Question 1

Discuss the relationship between risk and return.

Accepted Answer

In order for investors to be w

Question 2

Calculate the nominal rate if the real rate is 4.25% and the inflation rate is 3%.

Accepted Answer

A) 10.18% 
B) 9.28% 
C) 8.83% 
D) 7.38% 
A) 10.18% 
B) 9.28% 
C) 8.83% 
D) 7.38%

Question 3

Which statement is correct concerning macro risk exposure?

Accepted Answer

A) all firms face equal macro risk exposure 
B) only portfolios of stocks face macro risk exposure 
C) macro risk exposure affects the cost of capital 
D) macro risk exposure is less important to diversified investors than micro risk exposure 
A) all firms face equal macro risk exposure 
B) only portfolios of stocks face macro risk exposure 
C) macro risk exposure affects the cost of capital 
D) macro risk exposure is less important to diversified investors than micro risk exposure

Question 4

Averaging the deviations from the mean for a portfolio of securities will:

Accepted Answer

A) compute the standard deviation. 
B) compute the variance. 
C) equal zero. 
D) equal the number of securities in the portfolio. 
A) compute the standard deviation. 
B) compute the variance. 
C) equal zero. 
D) equal the number of securities in the portfolio.

Question 5

The addition of a negative risk asset to a portfolio of assets will:

Accepted Answer

A) increase the portfolio's expected return. 
B) decrease the portfolio's expected return. 
C) increase the portfolio's expected volatility. 
D) decrease the portfolio's expected volatility. 
A) increase the portfolio's expected return. 
B) decrease the portfolio's expected return. 
C) increase the portfolio's expected volatility. 
D) decrease the portfolio's expected volatility.

Question 6

What is the approximate variance of returns if over the past three years an investment returned 8.0 percent, -12.0 percent, and 15.0 percent?

Accepted Answer

A) 1.31% 
B) 1.96% 
C) 2.74% 
D) 3.66% 
A) 1.31% 
B) 1.96% 
C) 2.74% 
D) 3.66%

Question 7

An investor receives a 15 percent total return by purchasing a stock for $40 and selling it after one year with a 10 percent capital gain.How much was received in dividend income during the year?

Accepted Answer

A) $2.00 
B) $2.20 
C) $4.00 
D) $6.00 
A) $2.00 
B) $2.20 
C) $4.00 
D) $6.00

Question 8

What is the approximate standard deviation of returns if over the past four years an investment returned 8.0%, - 12.0%, - 12% and 15.0%?

Accepted Answer

A) 9.26% 
B) 10.26% 
C) 11.26% 
D) 12.26% 
A) 9.26% 
B) 10.26% 
C) 11.26% 
D) 12.26%

Question 9

The fact that historical returns on Treasury bills are less volatile than common stock returns indicates that:

Accepted Answer

A) the variance of treasury bill returns is zero. 
B) the standard deviation of treasury bill returns is negative. 
C) the real return on treasury bills has been zero. 
D) common stocks should offer a higher return than treasury bills. 
A) the variance of treasury bill returns is zero. 
B) the standard deviation of treasury bill returns is negative. 
C) the real return on treasury bills has been zero. 
D) common stocks should offer a higher return than treasury bills.

Question 10

Standard deviation can be calculated as the square of the variance.

Accepted Answer

A) True 
 B)False

Question 11

Define the term "risk" and explain how it is related to the expected return.

Accepted Answer

Risk is the chance that the ac

Question 12

Cyclical stocks tend to perform well when other stocks are performing well also.

Accepted Answer

A) True 
 B)False

Question 13

Stock market indexes are found in several countries outside of Canada.

Accepted Answer

A) True 
 B)False

Question 14

The historical record fails to show that investors have received a risk premium for holding risky assets.

Accepted Answer

A) True 
 B)False

Question 15

The idea that investors in common stock may expect a lower total return when prices are relatively stable suggests that:

Accepted Answer

A) investors are irrational. 
B) risk premiums decline with inflation. 
C) real rates of return will be lower during periods of price stability. 
D) stocks should be avoided when inflation is low. 
A) investors are irrational. 
B) risk premiums decline with inflation. 
C) real rates of return will be lower during periods of price stability. 
D) stocks should be avoided when inflation is low.

Question 16

What is the percentage return on a stock that was purchased for $40.00 and paid a $3.00 dividend after one year, then sold for $39.00?

Accepted Answer

A) (2.50 percent) 
B) 2.50 percent 
C) 5.00 percent 
D) 7.50 percent 
A) (2.50 percent) 
B) 2.50 percent 
C) 5.00 percent 
D) 7.50 percent

Question 17

Why does diversification reduce risk?

Accepted Answer

The standard deviation of returns is gen

Question 18

Long-term corporate bonds are the only portfolio of securities found to be riskier than common stocks.

Accepted Answer

A) True 
 B)False

Question 19

Contrast the U.S.Dow Jones Industrial Average and the Standard & Poor's Composite Index on the issue of representativeness.

Accepted Answer

The Dow Jones Industrial Average contain

Question 20

Market risk can be eliminated in a stock portfolio through diversification.

Accepted Answer

A) True 
 B)False

Exam 11: Introduction to Risk, Return, and the Opportunity Cost of Capital

Discuss the relationship between risk and return.

Calculate the nominal rate if the real rate is 4.25% and the inflation rate is 3%.

Which statement is correct concerning macro risk exposure?

Averaging the deviations from the mean for a portfolio of securities will:

The addition of a negative risk asset to a portfolio of assets will:

What is the approximate variance of returns if over the past three years an investment returned 8.0 percent, -12.0 percent, and 15.0 percent?

An investor receives a 15 percent total return by purchasing a stock for $40 and selling it after one year with a 10 percent capital gain.How much was received in dividend income during the year?

What is the approximate standard deviation of returns if over the past four years an investment returned 8.0%, - 12.0%, - 12% and 15.0%?

The fact that historical returns on Treasury bills are less volatile than common stock returns indicates that:

Standard deviation can be calculated as the square of the variance.

Define the term "risk" and explain how it is related to the expected return.

Cyclical stocks tend to perform well when other stocks are performing well also.

Stock market indexes are found in several countries outside of Canada.

The historical record fails to show that investors have received a risk premium for holding risky assets.

The idea that investors in common stock may expect a lower total return when prices are relatively stable suggests that:

What is the percentage return on a stock that was purchased for $40.00 and paid a $3.00 dividend after one year, then sold for $39.00?

Why does diversification reduce risk?

Long-term corporate bonds are the only portfolio of securities found to be riskier than common stocks.

Contrast the U.S.Dow Jones Industrial Average and the Standard & Poor's Composite Index on the issue of representativeness.

Market risk can be eliminated in a stock portfolio through diversification.

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters