice Test