Question 1

Modern portfolio theory assumes that most investors are

Accepted Answer

A)  Risk averse 
B)  Risk neutral 
C)  Risk seekers 
D)  Risk tolerant 
E)  None of the above 
A)  Risk averse 
B)  Risk neutral 
C)  Risk seekers 
D)  Risk tolerant 
E)  None of the above

Question 2

The real risk-free rate is affected by a two factors;

Accepted Answer

A)  The relative ease or tightness in capital markets and the expected rate of inflation. 
B)  The expected rate of inflation and the set of investment opportunities available in the economy. 
C)  The relative ease or tightness in capital markets and the set of investment opportunities available in the economy. 
D)  Time preference for income consumption and the relative ease or tightness in capital markets. 
E)  Time preference for income consumption and the set of investment opportunities available in the economy. 
A)  The relative ease or tightness in capital markets and the expected rate of inflation. 
B)  The expected rate of inflation and the set of investment opportunities available in the economy. 
C)  The relative ease or tightness in capital markets and the set of investment opportunities available in the economy. 
D)  Time preference for income consumption and the relative ease or tightness in capital markets. 
E)  Time preference for income consumption and the set of investment opportunities available in the economy.

Question 3

The two most common calculations investors use to measure return performance are arithmetic means and geometric means.

Accepted Answer

A) True 
 B)False

Question 4

Measures 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 5

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.large-cap stocks.

Accepted Answer

A)  7.06% 
B)  6.18% 
C)  4.75% 
D)  3.75% 
E)  None of the above 
A)  7.06% 
B)  6.18% 
C)  4.75% 
D)  3.75% 
E)  None of the above

Question 6

If a significant change is noted in the yield of a T-bill,the change is most likely attributable to

Accepted Answer

A)  A downturn in the economy. 
B)  A static economy. 
C)  A change in the expected rate of inflation. 
D)  A change in the real rate of interest. 
E)  A change in risk aversion. 
A)  A downturn in the economy. 
B)  A static economy. 
C)  A change in the expected rate of inflation. 
D)  A change in the real rate of interest. 
E)  A change in risk aversion.

Question 7

Use the Information Below for the Following Problem(S)
You purchased 100 shares of GE common stock on January 1, for $29 a share. A year later you received $1.25 in dividends per share and you sold it for $28 a share.
-Refer to Exhibit 1.9.Calculate your holding period yield (HPY)for this investment in GE stock.

Accepted Answer

A)  -0.0345 
B)  -0.0090 
C)  0.0086 
D)  0.0643 
E)  0.0804 
A)  -0.0345 
B)  -0.0090 
C)  0.0086 
D)  0.0643 
E)  0.0804

Question 8

The security market line (SML)graphs the expected relationship between

Accepted Answer

A)  Business risk and financial risk 
B)  Systematic risk and unsystematic risk 
C)  Risk and return 
D)  Systematic risk and unsystematic return 
E)  None of the above 
A)  Business risk and financial risk 
B)  Systematic risk and unsystematic risk 
C)  Risk and return 
D)  Systematic risk and unsystematic return 
E)  None of the above

Question 9

The ability to sell an asset quickly at a fair price is associated with

Accepted Answer

A)  Business risk. 
B)  Liquidity risk. 
C)  Exchange rate risk. 
D)  Financial risk. 
E)  Market risk. 
A)  Business risk. 
B)  Liquidity risk. 
C)  Exchange rate risk. 
D)  Financial risk. 
E)  Market risk.

Question 10

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 annual holding period yield (Annual HPY)?

Accepted Answer

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

Question 11

A decrease in the market risk premium,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

Question 12

Two factors that influence the nominal risk-free rate are;

Accepted Answer

A)  The relative ease or tightness in capital markets and the expected rate of inflation. 
B)  The expected rate of inflation and the set of investment opportunities available in the economy. 
C)  The relative ease or tightness in capital markets and the set of investment opportunities available in the economy. 
D)  Time preference for income consumption and the relative ease or tightness in capital markets. 
E)  Time preference for income consumption and the set of investment opportunities available in the economy. 
A)  The relative ease or tightness in capital markets and the expected rate of inflation. 
B)  The expected rate of inflation and the set of investment opportunities available in the economy. 
C)  The relative ease or tightness in capital markets and the set of investment opportunities available in the economy. 
D)  Time preference for income consumption and the relative ease or tightness in capital markets. 
E)  Time preference for income consumption and the set of investment opportunities available in the economy.

Question 13

Use the Information Below for the Following Problem(S)
You purchased 100 shares of GE common stock on January 1, for $29 a share. A year later you received $1.25 in dividends per share and you sold it for $28 a share.
-Refer to Exhibit 1.9.Calculate your holding period return (HPR)for this investment in GE stock.

Accepted Answer

A)  0.9655 
B)  1.0086 
C)  1.0357 
D)  1.0804 
E)  1.0973 
A)  0.9655 
B)  1.0086 
C)  1.0357 
D)  1.0804 
E)  1.0973

Question 14

Use the Information Below for the Following Problem(S)
Assume you bought 100 shares of NewTech common stock on January 15, 2003 at $50.00 per share and sold it on January 15, 2004 for $40.00 per share.
-Refer to Exhibit 1.1.What was your holding period return?

Accepted Answer

A)  -10% 
B)  -0.8 
C)  25% 
D)  0.8 
E)  -20% 
A)  -10% 
B)  -0.8 
C)  25% 
D)  0.8 
E)  -20%

Question 15

The coefficient of variation is the expected return divided by the standard deviation of the expected return.

Accepted Answer

A) True 
 B)False

Question 16

Given investments A and B with the following risk return characteristics,which one would you prefer and why?
$\begin{array}{ccc}
\text { Investment } & \text { Expected Retumn } & \begin{array}{c}
\text { Standard Deviation } \
\text { of Expected Returns }
\end{array} \
\hline \mathrm{A} & 12.2 \% & 7 \% \
\mathrm{R} & 8.8 \% & 5 \%
\end{array}$

Accepted Answer

A)  Investment A because it has the highest expected return. 
B)  Investment A because it has the lowest relative risk. 
C)  Investment B because it has the lowest absolute risk. 
D)  Investment B because it has the lowest coefficient of variation. 
E)  Investment A because it has the highest coefficient of variation. 
A)  Investment A because it has the highest expected return. 
B)  Investment A because it has the lowest relative risk. 
C)  Investment B because it has the lowest absolute risk. 
D)  Investment B because it has the lowest coefficient of variation. 
E)  Investment A because it has the highest coefficient of variation.

Question 17

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 HPY for the portfolio.

Accepted Answer

A)  10.6% 
B)  6.95% 
C)  13.5% 
D)  10% 
E)  15.7% 
A)  10.6% 
B)  6.95% 
C)  13.5% 
D)  10% 
E)  15.7%

Question 18

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.Compute the rate of inflation for the year 2009.

Accepted Answer

A)  2.42% 
B)  4.0% 
C)  1.69% 
D)  1.24% 
E)  None of the above 
A)  2.42% 
B)  4.0% 
C)  1.69% 
D)  1.24% 
E)  None of the above

Question 19

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 HPY for stock 1.

Accepted Answer

A)  10% 
B)  20% 
C)  15% 
D)  12% 
E)  7% 
A)  10% 
B)  20% 
C)  15% 
D)  12% 
E)  7%

Question 20

Use the Information Below for the Following Problem(S)
You are provided with the following information:
Nominal return on risk-free asset = 4.5%
Expected return for asset i = 12.75%
Expected return on the market portfolio = 9.25%
-Refer to Exhibit 1.6.Calculate the risk premium for asset i.

Accepted Answer

A)  4.5% 
B)  8.25% 
C)  4.75% 
D)  3.5% 
E)  None of the above 
A)  4.5% 
B)  8.25% 
C)  4.75% 
D)  3.5% 
E)  None of the above

Exam 1: An Overview of the Investment Process

Modern portfolio theory assumes that most investors are

The real risk-free rate is affected by a two factors;

The two most common calculations investors use to measure return performance are arithmetic means and geometric means.

Measures of risk for an investment include

If a significant change is noted in the yield of a T-bill,the change is most likely attributable to

The security market line (SML)graphs the expected relationship between

The ability to sell an asset quickly at a fair price is associated with

A decrease in the market risk premium,all other things constant,will cause the security market line to

Two factors that influence the nominal risk-free rate are;

Use the Information Below for the Following Problem(S) Assume you bought 100 shares of NewTech common stock on January 15, 2003 at $50.00 per share and sold it on January 15, 2004 for $40.00 per share. -Refer to Exhibit 1.1.What was your holding period return?

The coefficient of variation is the expected return divided by the standard deviation of the expected return.

Given investments A and B with the following risk return characteristics,which one would you prefer and why? Investment Expected Retumn Standard Deviation of Expected Returns 12.2\% 7\% 8.8\% 5\%

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: stack shares Price(t) Price (+1) 1 15 10 12 2 25 15 16 -Refer to Exhibit 1.8.Calculate the HPY for the portfolio.

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: stack shares Price(t) Price (+1) 1 15 10 12 2 25 15 16 -Refer to Exhibit 1.8.Calculate the HPY for stock 1.

Use the Information Below for the Following Problem(S) You are provided with the following information: Nominal return on risk-free asset = 4.5% Expected return for asset i = 12.75% Expected return on the market portfolio = 9.25% -Refer to Exhibit 1.6.Calculate the risk premium for asset i.

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

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