Question 1

If interest rates are expected to rise, you would expect:

Accepted Answer

A)  bond prices to fall more than stock prices. 
B)  bond prices to rise more than stock prices. 
C)  stock prices to fall more than bond prices. 
D)  stock prices to rise and bond prices to fall. 
A)  bond prices to fall more than stock prices. 
B)  bond prices to rise more than stock prices. 
C)  stock prices to fall more than bond prices. 
D)  stock prices to rise and bond prices to fall. A

Question 2

Over the past 90 years, which financial asset class has produced the greatest number of superior 5-year return periods?

Accepted Answer

A)  Large-cap stocks 
B)  Small-cap stocks 
C)  Long-term corporate bonds 
D)  Short-term corporate bonds 
A)  Large-cap stocks 
B)  Small-cap stocks 
C)  Long-term corporate bonds 
D)  Short-term corporate bonds B

Question 3

If you invest in German bonds and the Euro becomes stronger during your holding period, then:

Accepted Answer

A)  you will be able to buy back fewer dollars when you redeem your bonds. 
B)  your dollar-denominated return will increase. 
C)  your-dollar denominated return will decrease. 
D)  your return will be the interest you receive. 
A)  you will be able to buy back fewer dollars when you redeem your bonds. 
B)  your dollar-denominated return will increase. 
C)  your-dollar denominated return will decrease. 
D)  your return will be the interest you receive. B

Question 4

If a U.S. investor buys foreign stock, his dollar-denominated return will increase if the dollar:

Accepted Answer

A)  appreciates relative to the foreign currency. 
B)  depreciates relative to the foreign currency. 
C)  remains unchanged relative to the foreign currency. 
D)  moves to a net gain position relative to all foreign currencies. 
A)  appreciates relative to the foreign currency. 
B)  depreciates relative to the foreign currency. 
C)  remains unchanged relative to the foreign currency. 
D)  moves to a net gain position relative to all foreign currencies.

Question 5

Financial risk is most closely associated with:

Accepted Answer

A)  the use of equity financing by corporations. 
B)  the use of debt financing by corporations. 
C)  equity investments held by corporations. 
D)  debt investments held by corporations. 
A)  the use of equity financing by corporations. 
B)  the use of debt financing by corporations. 
C)  equity investments held by corporations. 
D)  debt investments held by corporations.

Question 6

What is the best measure of risk for a sole proprietorship?

Accepted Answer

The best measure of risk for a

Question 7

Adding 1 to return produces the:

Accepted Answer

A)  arithmetic mean. 
B)  return relative. 
C)  cumulative wealth index. 
D)  geometric mean. 
A)  arithmetic mean. 
B)  return relative. 
C)  cumulative wealth index. 
D)  geometric mean.

Question 8

To calculate the return on a stock that pays a year-end dividend, an investor should:

Accepted Answer

A)  divide the stock's sale price by its purchase price and subtract 1. 
B)  add the dividend and sale price, divide by the purchase price and subtract 1. 
C)  divide the sale price by the purchase price and add the dividend yield. 
D)  divide all cash flows received by the selling price and subtract 1. 
A)  divide the stock's sale price by its purchase price and subtract 1. 
B)  add the dividend and sale price, divide by the purchase price and subtract 1. 
C)  divide the sale price by the purchase price and add the dividend yield. 
D)  divide all cash flows received by the selling price and subtract 1.

Question 9

The housing bubble and resulting credit crisis of 2008 is an example of:

Accepted Answer

A)  nonsystematic risk. 
B)  systematic risk. 
C)  inflation risk. 
D)  political risk 
A)  nonsystematic risk. 
B)  systematic risk. 
C)  inflation risk. 
D)  political risk

Question 10

What common variable is used in the calculation of both the cumulative wealth index and the geometric mean return? How is the common variable calculated? How is it used in each?

Accepted Answer

Return (R) is used in both cal

Question 11

When most people refer to mean return, they are referring to the:

Accepted Answer

A)  holding period return. 
B)  arithmetic average return. 
C)  geometric average return. 
D)  cumulative average return. 
A)  holding period return. 
B)  arithmetic average return. 
C)  geometric average return. 
D)  cumulative average return.

Question 12

Which of the following statements about the expected equity risk premium is true?

Accepted Answer

A)  It is occasionally negative. 
B)  There is no direct way to measure it. 
C)  It decreases as investor uncertainty increases. 
D)  It increases as the risk-free rate increases. 
A)  It is occasionally negative. 
B)  There is no direct way to measure it. 
C)  It decreases as investor uncertainty increases. 
D)  It increases as the risk-free rate increases.

Question 13

If you deposit $1,000 today at 12 percent, how much will you have in 10 years?

Accepted Answer

Using a financial ca

Question 14

Investors should be willing to invest in riskier investments only:

Accepted Answer

A)  if the expected holding period is short term. 
B)  if there are no safe alternatives except for holding cash. 
C)  if the expected return is adequate for the risk level. 
D)  if they are speculators. 
A)  if the expected holding period is short term. 
B)  if there are no safe alternatives except for holding cash. 
C)  if the expected return is adequate for the risk level. 
D)  if they are speculators.

Question 15

International mutual funds offer investors global diversification without exchange rate risk.

Accepted Answer

A) True 
 B)False

Question 16

Total return is equal to:

Accepted Answer

A)  capital gain + price change. 
B)  yield + income. 
C)  capital gain - loss. 
D)  yield + price change. 
A)  capital gain + price change. 
B)  yield + income. 
C)  capital gain - loss. 
D)  yield + price change.

Question 17

Over the past 10 years, a small-cap fund and a large-cap fund each reported an arithmetic mean return of 7%. Based on this information, the geometric mean return for the small-cap fund was most likely:

Accepted Answer

A)  less than 7% and exceeded the geometric mean return of the large-cap fund. 
B)  less than 7% and was less than the geometric mean return of the large-cap fund. 
C)  more than 7% and exceeded the geometric mean return of the large-cap fund. 
D)  more than 7% and was less than the geometric mean return of the large-cap fund. 
A)  less than 7% and exceeded the geometric mean return of the large-cap fund. 
B)  less than 7% and was less than the geometric mean return of the large-cap fund. 
C)  more than 7% and exceeded the geometric mean return of the large-cap fund. 
D)  more than 7% and was less than the geometric mean return of the large-cap fund.

Question 18

Political stability is the major factor concerning:

Accepted Answer

A)  exchange-rate risk. 
B)  systematic risk. 
C)  nonsystematic risk. 
D)  country risk. 
A)  exchange-rate risk. 
B)  systematic risk. 
C)  nonsystematic risk. 
D)  country risk.

Question 19

The standard deviation of returns, calculated as the square root of the variance of returns, is a measure of total risk of an asset or portfolio.

Accepted Answer

A) True 
 B)False

Question 20

Holding interest rates constant, a narrowing of the equity risk premium implies a decline in the return on stocks because the amount earned beyond the risk-free rate is reduced.

Accepted Answer

A) True 
 B)False

Exam 6: The Risk and Return From Investing

If interest rates are expected to rise, you would expect:

Over the past 90 years, which financial asset class has produced the greatest number of superior 5-year return periods?

If you invest in German bonds and the Euro becomes stronger during your holding period, then:

If a U.S. investor buys foreign stock, his dollar-denominated return will increase if the dollar:

Financial risk is most closely associated with:

What is the best measure of risk for a sole proprietorship?

Adding 1 to return produces the:

To calculate the return on a stock that pays a year-end dividend, an investor should:

The housing bubble and resulting credit crisis of 2008 is an example of:

What common variable is used in the calculation of both the cumulative wealth index and the geometric mean return? How is the common variable calculated? How is it used in each?

When most people refer to mean return, they are referring to the:

Which of the following statements about the expected equity risk premium is true?

If you deposit $1,000 today at 12 percent, how much will you have in 10 years?

Investors should be willing to invest in riskier investments only:

International mutual funds offer investors global diversification without exchange rate risk.

Total return is equal to:

Over the past 10 years, a small-cap fund and a large-cap fund each reported an arithmetic mean return of 7%. Based on this information, the geometric mean return for the small-cap fund was most likely:

Political stability is the major factor concerning:

The standard deviation of returns, calculated as the square root of the variance of returns, is a measure of total risk of an asset or portfolio.

Holding interest rates constant, a narrowing of the equity risk premium implies a decline in the return on stocks because the amount earned beyond the risk-free rate is reduced.

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

Portfolio Theory

Portfolio Selection and Asset Allocation

Capital Market Theory and Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economymarket Analysis

Sectorindustry Analysis

Company Analysis

Technical Analysis

Bond Yields and Prices

Bonds: Analysis and Strategy

Options

Futures Contracts

Managing Your Financial Assets

Evaluation of Investment Performance

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