Exam 4: Return and Risk

Taylor has saved $400 at the end of every month for the last 4 years with the intention of paying cash for a new car. She has earned a fixed annual rate of 4% over the 4 year period; interest is compounded monthly. How much can she pay for her new car at the end of the fourth year?

To determine the total return on an investment, one needs to know the purchase price, the current value and any income the investment produced.

Most investors are risk-averse, which means they

Bob's house has doubled in value since he bought it 30 years ago. The house's value has increased by an annual rate of

In some markets it may take many months to sell a residential property. This is an example of

The closest approximation to the real, risk-free rate of interest is

If the risk-free rate of return is less than the inflation rate, the real rate of return is negative.

An investor who requires a 7% rate of return should be willing to pay $934.58 now to receive $1,000 at the end of one year.

Which of the following choices is in the correct order from less risk to more risk?

Historical returns are of no use in estimating the risk of an investment.

The holding period return includes the time value of money.

The most predictable component of stock returns is

To calculate the interest rate or growth rate using a spreadsheet or financial calculator, the present value and the future value most have opposite signs.

The expected rate of return and standard deviations, respectively for four stocks are given below: 9\%,3\% 11\%,9\% 12\%,8\% IJK 14\%,10\% Which investment offers the lowest expected return relative to its standard deviation?

A petroleum refinery in the Gulf region is forced to shut down for several months because of hurricane damage. This is an example of

Sydney invested $10,000 for an indefinite period at 5% per year. At the end of each year, she receives a $500 check for interest earned. This type of account pays simple interest.

Assume that $100 is deposited at the end of each year for five years at 10% compound interest and that no withdrawals are made over the five-year period. Based on this data, which one of the following statements is correct?

An investment that has earned a high rate of return over the last 5 years will necessarily continue to perform well in the future.

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

Which of the following will lower the rate of return on a stock whose price has doubled since you bought it?