Question 1

The required return on a risky investment includes a real rate of return, an inflation premium and a risk premium.

Accepted Answer

A) True 
 B)False

Question 2

The present value of $10,000 discounted at 5% per year and received at the end of 5 years is

Accepted Answer

A)  $10,000(1.05)5  
B)  $10,000 (1.05)1/5 
C)  $10,000/1.25 
D)  $10,000/(1.05)5 
A)  $10,000(1.05)5  
B)  $10,000 (1.05)1/5 
C)  $10,000/1.25 
D)  $10,000/(1.05)5

Question 3

Internal factors such as the quality of management and the level of corporate debt affect the rate of return on an individual share.

Accepted Answer

A) True 
 B)False

Question 4

To compute the present value of $1,000 discounted at the rate of 5% per year, to be received at the end of 3 years, you should enter the following variables into a financial calculator

Accepted Answer

A)  N=3, i=.05, PV=1000 
B)  N=3, i=5, FV=1000 
C)  N=3, i=5, PMT=1000 
D)  N=3, i=5, PV=1000 
A)  N=3, i=.05, PV=1000 
B)  N=3, i=5, FV=1000 
C)  N=3, i=5, PMT=1000 
D)  N=3, i=5, PV=1000

Question 5

Jessica bought a share at a price of $11.50. She received a $0.75 dividend and sold the share for $12.50. What is Jessica's capital gain on this investment?

Accepted Answer

A)  $1.00 
B)  $0.25 
C)  $1.75 
D)  $0.75 
A)  $1.00 
B)  $0.25 
C)  $1.75 
D)  $0.75

Question 6

The return that fully compensates for the risk of an investment is called the risk- free rate of return.

Accepted Answer

A) True 
 B)False

Question 7

Roy is going to receive a payment of $5,000 one year from today. He earns an average of 6% on his investments. What is the present value of this payment?

Accepted Answer

A)  $4,821 
B)  $5,000 
C)  $4,717 
D)  $5,300 
A)  $4,821 
B)  $5,000 
C)  $4,717 
D)  $5,300

Question 8

Historically, the real rate of return has tended to be

Accepted Answer

A)  between 1 and 2%. 
B)  between 2 and 3%. 
C)  between 3% and 5%. 
D)  between - 1% and 0%. 
A)  between 1 and 2%. 
B)  between 2 and 3%. 
C)  between 3% and 5%. 
D)  between - 1% and 0%.

Question 9

Most investors are risk- averse, which means they

Accepted Answer

A)  refuse to accept any financial risk. 
B)  gain satisfaction from the excitement of risk. 
C)  require an increase in return for any increase in risk. 
D)  invest only in government insured securities. 
A)  refuse to accept any financial risk. 
B)  gain satisfaction from the excitement of risk. 
C)  require an increase in return for any increase in risk. 
D)  invest only in government insured securities.

Question 10

Investments with lower standard deviations can be expected to produce higher rates of return.

Accepted Answer

A) True 
 B)False

Question 11

A holding period return is calculated by adding the current income to the capital gains and dividing this sum by the

Accepted Answer

A)  beginning investment value. 
B)  total income received. 
C)  selling price of the investment. 
D)  average investment value. 
A)  beginning investment value. 
B)  total income received. 
C)  selling price of the investment. 
D)  average investment value.

Question 12

If you own an investment providing periodic returns, your actual yield on the investment will depend on the reinvestment rate you are able to obtain.

Accepted Answer

A) True 
 B)False

Question 13

The required rate of return on the Daisy Corporation's ordinary share is 11%, the current real rate of return in the market is 1%, and the market's risk- free rate of return is 4%. In this case, the risk premium associated with Daisy's stock is

Accepted Answer

A)  5%. 
B)  7%. 
C)  8%. 
D)  6%. 
A)  5%. 
B)  7%. 
C)  8%. 
D)  6%.

Question 14

When the rate of return is equal to the discount rate

Accepted Answer

A)  the cost of an investment equals the future value of its benefits. 
B)  the present value of an investment's benefits must be greater than its cost. 
C)  the cost of an investment equals the present value of its benefits. 
D)  the cost of an investment equals the sum of its benefits. 
A)  the cost of an investment equals the future value of its benefits. 
B)  the present value of an investment's benefits must be greater than its cost. 
C)  the cost of an investment equals the present value of its benefits. 
D)  the cost of an investment equals the sum of its benefits.

Question 15

Six years ago, Miguel invested $3,500. Today his investment is worth $5,659. The yield on this investment is

Accepted Answer

A)  9.7%. 
B)  1.4%. 
C)  4.2%. 
D)  8.3%. 
A)  9.7%. 
B)  1.4%. 
C)  4.2%. 
D)  8.3%.

Question 16

The maximum rate of return that can be earned for a given rate of interest occurs when interest is compounded

Accepted Answer

A)  daily. 
B)  monthly. 
C)  continuously. 
D)  annually. 
A)  daily. 
B)  monthly. 
C)  continuously. 
D)  annually.

Question 17

When computing an investment's yield using a financial calculator or spreadsheet such as Excel, which of the following should be entered as a negative number?

Accepted Answer

A)  The initial cost of the investment. 
B)  The price at which the investment is sold. 
C)  Dividend or interest payments. 
D)  The number of time periods. 
A)  The initial cost of the investment. 
B)  The price at which the investment is sold. 
C)  Dividend or interest payments. 
D)  The number of time periods.

Question 18

The difficulty many investors experienced in selling mortgage based securities during the financial crisis of 2009 is an example of

Accepted Answer

A)  liquidity risk. 
B)  business risk. 
C)  credit risk. 
D)  market risk. 
A)  liquidity risk. 
B)  business risk. 
C)  credit risk. 
D)  market risk.

Question 19

Lower risk investments are associated with higher expected rates of return.

Accepted Answer

A) True 
 B)False

Question 20

For a given stated rate of interest, daily compounding results in a higher true rate of interest than monthly compounding.

Accepted Answer

A) True 
 B)False

The required return on a risky investment includes a real rate of return, an inflation premium and a risk premium.

The present value of $10,000 discounted at 5% per year and received at the end of 5 years is

Internal factors such as the quality of management and the level of corporate debt affect the rate of return on an individual share.

To compute the present value of $1,000 discounted at the rate of 5% per year, to be received at the end of 3 years, you should enter the following variables into a financial calculator

Jessica bought a share at a price of $11.50. She received a $0.75 dividend and sold the share for $12.50. What is Jessica's capital gain on this investment?

The return that fully compensates for the risk of an investment is called the risk- free rate of return.

Roy is going to receive a payment of $5,000 one year from today. He earns an average of 6% on his investments. What is the present value of this payment?

Historically, the real rate of return has tended to be

Most investors are risk- averse, which means they

Investments with lower standard deviations can be expected to produce higher rates of return.

A holding period return is calculated by adding the current income to the capital gains and dividing this sum by the

If you own an investment providing periodic returns, your actual yield on the investment will depend on the reinvestment rate you are able to obtain.

The required rate of return on the Daisy Corporation's ordinary share is 11%, the current real rate of return in the market is 1%, and the market's risk- free rate of return is 4%. In this case, the risk premium associated with Daisy's stock is

When the rate of return is equal to the discount rate

Six years ago, Miguel invested $3,500. Today his investment is worth $5,659. The yield on this investment is

The maximum rate of return that can be earned for a given rate of interest occurs when interest is compounded

When computing an investment's yield using a financial calculator or spreadsheet such as Excel, which of the following should be entered as a negative number?

The difficulty many investors experienced in selling mortgage based securities during the financial crisis of 2009 is an example of

Lower risk investments are associated with higher expected rates of return.

For a given stated rate of interest, daily compounding results in a higher true rate of interest than monthly compounding.

The Investment Environment

Markets and Transactions

Investment Information and Securities Transactions

Modern Portfolio Concepts

Shares

Analysing Shares

Share Valuation

Technical Analysis, Market Efficiency and Behavioural Finance

Fixed-Income Securities

Bond Valuation

Managed Funds: Professionally Managed Portfolios

Managing Your Own Portfolio

Options: Puts and Calls

Commodities and Financial Futures

Filters

Exam 4: Return and Risk

The required return on a risky investment includes a real rate of return, an inflation premium and a risk premium.

The present value of $10,000 discounted at 5% per year and received at the end of 5 years is

Internal factors such as the quality of management and the level of corporate debt affect the rate of return on an individual share.

To compute the present value of $1,000 discounted at the rate of 5% per year, to be received at the end of 3 years, you should enter the following variables into a financial calculator

Jessica bought a share at a price of $11.50. She received a $0.75 dividend and sold the share for $12.50. What is Jessica's capital gain on this investment?

The return that fully compensates for the risk of an investment is called the risk- free rate of return.

Roy is going to receive a payment of $5,000 one year from today. He earns an average of 6% on his investments. What is the present value of this payment?

Historically, the real rate of return has tended to be

Most investors are risk- averse, which means they

Investments with lower standard deviations can be expected to produce higher rates of return.

A holding period return is calculated by adding the current income to the capital gains and dividing this sum by the

If you own an investment providing periodic returns, your actual yield on the investment will depend on the reinvestment rate you are able to obtain.

The required rate of return on the Daisy Corporation's ordinary share is 11%, the current real rate of return in the market is 1%, and the market's risk- free rate of return is 4%. In this case, the risk premium associated with Daisy's stock is

When the rate of return is equal to the discount rate

Six years ago, Miguel invested $3,500. Today his investment is worth $5,659. The yield on this investment is

The maximum rate of return that can be earned for a given rate of interest occurs when interest is compounded

When computing an investment's yield using a financial calculator or spreadsheet such as Excel, which of the following should be entered as a negative number?

The difficulty many investors experienced in selling mortgage based securities during the financial crisis of 2009 is an example of

Lower risk investments are associated with higher expected rates of return.

For a given stated rate of interest, daily compounding results in a higher true rate of interest than monthly compounding.

The Investment Environment

Markets and Transactions

Investment Information and Securities Transactions

Modern Portfolio Concepts

Shares

Analysing Shares

Share Valuation

Technical Analysis, Market Efficiency and Behavioural Finance

Fixed-Income Securities

Bond Valuation

Managed Funds: Professionally Managed Portfolios

Managing Your Own Portfolio

Options: Puts and Calls

Commodities and Financial Futures

Filters