Question 1

When using a financial calculator or electronic spreadsheet to calculate an investment's yield, the amount invested is expressed as a negative number.

Accepted Answer

A) True 
 B)False

Question 2

The stock of Plomb Co. falls sharply on news that its CEO has drowned in a boating accident while on vacation. This is an example of

Accepted Answer

A)  flotation risk. 
B)  liquidity risk. 
C)  accidental risk. 
D)  event risk. 
A)  flotation risk. 
B)  liquidity risk. 
C)  accidental risk. 
D)  event risk.

Question 3

Which types of risk cannot be avoided by carefully researching a company's business prospects and financial statements?

Accepted Answer

Market risk is the risk that market forc

Question 4

Which one of the following statements is correct concerning the time value of money?

Accepted Answer

A)  The future value interest factor is equal to zero if the interest rate is zero. 
B)  As the interest rate increases for any given year, the future value interest factor will decrease. 
C)  The future value of $1 decreases with the passage of time. 
D)  The future value of $1 at the end of a year is equal to $1 times 1 plus the annual interest rate. 
A)  The future value interest factor is equal to zero if the interest rate is zero. 
B)  As the interest rate increases for any given year, the future value interest factor will decrease. 
C)  The future value of $1 decreases with the passage of time. 
D)  The future value of $1 at the end of a year is equal to $1 times 1 plus the annual interest rate.

Question 5

The financial concept of time value of money is dependent upon the opportunity to earn interest over time.

Accepted Answer

A) True 
 B)False

Question 6

The internal rate of return is the correct discount rate to use when computing the net present value of an investment.

Accepted Answer

A) True 
 B)False

Question 7

The required return on Beta stock is 14%. The risk- free rate of return is 4% and the real rate of return is 2%. How much are investors requiring as compensation for risk?

Accepted Answer

A)  14%. 
B)  10%. 
C)  8%. 
D)  12%. 
A)  14%. 
B)  10%. 
C)  8%. 
D)  12%.

Question 8

Brittany purchased a stock for $14 a share and sold it six months later for $15.50. While she owned the stock, Britanny received two quarterly dividends of $0.16 per share. Brittany's holding period return on this stock is

Accepted Answer

A)  17.4%. 
B)  19.3%. 
C)  13.0%. 
D)  15.0%. 
A)  17.4%. 
B)  19.3%. 
C)  13.0%. 
D)  15.0%.

Question 9

Over the long term, which one of the following has historically had the lowest average annual rate of return?

Accepted Answer

A)  Long- term corporate bonds. 
B)  Small- company stocks. 
C)  Long- term government bonds. 
D)  Large- company stocks. 
A)  Long- term corporate bonds. 
B)  Small- company stocks. 
C)  Long- term government bonds. 
D)  Large- company stocks.

Question 10

The amount an investor is willing to pay for an investment should be determined by the past performance of the investment.

Accepted Answer

A) True 
 B)False

Question 11

Justin invests $4,000 in a savings account for two years. The account pays 2% interest compounded annually. How much interest income will Justin earn on this investment?

Accepted Answer

A)  $81.60 
B)  $160.00 
C)  $80.00 
D)  $161.60 
A)  $81.60 
B)  $160.00 
C)  $80.00 
D)  $161.60

Question 12

The future value is equal to the present value multiplied by the 1 plus the interest rate.

Accepted Answer

A) True 
 B)False

Question 13

Risk can be defined as uncertainty concerning the actual return that an investment will generate.

Accepted Answer

A) True 
 B)False

Question 14

Inflation tends to have a particularly negative impact on the price of

Accepted Answer

A)  real estate. 
B)  gold. 
C)  bonds. 
D)  crude oil. 
A)  real estate. 
B)  gold. 
C)  bonds. 
D)  crude oil.

Question 15

Investors can confidently predict future returns on an investment by studying its past performance.

Accepted Answer

A) True 
 B)False

Question 16

Jake purchased 200 shares of ABC stock at $21.25 per share. After nine months, he sold all of his shares at a price of $19.88 a share. Jake received a total of $0.55 per share in dividends during the time he owned the shares. Jake's holding period return is

Accepted Answer

A)  - 3.9%. 
B)  9.7%. 
C)  2.6%. 
D)  - 6.4%. 
A)  - 3.9%. 
B)  9.7%. 
C)  2.6%. 
D)  - 6.4%.

Question 17

Which one of the following is an example of an annuity?

Accepted Answer

A)  The payment of $389 in January, $200 in February and $200 in March. 
B)  The receipt of $100 a month for three months and then $150 a month for two months. 
C)  The receipt of $50 in January, March, April, June, August, September and December. 
D)  The payment of $259 a month for three consecutive years. 
A)  The payment of $389 in January, $200 in February and $200 in March. 
B)  The receipt of $100 a month for three months and then $150 a month for two months. 
C)  The receipt of $50 in January, March, April, June, August, September and December. 
D)  The payment of $259 a month for three consecutive years.

Question 18

Liquidity risk is defined as the risk of

Accepted Answer

A)  having declining price levels affect the reinvestment rate of your current income stream. 
B)  not being able to sell an investment conveniently and at a reasonable price. 
C)  having inflation erode the purchasing power of your investment. 
D)  having to trade a security in a broad market. 
A)  having declining price levels affect the reinvestment rate of your current income stream. 
B)  not being able to sell an investment conveniently and at a reasonable price. 
C)  having inflation erode the purchasing power of your investment. 
D)  having to trade a security in a broad market.

Question 19

The greater the dispersion around an asset's expected return, the greater the risk.

Accepted Answer

A) True 
 B)False

Question 20

Each of the following investments produces the same rate of return. Which one has the greatest amount of risk?

Accepted Answer

A)  Investment B with a standard deviation of 12%. 
B)  Investment D with a standard deviation of 19%. 
C)  Investment C with a standard deviation of 8%. 
D)  Investment A with a standard deviation of 4%. 
A)  Investment B with a standard deviation of 12%. 
B)  Investment D with a standard deviation of 19%. 
C)  Investment C with a standard deviation of 8%. 
D)  Investment A with a standard deviation of 4%.

When using a financial calculator or electronic spreadsheet to calculate an investment's yield, the amount invested is expressed as a negative number.

The stock of Plomb Co. falls sharply on news that its CEO has drowned in a boating accident while on vacation. This is an example of

Which types of risk cannot be avoided by carefully researching a company's business prospects and financial statements?

Which one of the following statements is correct concerning the time value of money?

The financial concept of time value of money is dependent upon the opportunity to earn interest over time.

The internal rate of return is the correct discount rate to use when computing the net present value of an investment.

The required return on Beta stock is 14%. The risk- free rate of return is 4% and the real rate of return is 2%. How much are investors requiring as compensation for risk?

Brittany purchased a stock for $14 a share and sold it six months later for $15.50. While she owned the stock, Britanny received two quarterly dividends of $0.16 per share. Brittany's holding period return on this stock is

Over the long term, which one of the following has historically had the lowest average annual rate of return?

The amount an investor is willing to pay for an investment should be determined by the past performance of the investment.

Justin invests $4,000 in a savings account for two years. The account pays 2% interest compounded annually. How much interest income will Justin earn on this investment?

The future value is equal to the present value multiplied by the 1 plus the interest rate.

Risk can be defined as uncertainty concerning the actual return that an investment will generate.

Inflation tends to have a particularly negative impact on the price of

Investors can confidently predict future returns on an investment by studying its past performance.

Jake purchased 200 shares of ABC stock at $21.25 per share. After nine months, he sold all of his shares at a price of $19.88 a share. Jake received a total of $0.55 per share in dividends during the time he owned the shares. Jake's holding period return is

Which one of the following is an example of an annuity?

Liquidity risk is defined as the risk of

The greater the dispersion around an asset's expected return, the greater the risk.

Each of the following investments produces the same rate of return. Which one has the greatest amount of risk?

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

When using a financial calculator or electronic spreadsheet to calculate an investment's yield, the amount invested is expressed as a negative number.

The stock of Plomb Co. falls sharply on news that its CEO has drowned in a boating accident while on vacation. This is an example of

Which types of risk cannot be avoided by carefully researching a company's business prospects and financial statements?

Which one of the following statements is correct concerning the time value of money?

The financial concept of time value of money is dependent upon the opportunity to earn interest over time.

The internal rate of return is the correct discount rate to use when computing the net present value of an investment.

The required return on Beta stock is 14%. The risk- free rate of return is 4% and the real rate of return is 2%. How much are investors requiring as compensation for risk?

Brittany purchased a stock for $14 a share and sold it six months later for $15.50. While she owned the stock, Britanny received two quarterly dividends of $0.16 per share. Brittany's holding period return on this stock is

Over the long term, which one of the following has historically had the lowest average annual rate of return?

The amount an investor is willing to pay for an investment should be determined by the past performance of the investment.

Justin invests $4,000 in a savings account for two years. The account pays 2% interest compounded annually. How much interest income will Justin earn on this investment?

The future value is equal to the present value multiplied by the 1 plus the interest rate.

Risk can be defined as uncertainty concerning the actual return that an investment will generate.

Inflation tends to have a particularly negative impact on the price of

Investors can confidently predict future returns on an investment by studying its past performance.

Jake purchased 200 shares of ABC stock at $21.25 per share. After nine months, he sold all of his shares at a price of $19.88 a share. Jake received a total of $0.55 per share in dividends during the time he owned the shares. Jake's holding period return is

Which one of the following is an example of an annuity?

Liquidity risk is defined as the risk of

The greater the dispersion around an asset's expected return, the greater the risk.

Each of the following investments produces the same rate of return. Which one has the greatest amount of risk?

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