Question 1

The internal rate of return takes into account the purchase price, the selling price and the timing of any income received from the investment.

Accepted Answer

A) True 
 B)False

Question 2

The Federal Reserve Bank announces a policy of raising interest rates shortly before OMG corporation needs to refinance a large issue of 3 year notes. This is an example of

Accepted Answer

A)  liquidity risk. 
B)  financial risk. 
C)  business risk. 
D)  political risk. 
A)  liquidity risk. 
B)  financial risk. 
C)  business risk. 
D)  political risk.

Question 3

Business risk is the risk associated with the amount of debt financing used by a firm.

Accepted Answer

A) True 
 B)False

Question 4

If you invest $7,000 at the end of each year for seven years and you earn 7% interest compounded annually, how much will you have accumulated at the end of the seventh year to the nearest dollar?

Accepted Answer

A)  $10,430 
B)  $60,578 
C)  $52,430 
D)  $49,490 
A)  $10,430 
B)  $60,578 
C)  $52,430 
D)  $49,490

Question 5

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

Accepted Answer

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

Question 6

An ordinary annuity is defined as an annuity for which the cash flows occur at the beginning of each year or payment period.

Accepted Answer

A) True 
 B)False

Question 7

Business risk resulting from uncertainty over a firm's earnings is a concern for stockholders, but not for debt holders.

Accepted Answer

A) True 
 B)False

Question 8

Krishna bought a stock at a price of $33.75. She received a $1.25 dividend and sold the stock for $36.10. What is Kelly's capital gain on this investment?

Accepted Answer

A)  $(2.35) 
B)  $3.65 
C)  $2.35 
D)  $1.25 
A)  $(2.35) 
B)  $3.65 
C)  $2.35 
D)  $1.25

Question 9

The markets in general are paying a 1% real rate of return. Inflation is expected to be 3%. RJH stock commands an 8% risk premium. What is the expected rate of return on RJH stock?

Accepted Answer

A)  1% 
B)  4% 
C)  9% 
D)  12% 
A)  1% 
B)  4% 
C)  9% 
D)  12%

Question 10

Explain the similarities and differences between the holding period return and the internal rate of return.

Accepted Answer

Both measures take into account total re

Question 11

Investment A has an expected return of 8% with a standard deviation of 12%. Investment B has an expected return of of 10% with a standard deviation 15%.

Accepted Answer

A)  Investment A should be preferred because of its lower risk. 
B)  Investment B should be preferred because of its higher rate of return. 
C)  Preference for A or B would depend on the investor's risk tolerance. 
D)  Neither investment is acceptable because their standard deviations are greater than their expected rates of return. 
A)  Investment A should be preferred because of its lower risk. 
B)  Investment B should be preferred because of its higher rate of return. 
C)  Preference for A or B would depend on the investor's risk tolerance. 
D)  Neither investment is acceptable because their standard deviations are greater than their expected rates of return.

Question 12

Mila purchased an investment for $1,000. It generated the following stream of cash flows. $$\begin{array} { | l | l | } 
\hline \text { End of year 1 } & \$ 500 \
\hline \text { End of year } 2 & \$ 400 \
\hline \text { End of year 3 } & \$ 300 \
\hline
\end{array}$$ Her 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 13

Meaningful measures of an investment's return must consider both income and capital gains.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is(are) issue characteristics of an investment?
I. type of investment such as stocks or bonds
II. financial condition of the issuer
III. coupon or dividend payments
IV. time to maturity

Accepted Answer

A)  I and II only 
B)  III only 
C)  I, III and IV only 
D)  I, II, III and IV 
A)  I and II only 
B)  III only 
C)  I, III and IV only 
D)  I, II, III and IV

Question 15

Mathew has purchased an investment for $6,805.83. . He will receive $10,000 5 years from today. What is the internal rate of return on his investment?

Accepted Answer

A)  9.40% 
B)  8.00% 
C)  10.36% 
D)  47% 
A)  9.40% 
B)  8.00% 
C)  10.36% 
D)  47%

Question 16

In which of the following circumstances would it be most appropriate to use the holding period return?

Accepted Answer

A)  to compare the capital gains on a house held for 8 years and a mutual fund held for 6 years 
B)  to compare the calendar year performance of stocks purchased in March to stocks purchased in September 
C)  to compare the dividend yield of stocks to the interest rate on bonds 
D)  to compare the performance of several stocks, each of which was held throughout an entire year 
A)  to compare the capital gains on a house held for 8 years and a mutual fund held for 6 years 
B)  to compare the calendar year performance of stocks purchased in March to stocks purchased in September 
C)  to compare the dividend yield of stocks to the interest rate on bonds 
D)  to compare the performance of several stocks, each of which was held throughout an entire year

Question 17

The present value of $1,000 discounted at the rate of 5% per year, to be received at the end of 3 years is equal to

Accepted Answer

A)  $1,000/(1.03)5. 
B)  $1,000/(1.05)3. 
C)  $1,000 × (1.05)3. 
D)  $1,000 - ($1,000) × .03 × 5. 
A)  $1,000/(1.03)5. 
B)  $1,000/(1.05)3. 
C)  $1,000 × (1.05)3. 
D)  $1,000 - ($1,000) × .03 × 5.

Question 18

A business has strong sales and profits, but its stock price falls anyway because stock prices in general are declining. This is an example of

Accepted Answer

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

Question 19

Which is most true of an annual rate of 4% compounded quarterly?

Accepted Answer

A)  It is equivalent to 4.4% paid annually. 
B)  It is equivalent to 16.99% paid annually. 
C)  It is equivalent to 1% simple interest paid quarterly. 
D)  It is equivalent to 4.06% paid annually. 
A)  It is equivalent to 4.4% paid annually. 
B)  It is equivalent to 16.99% paid annually. 
C)  It is equivalent to 1% simple interest paid quarterly. 
D)  It is equivalent to 4.06% paid annually.

Question 20

For a given stated rate of interest, a sum compounded monthly will earn more interest than a sum compounded annually.

Accepted Answer

A) True 
 B)False

The internal rate of return takes into account the purchase price, the selling price and the timing of any income received from the investment.

The Federal Reserve Bank announces a policy of raising interest rates shortly before OMG corporation needs to refinance a large issue of 3 year notes. This is an example of

Business risk is the risk associated with the amount of debt financing used by a firm.

If you invest $7,000 at the end of each year for seven years and you earn 7% interest compounded annually, how much will you have accumulated at the end of the seventh year to the nearest dollar?

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

An ordinary annuity is defined as an annuity for which the cash flows occur at the beginning of each year or payment period.

Business risk resulting from uncertainty over a firm's earnings is a concern for stockholders, but not for debt holders.

Krishna bought a stock at a price of $33.75. She received a $1.25 dividend and sold the stock for $36.10. What is Kelly's capital gain on this investment?

The markets in general are paying a 1% real rate of return. Inflation is expected to be 3%. RJH stock commands an 8% risk premium. What is the expected rate of return on RJH stock?

Explain the similarities and differences between the holding period return and the internal rate of return.

Investment A has an expected return of 8% with a standard deviation of 12%. Investment B has an expected return of of 10% with a standard deviation 15%.

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

Meaningful measures of an investment's return must consider both income and capital gains.

Which of the following is(are) issue characteristics of an investment? I. type of investment such as stocks or bonds II. financial condition of the issuer III. coupon or dividend payments IV. time to maturity

Mathew has purchased an investment for $6,805.83. . He will receive $10,000 5 years from today. What is the internal rate of return on his investment?

In which of the following circumstances would it be most appropriate to use the holding period return?

The present value of $1,000 discounted at the rate of 5% per year, to be received at the end of 3 years is equal to

A business has strong sales and profits, but its stock price falls anyway because stock prices in general are declining. This is an example of

Which is most true of an annual rate of 4% compounded quarterly?

For a given stated rate of interest, a sum compounded monthly will earn more interest than a sum compounded annually.

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 internal rate of return takes into account the purchase price, the selling price and the timing of any income received from the investment.

The Federal Reserve Bank announces a policy of raising interest rates shortly before OMG corporation needs to refinance a large issue of 3 year notes. This is an example of

Business risk is the risk associated with the amount of debt financing used by a firm.

If you invest $7,000 at the end of each year for seven years and you earn 7% interest compounded annually, how much will you have accumulated at the end of the seventh year to the nearest dollar?

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

An ordinary annuity is defined as an annuity for which the cash flows occur at the beginning of each year or payment period.

Business risk resulting from uncertainty over a firm's earnings is a concern for stockholders, but not for debt holders.

Krishna bought a stock at a price of $33.75. She received a $1.25 dividend and sold the stock for $36.10. What is Kelly's capital gain on this investment?

The markets in general are paying a 1% real rate of return. Inflation is expected to be 3%. RJH stock commands an 8% risk premium. What is the expected rate of return on RJH stock?

Explain the similarities and differences between the holding period return and the internal rate of return.

Investment A has an expected return of 8% with a standard deviation of 12%. Investment B has an expected return of of 10% with a standard deviation 15%.

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

Meaningful measures of an investment's return must consider both income and capital gains.

Which of the following is(are) issue characteristics of an investment? I. type of investment such as stocks or bonds II. financial condition of the issuer III. coupon or dividend payments IV. time to maturity

Mathew has purchased an investment for $6,805.83. . He will receive $10,000 5 years from today. What is the internal rate of return on his investment?

In which of the following circumstances would it be most appropriate to use the holding period return?

The present value of $1,000 discounted at the rate of 5% per year, to be received at the end of 3 years is equal to

A business has strong sales and profits, but its stock price falls anyway because stock prices in general are declining. This is an example of

Which is most true of an annual rate of 4% compounded quarterly?

For a given stated rate of interest, a sum compounded monthly will earn more interest than a sum compounded annually.

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