Question 1

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

Question 2

Christopher invests $400 today at a 4% rate of return which is compounded annually. What is the future value of this investment after four years?

Accepted Answer

A)  $342 
B)  $416 
C)  $464 
D)  $468 
A)  $342 
B)  $416 
C)  $464 
D)  $468 D

Question 3

The holding period return (HPR) can appropriately be used to

Accepted Answer

A)  compare the yield on investments held for any time period. 
B)  compare returns among investments that are held for the same period of time. 
C)  isolate realized capital gains. 
D)  determine the required reinvestment rate for long-term investments. 
A)  compare the yield on investments held for any time period. 
B)  compare returns among investments that are held for the same period of time. 
C)  isolate realized capital gains. 
D)  determine the required reinvestment rate for long-term investments. B

Question 4

A suitable investment should have an internal rate of return equal to or greater than its required rate of return.

Accepted Answer

A) True 
 B)False

Question 5

If the present value of an investment's benefits equals the present value of the investment's costs, then the investor would earn a

Accepted Answer

A)  return equal to the discount rate. 
B)  negative rate of return. 
C)  0% rate of return. 
D)  return greater than the discount rate. 
A)  return equal to the discount rate. 
B)  negative rate of return. 
C)  0% rate of return. 
D)  return greater than the discount rate.

Question 6

Which one following will lower required rates of return?

Accepted Answer

A)  higher rates of inflation 
B)  higher risk premiums 
C)  lower rates of inflation 
D)  lower dividend yields 
A)  higher rates of inflation 
B)  higher risk premiums 
C)  lower rates of inflation 
D)  lower dividend yields

Question 7

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

Accepted Answer

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

Question 8

Compute the future value three years from now of the following end-of-year cash flows growing at a rate of 6% per year. $$\begin{array} { | l | l | } 
\hline 1 & \$ 450 \
\hline 2 & \$ 400 \
\hline 3 & \$ 300 \
\hline
\end{array}$$

Accepted Answer

A)  $1,357.00 
B)  $1,032.41 
C)  $1,220.38 
D)  $1,229.61 
A)  $1,357.00 
B)  $1,032.41 
C)  $1,220.38 
D)  $1,229.61

Question 9

In response to the same external force, the return on one investment may increase while the return on another investment may decrease.

Accepted Answer

A) True 
 B)False

Question 10

Ryan purchased a bond for $980 at the beginning of 2016. He received annual interest payments of $55 at the end of each year through 2020 when the bond was redeemed at its face value of $1,000. Compute the yield (internal rate of return) Ryan earned on his bond purchase.

Accepted Answer

A)  5.50% 
B)  5.61% 
C)  5.97% 
D)  0.34% 
A)  5.50% 
B)  5.61% 
C)  5.97% 
D)  0.34%

Question 11

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

Accepted Answer

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

Question 12

Zachary has purchased an investment that he expects to produce income of $3,000 at the end of the first year and $4,000 at the end of the second year. If he pays $5,800 for this investment, what is the internal rate of return?

Accepted Answer

$3,000/1.128 + $4,000/1.1282 =

Question 13

The expected rate of return and standard deviations, respectively for four stocks are given below: $$\begin{array} { l l } 
\mathrm { OPQ } & 11\%,8\%\
\mathrm { RST } & 11\%,9 \% \
\mathrm { UVW } & 12\%,10 \% \
\mathrm { XVZ } & 12 \% ,8\%
\end{array}$$ Which investment offers the highest expected return relative to its standard deviation?

Accepted Answer

A)  OPQ 
B)  RST 
C)  UVW 
D)  XYZ 
A)  OPQ 
B)  RST 
C)  UVW 
D)  XYZ

Question 14

It is not possible for the nominal risk-free rate of return to be lower than the rate of inflation.

Accepted Answer

A) True 
 B)False

Question 15

Rational investor's are motivated to purchase an asset because of its

Accepted Answer

A)  expected returns. 
B)  past returns. 
C)  emotional benefits. 
D)  all of the above. 
A)  expected returns. 
B)  past returns. 
C)  emotional benefits. 
D)  all of the above.

Question 16

Explain the relationship between risk, the expected rate of return and the actual rate of return.

Accepted Answer

The higher the risk, real or perceived,

Question 17

The required rate of return on the Cosmos Corporation's common stock is 10%, the current real rate of return in the market is 1%, and the inflation rate is 3%. In this case, the risk premium associated with Cosmos stock is

Accepted Answer

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

Question 18

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 19

When all the cash flows from an investment, including its initial cost, are discounted at the internal rate of return, their present value will be zero.

Accepted Answer

A) True 
 B)False

Question 20

Kayla purchased a stock for $56 a share and sold it six months later for $62. While she owned the stock, Kayla received two quarterly dividends of $0.70 per share. Kayla's annualized holding period return on this stock is

Accepted Answer

A)  13.2%. 
B)  10.7%. 
C)  11.9%. 
D)  26.4%. 
A)  13.2%. 
B)  10.7%. 
C)  11.9%. 
D)  26.4%.

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?

Christopher invests $400 today at a 4% rate of return which is compounded annually. What is the future value of this investment after four years?

The holding period return (HPR) can appropriately be used to

A suitable investment should have an internal rate of return equal to or greater than its required rate of return.

If the present value of an investment's benefits equals the present value of the investment's costs, then the investor would earn a

Which one following will lower required rates of return?

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

Compute the future value three years from now of the following end-of-year cash flows growing at a rate of 6% per year. 1 \ 450 2 \ 400 3 \ 300

In response to the same external force, the return on one investment may increase while the return on another investment may decrease.

Ryan purchased a bond for $980 at the beginning of 2016. He received annual interest payments of $55 at the end of each year through 2020 when the bond was redeemed at its face value of $1,000. Compute the yield (internal rate of return) Ryan earned on his bond purchase.

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

Zachary has purchased an investment that he expects to produce income of $3,000 at the end of the first year and $4,000 at the end of the second year. If he pays $5,800 for this investment, what is the internal rate of return?

The expected rate of return and standard deviations, respectively for four stocks are given below: 11\%,8\% 11\%,9\% 12\%,10\% 12\%,8\% Which investment offers the highest expected return relative to its standard deviation?

It is not possible for the nominal risk-free rate of return to be lower than the rate of inflation.

Rational investor's are motivated to purchase an asset because of its

Explain the relationship between risk, the expected rate of return and the actual rate of return.

The required rate of return on the Cosmos Corporation's common stock is 10%, the current real rate of return in the market is 1%, and the inflation rate is 3%. In this case, the risk premium associated with Cosmos stock is

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

When all the cash flows from an investment, including its initial cost, are discounted at the internal rate of return, their present value will be zero.

Kayla purchased a stock for $56 a share and sold it six months later for $62. While she owned the stock, Kayla received two quarterly dividends of $0.70 per share. Kayla's annualized holding period return on this stock is

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters

Exam 4: Return and Risk

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?

Christopher invests $400 today at a 4% rate of return which is compounded annually. What is the future value of this investment after four years?

The holding period return (HPR) can appropriately be used to

A suitable investment should have an internal rate of return equal to or greater than its required rate of return.

If the present value of an investment's benefits equals the present value of the investment's costs, then the investor would earn a

Which one following will lower required rates of return?

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

Compute the future value three years from now of the following end-of-year cash flows growing at a rate of 6% per year. 1 \ 450 2 \ 400 3 \ 300

In response to the same external force, the return on one investment may increase while the return on another investment may decrease.

Ryan purchased a bond for $980 at the beginning of 2016. He received annual interest payments of $55 at the end of each year through 2020 when the bond was redeemed at its face value of $1,000. Compute the yield (internal rate of return) Ryan earned on his bond purchase.

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

Zachary has purchased an investment that he expects to produce income of $3,000 at the end of the first year and $4,000 at the end of the second year. If he pays $5,800 for this investment, what is the internal rate of return?

The expected rate of return and standard deviations, respectively for four stocks are given below: 11\%,8\% 11\%,9\% 12\%,10\% 12\%,8\% Which investment offers the highest expected return relative to its standard deviation?

It is not possible for the nominal risk-free rate of return to be lower than the rate of inflation.

Rational investor's are motivated to purchase an asset because of its

Explain the relationship between risk, the expected rate of return and the actual rate of return.

The required rate of return on the Cosmos Corporation's common stock is 10%, the current real rate of return in the market is 1%, and the inflation rate is 3%. In this case, the risk premium associated with Cosmos stock is

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

When all the cash flows from an investment, including its initial cost, are discounted at the internal rate of return, their present value will be zero.

Kayla purchased a stock for $56 a share and sold it six months later for $62. While she owned the stock, Kayla received two quarterly dividends of $0.70 per share. Kayla's annualized holding period return on this stock is

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters