Question 1

Justin invests $4,000 in a savings account for two years. The account pays 2% interest compounded annually. How much money will be in the account at the end of the second year?

Accepted Answer

A)  $4,161.60 
B)  $4,160.00 
C)  $4,080.00 
D)  $1,161.60 
A)  $4,161.60 
B)  $4,160.00 
C)  $4,080.00 
D)  $1,161.60

Question 2

One reason that the holding period return should not be used to compare long-term investments is that it does not consider the time value of money.

Accepted Answer

A) True 
 B)False

Question 3

Eli purchased an investment for $1,000. It generated the following stream of cash flows. $$\begin{array} { | l | l | } 
\hline \text { End of year 1 } & \$ 300 \
\hline \text { End of year } 2 & \$ 400 \
\hline \text { End of year 3 } & \$ 500 \
\hline
\end{array}$$ His internal rate of return was

Accepted Answer

A)  10.65%. 
B)  6.67%. 
C)  9.70%. 
D)  8.90%. 
A)  10.65%. 
B)  6.67%. 
C)  9.70%. 
D)  8.90%.

Question 4

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 requires an 8% rate of return compounded annually, what is the maximum amount that he can pay and still earn the required rate of return?

Accepted Answer

$3,000/(1.

Question 5

When the rate of return is equal to the discount rate

Accepted Answer

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

Question 6

An investment produced annual rates of return of 7%, -14%, 20% and 4% respectively over the past four years. What is the standard deviation of these returns?

Accepted Answer

A)  12.1% 
B)  14.0% 
C)  1.5% 
D)  7.0% 
A)  12.1% 
B)  14.0% 
C)  1.5% 
D)  7.0%

Question 7

The greatest risk inherent in highly rated bonds is

Accepted Answer

A)  the difficulty of selling them before their maturity date. 
B)  a potential reduction in the expected interest rate. 
C)  potential failure of the issue to repay the principal. 
D)  loss of purchasing power due to inflation. 
A)  the difficulty of selling them before their maturity date. 
B)  a potential reduction in the expected interest rate. 
C)  potential failure of the issue to repay the principal. 
D)  loss of purchasing power due to inflation.

Question 8

Compute the present value of the following cash flow discounted at 8%. $$\begin{array} { | l | l | } 
\hline \text { End of Year } & \text { Cash flow } \
\hline 1 & \$ 850 \
\hline 2 & \$ 500 \
\hline 3 & \$ 200 \
\hline
\end{array}$$

Accepted Answer

A)  $1,374.47 
B)  $973.97 
C)  $1,174.58 
D)  $1,024.65 
A)  $1,374.47 
B)  $973.97 
C)  $1,174.58 
D)  $1,024.65

Question 9

The present value of an investment must be computed by discounting cash flows at the internal rate of return.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  U.S. common stock 
B)  long-term government bonds 
C)  short-term government bills 
D)  German common stock 
A)  U.S. common stock 
B)  long-term government bonds 
C)  short-term government bills 
D)  German common stock

Question 11

A capital loss is computed by

Accepted Answer

A)  subtracting the original cost of an investment from the proceeds received from the sale of that investment minus any income from the investment. 
B)  subtracting the original cost of an investment from the proceeds received from the sale of that investment plus any income from the investment. 
C)  subtracting the proceeds received from the sale of an investment from the original cost of the investment. 
D)  subtracting the original cost of an investment from the proceeds received from the sale of that investment. 
A)  subtracting the original cost of an investment from the proceeds received from the sale of that investment minus any income from the investment. 
B)  subtracting the original cost of an investment from the proceeds received from the sale of that investment plus any income from the investment. 
C)  subtracting the proceeds received from the sale of an investment from the original cost of the investment. 
D)  subtracting the original cost of an investment from the proceeds received from the sale of that investment.

Question 12

The internal rate of return is a less meaningful measure of an investment's performance than holding period return if the holding period is other than 1 year.

Accepted Answer

A) True 
 B)False

Question 13

Over the past 4 years, the annual rates of return on stock of Brown & Warren Inc. have been -2%, 4%, 14% and 6%, respectively, over the past four years. Compute the standard deviation of these returns.

Accepted Answer

\[\begin{array} { c c c } 
& r \mathrm {

Question 14

The internal rate of return takes into account all of an investment's cash flows over a period of time.

Accepted Answer

A) True 
 B)False

Question 15

Briefly explain the holding period return (HPR) and give several characteristics of this measure.

Accepted Answer

HPR is the total return earned from hold

Question 16

Josh purchased 100 shares of XOM at the beginning of 2016. He received dividends per share of $1.37 (2016), $1.55 (2017), $1.66 (2018), $1.74 (2019), $1.85 (2020). At the end of 2020, just after receiving the last dividend, he sold the stock for $84.76. At what rate did the dividends grow from the end of 2016 to the end of 2020? Assume that all dividends were received at the end of the year.

Accepted Answer

A)  7.8% 
B)  6.2% 
C)  13.1% 
D)  35% 
A)  7.8% 
B)  6.2% 
C)  13.1% 
D)  35%

Question 17

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

Accepted Answer

A)  The future value of $1 at the end of two years is equal to $1.00(1+r)(1+r) 
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 $1.00 at the end of 2 years is $1.00+2($1.00 × r). 
A)  The future value of $1 at the end of two years is equal to $1.00(1+r)(1+r) 
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 $1.00 at the end of 2 years is $1.00+2($1.00 × r).

Question 18

The stock of an automobile manufacturer falls sharply after its CEO behaves erratically during a TV appearance. This is an example of

Accepted Answer

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

Question 19

An investment costs $3,500 today. This investment is expected to produce annual cash flows of $1,200, $1,400, $1,300 and $1,100, respectively, over the next four years. What is the internal rate of return on this investment?

Accepted Answer

A)  8.1% 
B)  9.33% 
C)  14.6% 
D)  16.2% 
A)  8.1% 
B)  9.33% 
C)  14.6% 
D)  16.2%

Question 20

David has purchased an investment that he expects to produce an annual cash flow of $3,000 for five years. He requires an 8% rate of return compounded annually. What is the maximum amount that David can pay and still earn the required rate of return?

Accepted Answer

A)  $19,008 
B)  $15,000 
C)  $14,764 
D)  $11,978 
A)  $19,008 
B)  $15,000 
C)  $14,764 
D)  $11,978

Justin invests $4,000 in a savings account for two years. The account pays 2% interest compounded annually. How much money will be in the account at the end of the second year?

One reason that the holding period return should not be used to compare long-term investments is that it does not consider the time value of money.

Eli purchased an investment for $1,000. It generated the following stream of cash flows. End of year 1 \ 300 End of year 2 \ 400 End of year 3 \ 500 His internal rate of return was

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 requires an 8% rate of return compounded annually, what is the maximum amount that he can pay and still earn the required rate of return?

When the rate of return is equal to the discount rate

An investment produced annual rates of return of 7%, -14%, 20% and 4% respectively over the past four years. What is the standard deviation of these returns?

The greatest risk inherent in highly rated bonds is

Compute the present value of the following cash flow discounted at 8%. End of Year Cash flow 1 \ 850 2 \ 500 3 \ 200

The present value of an investment must be computed by discounting cash flows at the internal rate of return.

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

A capital loss is computed by

The internal rate of return is a less meaningful measure of an investment's performance than holding period return if the holding period is other than 1 year.

Over the past 4 years, the annual rates of return on stock of Brown & Warren Inc. have been -2%, 4%, 14% and 6%, respectively, over the past four years. Compute the standard deviation of these returns.

The internal rate of return takes into account all of an investment's cash flows over a period of time.

Briefly explain the holding period return (HPR) and give several characteristics of this measure.

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

The stock of an automobile manufacturer falls sharply after its CEO behaves erratically during a TV appearance. This is an example of

An investment costs $3,500 today. This investment is expected to produce annual cash flows of $1,200, $1,400, $1,300 and $1,100, respectively, over the next four years. What is the internal rate of return on this investment?

David has purchased an investment that he expects to produce an annual cash flow of $3,000 for five years. He requires an 8% rate of return compounded annually. What is the maximum amount that David can pay and still earn the required rate of return?

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

Justin invests $4,000 in a savings account for two years. The account pays 2% interest compounded annually. How much money will be in the account at the end of the second year?

One reason that the holding period return should not be used to compare long-term investments is that it does not consider the time value of money.

Eli purchased an investment for $1,000. It generated the following stream of cash flows. End of year 1 \ 300 End of year 2 \ 400 End of year 3 \ 500 His internal rate of return was

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 requires an 8% rate of return compounded annually, what is the maximum amount that he can pay and still earn the required rate of return?

When the rate of return is equal to the discount rate

An investment produced annual rates of return of 7%, -14%, 20% and 4% respectively over the past four years. What is the standard deviation of these returns?

The greatest risk inherent in highly rated bonds is

Compute the present value of the following cash flow discounted at 8%. End of Year Cash flow 1 \ 850 2 \ 500 3 \ 200

The present value of an investment must be computed by discounting cash flows at the internal rate of return.

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

A capital loss is computed by

The internal rate of return is a less meaningful measure of an investment's performance than holding period return if the holding period is other than 1 year.

Over the past 4 years, the annual rates of return on stock of Brown & Warren Inc. have been -2%, 4%, 14% and 6%, respectively, over the past four years. Compute the standard deviation of these returns.

The internal rate of return takes into account all of an investment's cash flows over a period of time.

Briefly explain the holding period return (HPR) and give several characteristics of this measure.

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

The stock of an automobile manufacturer falls sharply after its CEO behaves erratically during a TV appearance. This is an example of

An investment costs $3,500 today. This investment is expected to produce annual cash flows of $1,200, $1,400, $1,300 and $1,100, respectively, over the next four years. What is the internal rate of return on this investment?

David has purchased an investment that he expects to produce an annual cash flow of $3,000 for five years. He requires an 8% rate of return compounded annually. What is the maximum amount that David can pay and still earn the required rate of return?

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