Question 1

You have been given this probability distribution for the holding-period return for KMP stock:   What is the expected variance for KMP stock?

Accepted Answer

A) 66.04% 
B) 69.96% 
C) 77.04% 
D) 63.72% 
A) 66.04% 
B) 69.96% 
C) 77.04% 
D) 63.72%

Question 2

If a portfolio had a return of 15%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 30%, the Sharpe measure would be

Accepted Answer

A) 0.20. 
B) 0.35. 
C) 0.45. 
D) 0.33. 
A) 0.20. 
B) 0.35. 
C) 0.45. 
D) 0.33.

Question 3

You purchased a share of stock for $12.One year later, you received $0.25 as a dividend and sold the share for $12.92.What was your holding-period return?

Accepted Answer

A) 9.75% 
B) 10.65% 
C) 11.75% 
D) 11.25% 
A) 9.75% 
B) 10.65% 
C) 11.75% 
D) 11.25%

Question 4

A year ago, you invested $2,500 in a savings account that pays an annual interest rate of 2.5%.What is your approximate annual real rate of return if the rate of inflation was 3.4% over the year?

Accepted Answer

A) 0.9% 
B) -0.9% 
C) 5.9% 
D) 3.4% 
A) 0.9% 
B) -0.9% 
C) 5.9% 
D) 3.4%

Question 5

In words, the real rate of interest is approximately equal to

Accepted Answer

A) the nominal rate minus the inflation rate. 
B) the inflation rate minus the nominal rate. 
C) the nominal rate times the inflation rate. 
D) the inflation rate divided by the nominal rate. 
A) the nominal rate minus the inflation rate. 
B) the inflation rate minus the nominal rate. 
C) the nominal rate times the inflation rate. 
D) the inflation rate divided by the nominal rate.

Question 6

A year ago, you invested $1,000 in a savings account that pays an annual interest rate of 6%.What is your approximate annual real rate of return if the rate of inflation was 2% over the year?

Accepted Answer

A) 4% 
B) 2% 
C) 6% 
D) 3% 
A) 4% 
B) 2% 
C) 6% 
D) 3%

Question 7

If the interest rate paid by borrowers and the interest rate received by savers accurately reflect the realized rate of inflation,

Accepted Answer

A) borrowers gain and savers lose. 
B) savers gain and borrowers lose. 
C) both borrowers and savers lose. 
D) neither borrowers nor savers gain nor lose. 
A) borrowers gain and savers lose. 
B) savers gain and borrowers lose. 
C) both borrowers and savers lose. 
D) neither borrowers nor savers gain nor lose.

Question 8

You have been given this probability distribution for the holding-period return for KMP stock:   What is the expected holding-period return for KMP stock?

Accepted Answer

A) 10.40% 
B) 9.32% 
C) 11.63% 
D) 11.54% 
A) 10.40% 
B) 9.32% 
C) 11.63% 
D) 11.54%

Question 9

Which of the following factors would not be expected to affect the nominal interest rate?

Accepted Answer

A) The supply of loans 
B) The demand for loans 
C) The coupon rate on previously issued government bonds 
D) The expected rate of inflation 
A) The supply of loans 
B) The demand for loans 
C) The coupon rate on previously issued government bonds 
D) The expected rate of inflation

Question 10

If a portfolio had a return of 18%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 34%, the risk premium would be

Accepted Answer

A) 13%. 
B) 18%. 
C) 49%. 
D) 12%. 
A) 13%. 
B) 18%. 
C) 49%. 
D) 12%.

Question 11

An investor purchased a bond 45 days ago for $985.He received $15 in interest and sold the bond for $980.What is the holding-period return on his investment?

Accepted Answer

A) 1.02% 
B) 0.50% 
C) 1.92% 
D) 0.01% 
A) 1.02% 
B) 0.50% 
C) 1.92% 
D) 0.01%

Question 12

Practitioners often use a ________% VaR, meaning that ________% of returns will exceed the VaR, and ________% will be worse.

Accepted Answer

A) 25; 75; 25 
B) 75; 25; 75 
C) 1; 99; 51 
D) 95; 5; 95 
A) 25; 75; 25 
B) 75; 25; 75 
C) 1; 99; 51 
D) 95; 5; 95

Question 13

You have been given this probability distribution for the holding-period return for GM stock:   What is the expected variance for GM stock?

Accepted Answer

A) 200.00% 
B) 221.04% 
C) 246.37% 
D) 14.87% 
A) 200.00% 
B) 221.04% 
C) 246.37% 
D) 14.87%

Question 14

Ceteris paribus, a decrease in the demand for loans

Accepted Answer

A) drives the interest rate down. 
B) drives the interest rate up. 
C) might not have any effect on interest rates. 
D) results from an increase in business prospects and a decrease in the level of savings. 
A) drives the interest rate down. 
B) drives the interest rate up. 
C) might not have any effect on interest rates. 
D) results from an increase in business prospects and a decrease in the level of savings.

Question 15

The risk premium for common stocks

Accepted Answer

A) cannot be zero, for investors would be unwilling to invest in common stocks. 
B) must always be positive, in theory. 
C) is negative, as common stocks are risky. 
D) cannot be zero, for investors would be unwilling to invest in common stocks and must always be positive, in theory. 
A) cannot be zero, for investors would be unwilling to invest in common stocks. 
B) must always be positive, in theory. 
C) is negative, as common stocks are risky. 
D) cannot be zero, for investors would be unwilling to invest in common stocks and must always be positive, in theory.

Question 16

You have been given this probability distribution for the holding-period return for Cheese, Inc.stock:   Assuming that the expected return on Cheese's stock is 14.35%, what is the standard deviation of these returns?

Accepted Answer

A) 4.72% 
B) 6.30% 
C) 4.38% 
D) 5.74% 
A) 4.72% 
B) 6.30% 
C) 4.38% 
D) 5.74%

Question 17

When assessing tail risk by looking at the 5% worst-case scenario, the VaR is the

Accepted Answer

A) most realistic, as it is the most complete measure of risk. 
B) most pessimistic, as it is the most complete measure of risk. 
C) most optimistic, as it is the most complete measure of risk. 
D) most optimistic, as it takes the highest return (smallest loss) of all the cases. 
A) most realistic, as it is the most complete measure of risk. 
B) most pessimistic, as it is the most complete measure of risk. 
C) most optimistic, as it is the most complete measure of risk. 
D) most optimistic, as it takes the highest return (smallest loss) of all the cases.

Question 18

Over the past year, you earned a nominal rate of interest of 10% on your money.The inflation rate was 5% over the same period.The exact actual growth rate of your purchasing power was

Accepted Answer

A) 15.5%. 
B) 10.0%. 
C) 5.0%. 
D) 4.8%. 
A) 15.5%. 
B) 10.0%. 
C) 5.0%. 
D) 4.8%.

Question 19

Kurtosis is a measure of

Accepted Answer

A) how fat the tails of a distribution are. 
B) the downside risk of a distribution. 
C) the normality of a distribution. 
D) the dividend yield of the distribution. 
A) how fat the tails of a distribution are. 
B) the downside risk of a distribution. 
C) the normality of a distribution. 
D) the dividend yield of the distribution.

Question 20

If a distribution has "fat tails," it exhibits

Accepted Answer

A) positive skewness. 
B) negative skewness. 
C) a kurtosis of zero. 
D) kurtosis. 
A) positive skewness. 
B) negative skewness. 
C) a kurtosis of zero. 
D) kurtosis.

Exam 5: Risk, Return, and the Historical Record

You have been given this probability distribution for the holding-period return for KMP stock: What is the expected variance for KMP stock?

If a portfolio had a return of 15%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 30%, the Sharpe measure would be

You purchased a share of stock for $12.One year later, you received $0.25 as a dividend and sold the share for $12.92.What was your holding-period return?

A year ago, you invested $2,500 in a savings account that pays an annual interest rate of 2.5%.What is your approximate annual real rate of return if the rate of inflation was 3.4% over the year?

In words, the real rate of interest is approximately equal to

A year ago, you invested $1,000 in a savings account that pays an annual interest rate of 6%.What is your approximate annual real rate of return if the rate of inflation was 2% over the year?

If the interest rate paid by borrowers and the interest rate received by savers accurately reflect the realized rate of inflation,

You have been given this probability distribution for the holding-period return for KMP stock: What is the expected holding-period return for KMP stock?

Which of the following factors would not be expected to affect the nominal interest rate?

If a portfolio had a return of 18%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 34%, the risk premium would be

An investor purchased a bond 45 days ago for $985.He received $15 in interest and sold the bond for $980.What is the holding-period return on his investment?

Practitioners often use a ________% VaR, meaning that ________% of returns will exceed the VaR, and ________% will be worse.

You have been given this probability distribution for the holding-period return for GM stock: What is the expected variance for GM stock?

Ceteris paribus, a decrease in the demand for loans

The risk premium for common stocks

You have been given this probability distribution for the holding-period return for Cheese, Inc.stock: Assuming that the expected return on Cheese's stock is 14.35%, what is the standard deviation of these returns?

When assessing tail risk by looking at the 5% worst-case scenario, the VaR is the

Over the past year, you earned a nominal rate of interest of 10% on your money.The inflation rate was 5% over the same period.The exact actual growth rate of your purchasing power was

Kurtosis is a measure of

If a distribution has "fat tails," it exhibits

The Investment Environment

Financial Markets, Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioural Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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Practitioners often use a % VaR, meaning that % of returns will exceed the VaR, and % will be worse.