Question 1

Which of the following is not a component of the risk premium?

Accepted Answer

A)  Business risk 
B)  Financial risk 
C)  Liquidity risk 
D)  Exchange rate risk 
E)  Unsystematic market risk 
A)  Business risk 
B)  Financial risk 
C)  Liquidity risk 
D)  Exchange rate risk 
E)  Unsystematic market risk

Question 2

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 the market portfolio.

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

Question 3

Nominal rates are averages of all possible real rates.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not a component of the required rate of return?

Accepted Answer

A)  Expected rate of inflation 
B)  Time value of money 
C)  Risk 
D)  Holding period return 
E)  All of the above are components of the required rate of return 
A)  Expected rate of inflation 
B)  Time value of money 
C)  Risk 
D)  Holding period return 
E)  All of the above are components of the required rate of return

Question 5

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 standard deviation of the annual rate of return for Stock Z.

Accepted Answer

A)  0.0070 
B)  0.0088 
C)  0.0837 
D)  0.0935 
E)  0.1145 
A)  0.0070 
B)  0.0088 
C)  0.0837 
D)  0.0935 
E)  0.1145

Question 6

The uncertainty of investment returns associated with how a firm finances its investments is known as

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 7

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 arithmetic mean annual yield for the investment in XMen Industries.

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 8

Two measures of the risk premium are the standard deviation and the variance.

Accepted Answer

A) True 
 B)False

Question 9

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 arithmetic mean annual rate of return for Stock Z.

Accepted Answer

A)  0.03 
B)  0.04 
C)  0.06 
D)  0.10 
E)  0.40 
A)  0.03 
B)  0.04 
C)  0.06 
D)  0.10 
E)  0.40

Question 10

An investment is the current commitment of dollars over time to derive future payments to compensate the investor for the time funds are committed,the expected rate of inflation and the uncertainty of future payments.

Accepted Answer

A) True 
 B)False

Question 11

The basic trade-off in the investment process is

Accepted Answer

A)  between the anticipated rate of return for a given investment instrument and its degree of risk. 
B)  between understanding the nature of a particular investment and having the opportunity to purchase it. 
C)  between high returns available on single instruments and the diversification of instruments into a portfolio. 
D)  between the desired level of investment and possessing the resources necessary to carry it out. 
E)  None of the above. 
A)  between the anticipated rate of return for a given investment instrument and its degree of risk. 
B)  between understanding the nature of a particular investment and having the opportunity to purchase it. 
C)  between high returns available on single instruments and the diversification of instruments into a portfolio. 
D)  between the desired level of investment and possessing the resources necessary to carry it out. 
E)  None of the above.

Question 12

The risk premium is a function of the volatility of operating earnings,sales volatility and inflation.

Accepted Answer

A) True 
 B)False

Question 13

The holding period return (HPR)is equal to the holding period yield (HPY)stated as a percentage.

Accepted Answer

A) True 
 B)False

Question 14

All of the following are major sources of uncertainty EXCEPT

Accepted Answer

A)  Business risk 
B)  Financial risk 
C)  Default risk 
D)  Country risk 
E)  Liquidity risk 
A)  Business risk 
B)  Financial risk 
C)  Default risk 
D)  Country risk 
E)  Liquidity risk

Question 15

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 2.

Accepted Answer

A)  5% 
B)  6% 
C)  7% 
D)  8% 
E)  10% 
A)  5% 
B)  6% 
C)  7% 
D)  8% 
E)  10%

Question 16

The variability of operating earnings 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 17

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 holding period return for the time period 3/1/1999 to 3/1/2004?

Accepted Answer

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

Question 18

In the phrase "nominal risk free rate," nominal means

Accepted Answer

A)  Computed. 
B)  Historical. 
C)  Market. 
D)  Average. 
E)  Risk adverse. 
A)  Computed. 
B)  Historical. 
C)  Market. 
D)  Average. 
E)  Risk adverse.

Question 19

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.Compute the coefficient of variation for your portfolio.

Accepted Answer

A)  0.043 
B)  0.12 
C)  1.40 
D)  0.69 
E)  1.04 
A)  0.043 
B)  0.12 
C)  1.40 
D)  0.69 
E)  1.04

Question 20

Use the Information Below for the Following Problem(S)
Assume that during the past year the consumer price index increased by 1.5 percent and the securities listed below returned the following nominal rates of return.
 $\begin{array}{c}
\begin{array}{l}
\text {U.S. Govermment T-bills}\
\text {U. S. Lonf-term bonfs}

\end{array}
\begin{array}{r}
2.75 \% \
4.75 \%
\end{array}
\end{array}$
-Refer to Exhibit 1.5.If next year the real rates all rise by 10 percent while inflation climbs from 1.5 percent to 2.5 percent,what will be the nominal rate of return on each security?

Accepted Answer

A)  1.24% and 1.52% 
B)  1.35% and 3.52% 
C)  3.89% and 6.11% 
D)  3.52% and 3.89% 
E)  1.17% and 6.11% 
A)  1.24% and 1.52% 
B)  1.35% and 3.52% 
C)  3.89% and 6.11% 
D)  3.52% and 3.89% 
E)  1.17% and 6.11%

Exam 1: An Overview of the Investment Process

Which of the following is not a component of the risk premium?

Nominal rates are averages of all possible real rates.

Which of the following is not a component of the required rate of return?

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 standard deviation of the annual rate of return for Stock Z.

The uncertainty of investment returns associated with how a firm finances its investments is known as

Two measures of the risk premium are the standard deviation and the variance.

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 arithmetic mean annual rate of return for Stock Z.

An investment is the current commitment of dollars over time to derive future payments to compensate the investor for the time funds are committed,the expected rate of inflation and the uncertainty of future payments.

The basic trade-off in the investment process is

The risk premium is a function of the volatility of operating earnings,sales volatility and inflation.

The holding period return (HPR)is equal to the holding period yield (HPY)stated as a percentage.

All of the following are major sources of uncertainty EXCEPT

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 2.

The variability of operating earnings is associated with

In the phrase "nominal risk free rate," nominal means

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