Question 1

The coefficient of variation is a measure of

Accepted Answer

A)  Central tendency. 
B)  Absolute variability. 
C)  Absolute dispersion. 
D)  Relative variability. 
E)  Relative return. 
A)  Central tendency. 
B)  Absolute variability. 
C)  Absolute dispersion. 
D)  Relative variability. 
E)  Relative return. D

Question 2

A decrease in the expected real growth in the economy,all other things constant,will cause the security market line to

Accepted Answer

A)  Shift up 
B)  Shift down 
C)  Have a steeper slope 
D)  Have a flatter slope 
E)  Remain unchanged 
A)  Shift up 
B)  Shift down 
C)  Have a steeper slope 
D)  Have a flatter slope 
E)  Remain unchanged B

Question 3

Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of interest.

Accepted Answer

A) True 
 B)False  False

Question 4

Use the Information Below for the Following Problem(S)
Assume that you hold a two stock portfolio. You are provided with the following information on your holdings:
 $$\begin{array} { c c c c } 
\text { stack } & \text { shares } & \text { Price(t) } & \text { Price } ( \mathrm { t } + 1 ) \
\hline 1 & 15 & 10 & 12 \
2 & 25 & 15 & 16
\end{array}$$
-Refer to Exhibit 1.8.Calculate the market weights for stock 1 and 2 based on period t values.

Accepted Answer

A)  39% for stock 1 and 61% for stock 2 
B)  50% for stock 1 and 50% for stock 2 
C)  71% for stock 1 and 29% for stock 2 
D)  29% for stock 1 and 71% for stock 2 
E)  None of the above 
A)  39% for stock 1 and 61% for stock 2 
B)  50% for stock 1 and 50% for stock 2 
C)  71% for stock 1 and 29% for stock 2 
D)  29% for stock 1 and 71% for stock 2 
E)  None of the above

Question 5

Economists project the long-run real growth rate for the next five years to be 2.5 percent and the average annual rate of inflation over this five year period to be 3 percent.What is the expected nominal rate of return over the next five years?

Accepted Answer

A)  0.500 percent 
B)  1.056 percent 
C)  2.750 percent 
D)  5.500 percent 
E)  5.575 percent 
A)  0.500 percent 
B)  1.056 percent 
C)  2.750 percent 
D)  5.500 percent 
E)  5.575 percent

Question 6

Use the Information Below for the Following Problem(S)
The annual rates of return of Stock Z for the last four years are 0.10, 0.15, -0.05, and 0.20, respectively.
-Refer to Exhibit 1.10.Compute the geometric mean rate of return for Stock Z.

Accepted Answer

A)  0.051 
B)  0.074 
C)  0.096 
D)  0.150 
E)  1.090 
A)  0.051 
B)  0.074 
C)  0.096 
D)  0.150 
E)  1.090

Question 7

Use the Information Below for the Following Problem(S)
Consider the following information
Nominal annual return on U.S. government T-bills for year 2009 = 3.5%
Nominal annual return on U.S. government long-term bonds for year 2009 = 4.75%
Nominal annual return on U.S. large-cap stocks for year 2009= 8.75%
Consumer price index January 1, 2009 = 165
Consumer price index December 31, 2009 = 169
-Refer to Exhibit 1.7.Calculate the annual real rate of return for U.S.long-term bonds.

Accepted Answer

A)  3.06% 
B)  2.27% 
C)  2.51% 
D)  3.5% 
E)  None of the above 
A)  3.06% 
B)  2.27% 
C)  2.51% 
D)  3.5% 
E)  None of the above

Question 8

Use the Information Below for the Following Problem(S)
Suppose you bought a GM corporate bond on January 25, 2001 for $750, on January 25, 2004 sold it for $650.00.
-Refer to Exhibit 1.2.What was your annual holding period yield?

Accepted Answer

A)  -0.0466 
B)  -0.1333 
C)  0.0333 
D)  0.3534 
E)  0.8667 
A)  -0.0466 
B)  -0.1333 
C)  0.0333 
D)  0.3534 
E)  0.8667

Question 9

Use the Information Below for the Following Problem(S)
The common stock of XMen Inc. had the following historic prices.
 $$\begin{array} { c c } 
\text { Time } & \text { Price af 2-Tech } \
\hline 3 / 01 / 1999 & 50.00 \
3 / 01 / 2000 & 47.00 \
3 / 01 / 2001 & 76.00 \
3 / 01 / 2002 & 8000 \
3 / 01 / 2003 & 85.00 \
3 / 01 / 2004 & 90.00
\end{array}$$
-Refer to Exhibit 1.3.What was your geometric mean annual yield for the investment in XMen?

Accepted Answer

A)  0.25 
B)  0.40 
C)  1.8 
D)  0.1247 
E)  0.1462 
A)  0.25 
B)  0.40 
C)  1.8 
D)  0.1247 
E)  0.1462

Question 10

The nominal risk free rate of interest is a function of

Accepted Answer

A)  The real risk free rate and the investment's variance. 
B)  The prime rate and the rate of inflation. 
C)  The T-bill rate plus the inflation rate. 
D)  The tax free rate plus the rate of inflation. 
E)  The real risk free rate and the rate of inflation. 
A)  The real risk free rate and the investment's variance. 
B)  The prime rate and the rate of inflation. 
C)  The T-bill rate plus the inflation rate. 
D)  The tax free rate plus the rate of inflation. 
E)  The real risk free rate and the rate of inflation.

Question 11

The variance of expected returns is equal to the square root of the expected returns.

Accepted Answer

A) True 
 B)False

Question 12

An individual who selects the investment that offers greater certainty when everything else is the same is known as a risk averse investor.

Accepted Answer

A) True 
 B)False

Question 13

Use the Information Below for the Following Problem(S)
The annual rates of return of Stock Z for the last four years are 0.10, 0.15, -0.05, and 0.20, respectively.
-Refer to Exhibit 1.10.Compute the coefficient of variation for Stock Z.

Accepted Answer

A)  0.837 
B)  0.935 
C)  1.070 
D)  1.145 
E)  1.281 
A)  0.837 
B)  0.935 
C)  1.070 
D)  1.145 
E)  1.281

Question 14

Sources of risk for an investment include

Accepted Answer

A)  Variance of returns and business risk 
B)  Coefficient of variation of returns and financial risk 
C)  Business risk and financial risk 
D)  Variance of returns and coefficient of variation of returns 
E)  All of the above 
A)  Variance of returns and business risk 
B)  Coefficient of variation of returns and financial risk 
C)  Business risk and financial risk 
D)  Variance of returns and coefficient of variation of returns 
E)  All of the above

Question 15

The ____ the variance of returns,everything else remaining constant,the ____ the dispersion of expectations and the ____ the risk.

Accepted Answer

A)  Larger, greater, lower 
B)  Larger, smaller, higher 
C)  Larger, greater, higher 
D)  Smaller, greater, lower 
E)  Smaller, greater, greater 
A)  Larger, greater, lower 
B)  Larger, smaller, higher 
C)  Larger, greater, higher 
D)  Smaller, greater, lower 
E)  Smaller, greater, greater

Question 16

The expected return is the average of all possible returns.

Accepted Answer

A) True 
 B)False

Question 17

Use the Information Below for the Following Problem(S)
Suppose you bought a GM corporate bond on January 25, 2001 for $750, on January 25, 2004 sold it for $650.00.
-Refer to Exhibit 1.2.What was your annual holding period return?

Accepted Answer

A)  0.8667 
B)  -0.1333 
C)  0.0333 
D)  0.9534 
E)  -0.0466 
A)  0.8667 
B)  -0.1333 
C)  0.0333 
D)  0.9534 
E)  -0.0466

Question 18

Unsystematic risk refers to risk that is

Accepted Answer

A)  Undiversifiable 
B)  Diversifiable 
C)  Due to fundamental risk factors 
D)  Due to market risk 
E)  None of the above 
A)  Undiversifiable 
B)  Diversifiable 
C)  Due to fundamental risk factors 
D)  Due to market risk 
E)  None of the above

Question 19

The rate of exchange between certain future dollars and certain current dollars is known as the pure rate of interest.

Accepted Answer

A) True 
 B)False

Question 20

Use the Information Below for the Following Problem(S)
You have concluded that next year the following relationships are possible:
 $$\begin{array} { l c c } 
\text { Esanamic Status } & \text { Prabability } & \text { Rate of Return } \
\hline \text { Weak Economy } & .15 & - 5 \% \
\text { Static Ecanomy } & .60 & 5 \% \
\text { Strane Ecanamy } & 25 & 15 \%
\end{array}$$
-Refer to Exhibit 1.4.What is your expected rate of return [E(Rᵢ)] for next year?

Accepted Answer

A)  4.25% 
B)  6.00% 
C)  6.25% 
D)  7.75% 
E)  8.00% 
A)  4.25% 
B)  6.00% 
C)  6.25% 
D)  7.75% 
E)  8.00%

Exam 1: An Overview of the Investment Process

The coefficient of variation is a measure of

A decrease in the expected real growth in the economy,all other things constant,will cause the security market line to

Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of interest.

Economists project the long-run real growth rate for the next five years to be 2.5 percent and the average annual rate of inflation over this five year period to be 3 percent.What is the expected nominal rate of return over the next five years?

Use the Information Below for the Following Problem(S) The annual rates of return of Stock Z for the last four years are 0.10, 0.15, -0.05, and 0.20, respectively. -Refer to Exhibit 1.10.Compute the geometric mean rate of return for Stock Z.

Use the Information Below for the Following Problem(S) Suppose you bought a GM corporate bond on January 25, 2001 for $750, on January 25, 2004 sold it for $650.00. -Refer to Exhibit 1.2.What was your annual holding period yield?

The nominal risk free rate of interest is a function of

The variance of expected returns is equal to the square root of the expected returns.

An individual who selects the investment that offers greater certainty when everything else is the same is known as a risk averse investor.

Use the Information Below for the Following Problem(S) The annual rates of return of Stock Z for the last four years are 0.10, 0.15, -0.05, and 0.20, respectively. -Refer to Exhibit 1.10.Compute the coefficient of variation for Stock Z.

Sources of risk for an investment include

The ____ the variance of returns,everything else remaining constant,the ____ the dispersion of expectations and the ____ the risk.

The expected return is the average of all possible returns.

Use the Information Below for the Following Problem(S) Suppose you bought a GM corporate bond on January 25, 2001 for $750, on January 25, 2004 sold it for $650.00. -Refer to Exhibit 1.2.What was your annual holding period return?

Unsystematic risk refers to risk that is

The rate of exchange between certain future dollars and certain current dollars is known as the pure rate of interest.

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

Filters

The the variance of returns,everything else remaining constant,the the dispersion of expectations and the the risk.