Question 1

An investment produced annual rates of return of 5%, 12%, -8% and 11% respectively over the past four years. What is the (sample) standard deviation of these returns?

Accepted Answer

A)  2.7% 
B)  3.2% 
C)  3.6% 
D)  9.2% 
A)  2.7% 
B)  3.2% 
C)  3.6% 
D)  9.2%

Question 2

Lower risk investments are associated with lower expected rates of return.

Accepted Answer

A) True 
 B)False

Question 3

Ashley purchased a stock at $54 per share. She received quarterly dividends of $0.80 per share. After one year, Ashley sold the stock at a price of $53.25 a share. What is her percentage holding period return on this investment?

Accepted Answer

A)  4.5% 
B)  7.3% 
C)  5.9% 
D)  -1.4% 
A)  4.5% 
B)  7.3% 
C)  5.9% 
D)  -1.4%

Question 4

Josh purchased 100 shares of XOM for $76.63 per share 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. What was his average annual rate of return form both dividends and capital gains? (Hint: compute the IRR, assume that all dividends were received at the end of the year.)

Accepted Answer

Josh's cash flows on a per share basis w

Question 5

The internal rate of return is the rate of return that causes a project to have a zero net present value.

Accepted Answer

A) True 
 B)False

Question 6

Jeremy purchased 100 shares of FB for $19 per share in September 2012 and sold them 3 years later at $91 per share. At what annual rate did the value of his investment grow?

Accepted Answer

A)  about 95% 
B)  about 48% 
C)  about 69% 
D)  about 12% 
A)  about 95% 
B)  about 48% 
C)  about 69% 
D)  about 12%

Question 7

Investments with lower standard deviations can be expected to produce higher rates of return.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following investments may be impacted by government actions?

Accepted Answer

A)  stocks 
B)  corporate bonds 
C)  government bonds 
D)  all of the above 
A)  stocks 
B)  corporate bonds 
C)  government bonds 
D)  all of the above

Question 9

Which of the following statements about the standard deviation are correct?
I. The standard deviation is a measure of relative dispersion.
II. Standard deviations should be in considered in conjunction with expected returns to compare investments.
III. The standard deviation is calculated by taking the square root of the variance.
IV. The higher the standard deviation of an investment, the lower its risk.

Accepted Answer

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

Question 10

Samantha invested $10,000 in an account paying 5% interest. after 3 years, the account balance was $11,576.25. Interest in this account was compounded annually.

Accepted Answer

A) True 
 B)False

Question 11

The holding period return is not useful for comparing investments with unequal holding periods.

Accepted Answer

A) True 
 B)False

Question 12

Liquidity risk is defined as the risk of

Accepted Answer

A)  having to trade a security in a broad market. 
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 declining price levels affect the reinvestment rate of your current income stream. 
A)  having to trade a security in a broad market. 
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 declining price levels affect the reinvestment rate of your current income stream.

Question 13

The internal rate of return on an investment is the discount rate that produces a present value of benefits greater than the cost of the investment.

Accepted Answer

A) True 
 B)False

Question 14

Short-term U. S. Treasury bills are yielding 1.5%. The expected inflation rate is 3%. Therefore, the real rate of interest must be 1.5%.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Taylor bought a stock for $68 a share three years ago. The stock does not pay any dividends. Today she sold the stock for $57 a share. What was her internal rate of return on this investment?

Accepted Answer

A)  6.43% 
B)  -5.71% 
C)  19.30% 
D)  -6.43% 
A)  6.43% 
B)  -5.71% 
C)  19.30% 
D)  -6.43%

Question 17

If the discount rate is appropriate for the level of risk, a satisfactory investment will have a present value of benefits equal to or greater than than the present value of costs.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following factors will increase the risk level of an investment?
I. a firm's decision to use a high percentage of debt financing
II. an economic situation in which consumer prices are rising at a rapid rate
III. the ability to trade the investment in a broad market rather than in a thin market
IV. unstable currency values

Accepted Answer

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

Question 19

Historically, what is the correct ranking of the following securities from lowest rate of return to the highest?

Accepted Answer

A)  Short-term government bills, long-term government bonds, stocks. 
B)  Long-term government bonds, short-term government bills, stocks. 
C)  Stocks, short-term government bills,long-term government bonds. 
D)  Historical returns do not exhibit a consistent pattern. 
A)  Short-term government bills, long-term government bonds, stocks. 
B)  Long-term government bonds, short-term government bills, stocks. 
C)  Stocks, short-term government bills,long-term government bonds. 
D)  Historical returns do not exhibit a consistent pattern.

Question 20

The standard deviation indicates the magnitude of dispersion around a mean, but not the direction.

Accepted Answer

A) True 
 B)False

An investment produced annual rates of return of 5%, 12%, -8% and 11% respectively over the past four years. What is the (sample) standard deviation of these returns?

Lower risk investments are associated with lower expected rates of return.

Ashley purchased a stock at $54 per share. She received quarterly dividends of $0.80 per share. After one year, Ashley sold the stock at a price of $53.25 a share. What is her percentage holding period return on this investment?

The internal rate of return is the rate of return that causes a project to have a zero net present value.

Jeremy purchased 100 shares of FB for $19 per share in September 2012 and sold them 3 years later at $91 per share. At what annual rate did the value of his investment grow?

Investments with lower standard deviations can be expected to produce higher rates of return.

Which of the following investments may be impacted by government actions?

Samantha invested $10,000 in an account paying 5% interest. after 3 years, the account balance was $11,576.25. Interest in this account was compounded annually.

The holding period return is not useful for comparing investments with unequal holding periods.

Liquidity risk is defined as the risk of

The internal rate of return on an investment is the discount rate that produces a present value of benefits greater than the cost of the investment.

Short-term U. S. Treasury bills are yielding 1.5%. The expected inflation rate is 3%. Therefore, the real rate of interest must be 1.5%.

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

Taylor bought a stock for $68 a share three years ago. The stock does not pay any dividends. Today she sold the stock for $57 a share. What was her internal rate of return on this investment?

If the discount rate is appropriate for the level of risk, a satisfactory investment will have a present value of benefits equal to or greater than than the present value of costs.

Historically, what is the correct ranking of the following securities from lowest rate of return to the highest?

The standard deviation indicates the magnitude of dispersion around a mean, but not the direction.

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

An investment produced annual rates of return of 5%, 12%, -8% and 11% respectively over the past four years. What is the (sample) standard deviation of these returns?

Lower risk investments are associated with lower expected rates of return.

Ashley purchased a stock at $54 per share. She received quarterly dividends of $0.80 per share. After one year, Ashley sold the stock at a price of $53.25 a share. What is her percentage holding period return on this investment?

The internal rate of return is the rate of return that causes a project to have a zero net present value.

Jeremy purchased 100 shares of FB for $19 per share in September 2012 and sold them 3 years later at $91 per share. At what annual rate did the value of his investment grow?

Investments with lower standard deviations can be expected to produce higher rates of return.

Which of the following investments may be impacted by government actions?

Samantha invested $10,000 in an account paying 5% interest. after 3 years, the account balance was $11,576.25. Interest in this account was compounded annually.

The holding period return is not useful for comparing investments with unequal holding periods.

Liquidity risk is defined as the risk of

The internal rate of return on an investment is the discount rate that produces a present value of benefits greater than the cost of the investment.

Short-term U. S. Treasury bills are yielding 1.5%. The expected inflation rate is 3%. Therefore, the real rate of interest must be 1.5%.

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

Taylor bought a stock for $68 a share three years ago. The stock does not pay any dividends. Today she sold the stock for $57 a share. What was her internal rate of return on this investment?

If the discount rate is appropriate for the level of risk, a satisfactory investment will have a present value of benefits equal to or greater than than the present value of costs.

Historically, what is the correct ranking of the following securities from lowest rate of return to the highest?

The standard deviation indicates the magnitude of dispersion around a mean, but not the direction.

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