Question 1

Semi-variance only considers

Accepted Answer

A)  extreme variation 
B)  adverse variation 
C)  unexpected variation 
D)  anticipated variation 
A)  extreme variation 
B)  adverse variation 
C)  unexpected variation 
D)  anticipated variation

Question 2

What is the present value of a growing perpetuity with an initial cash flow of 1000 (C0), a growth rate of 3% per year (g), and a required rate of return of 8% (R)?

Accepted Answer

A)  $7777.64 
B)  $12,500 
C)  $20,000 
D)  $20,600 
A)  $7777.64 
B)  $12,500 
C)  $20,000 
D)  $20,600

Question 3

A sample of 100 observations has a standard deviation of 25 and a mean of 75. What is the 95% confidence interval?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 4

You bought 100 shares of stock at $35, received $3 per share in dividends, and sold the shares for $50. Your holding period return is

Accepted Answer

A)  36% 
B)  $1,503 
C)  51.4% 
D)  $5,300 
A)  36% 
B)  $1,503 
C)  51.4% 
D)  $5,300

Question 5

You buy a stock for $50 per share. Over the next four months, it has monthly returns of 4%, 5%, 2%, and -3%. The value of a share at the end of the fourth month is

Accepted Answer

A)  $51.20 
B)  $54.02 
C)  $54.12 
D)  $56.45 
A)  $51.20 
B)  $54.02 
C)  $54.12 
D)  $56.45

Question 6

The arithmetic mean is always _______ the geometric mean.

Accepted Answer

A)  greater than or equal to 
B)  greater than 
C)  less than or equal to 
D)  less than 
A)  greater than or equal to 
B)  greater than 
C)  less than or equal to 
D)  less than

Question 7

Technically, _____ refers to the past; _____ refers to the future.

Accepted Answer

A)  return, expected return 
B)  realized return, return 
C)  return relative, return 
D)  return, return relative 
A)  return, expected return 
B)  realized return, return 
C)  return relative, return 
D)  return, return relative

Question 8

The expected return on A is 12%; the expected return on B is 15%. What is the expected return of a portfolio that contains one-third A and the remainder B?

Accepted Answer

A)  12% 
B)  14% 
C)  15% 
D)  13.5% 
A)  12% 
B)  14% 
C)  15% 
D)  13.5%

Question 9

Using a discount rate of 8% per year (compounded quarterly), what is the present value of an ordinary annuity of $100 per year for 10 years?

Accepted Answer

A)  $726 
B)  $662 
C)  $811 
D)  $684 
A)  $726 
B)  $662 
C)  $811 
D)  $684

Question 10

Riskier securities have _____ returns.

Accepted Answer

A)  higher expected 
B)  lower realized 
C)  higher instantaneous 
D)  lower long-term 
A)  higher expected 
B)  lower realized 
C)  higher instantaneous 
D)  lower long-term

Question 11

A stock has monthly returns of 4%, 5%, 2%, and -3%. Its geometric average return is

Accepted Answer

A)  1.9% 
B)  2.1% 
C)  3.3% 
D)  cannot be determined 
A)  1.9% 
B)  2.1% 
C)  3.3% 
D)  cannot be determined

Question 12

The covariance between a random variable and a constant is

Accepted Answer

A)  negative 
B)  positive 
C)  zero 
D)  non-negative 
A)  negative 
B)  positive 
C)  zero 
D)  non-negative

Question 13

Discrete random variables are _____; continuous random variables are ______.

Accepted Answer

A)  quantifiable, unquantifiable 
B)  objective, subjective 
C)  counted, measured 
D)  dependent, independent 
A)  quantifiable, unquantifiable 
B)  objective, subjective 
C)  counted, measured 
D)  dependent, independent

Question 14

A perpetual cash flow stream makes its first payment of $500 in one year. Using a 7% annual discount rate and a 3% growth rate in the value of subsequent payments, what is the present value of this growing perpetuity?

Accepted Answer

A)  $2,000 
B)  $20,000 
C)  $12,500 
D)  $125,000 
A)  $2,000 
B)  $20,000 
C)  $12,500 
D)  $125,000

Question 15

Overall variability of returns is called

Accepted Answer

A)  systematic risk 
B)  unsystematic risk 
C)  total risk 
D)  undiversifiable risk 
A)  systematic risk 
B)  unsystematic risk 
C)  total risk 
D)  undiversifiable risk

Question 16

A tilde (~) over a symbol indicates it is a

Accepted Answer

A)  random variable 
B)  constant 
C)  continuous random variable 
D)  discrete random variable 
A)  random variable 
B)  constant 
C)  continuous random variable 
D)  discrete random variable

Question 17

The correct method for measuring the average return over several periods in the past is with a(n)

Accepted Answer

A)  geometric mean 
B)  arithmetic mean 
C)  statistical mean 
D)  multiple variation mean 
A)  geometric mean 
B)  arithmetic mean 
C)  statistical mean 
D)  multiple variation mean

Question 18

Which of the following is true of the holding period return?

Accepted Answer

A)  It considers the time value of money 
B)  It is independent of the passage of time 
C)  It explicitly considers risk 
D)  It only considers capital gains or losses 
A)  It considers the time value of money 
B)  It is independent of the passage of time 
C)  It explicitly considers risk 
D)  It only considers capital gains or losses

Question 19

A jar contains 100 quarters, 50 dimes, and 50 nickels. What is the expected value of a single observation from this coin population?

Accepted Answer

A)  $0.375 
B)  $0.200 
C)  $0.133 
D)  $0.163 
A)  $0.375 
B)  $0.200 
C)  $0.133 
D)  $0.163

Question 20

A coin-flipping experiment in which you measure heads or tails takes observations from a _____ distribution.

Accepted Answer

A)  chi-square 
B)  exponential 
C)  Poisson 
D)  binomial 
A)  chi-square 
B)  exponential 
C)  Poisson 
D)  binomial

Exam 2: Valuation, Risk, Return, and Uncertainty

Semi-variance only considers

What is the present value of a growing perpetuity with an initial cash flow of 1000 (C0), a growth rate of 3% per year (g), and a required rate of return of 8% (R)?

A sample of 100 observations has a standard deviation of 25 and a mean of 75. What is the 95% confidence interval?

You bought 100 shares of stock at $35, received $3 per share in dividends, and sold the shares for $50. Your holding period return is

You buy a stock for $50 per share. Over the next four months, it has monthly returns of 4%, 5%, 2%, and -3%. The value of a share at the end of the fourth month is

The arithmetic mean is always _______ the geometric mean.

Technically, _____ refers to the past; _____ refers to the future.

The expected return on A is 12%; the expected return on B is 15%. What is the expected return of a portfolio that contains one-third A and the remainder B?

Using a discount rate of 8% per year (compounded quarterly), what is the present value of an ordinary annuity of $100 per year for 10 years?

Riskier securities have _____ returns.

A stock has monthly returns of 4%, 5%, 2%, and -3%. Its geometric average return is

The covariance between a random variable and a constant is

Discrete random variables are _____; continuous random variables are ______.

A perpetual cash flow stream makes its first payment of $500 in one year. Using a 7% annual discount rate and a 3% growth rate in the value of subsequent payments, what is the present value of this growing perpetuity?

Overall variability of returns is called

A tilde (~) over a symbol indicates it is a

The correct method for measuring the average return over several periods in the past is with a(n)

Which of the following is true of the holding period return?

A jar contains 100 quarters, 50 dimes, and 50 nickels. What is the expected value of a single observation from this coin population?

A coin-flipping experiment in which you measure heads or tails takes observations from a _____ distribution.

The Process of Portfolio Management

Setting Portfolio Objectives

Investment Policy

The Mathematics of Diversification

Why Diversification Is a Good Idea

International Investment and Diversification

The Capital Markets and Market Efficiency

Picking the Equity Players

Equity Valuation Tools

Security Screening

Bond Pricing and Selection

The Role of Real Assets

Alternative Assets

Revision of the Equity Portfolio

Revision of the Fixed-Income Portfolio

Principles of Options and Option Pricing

Option Overwriting

Performance Evaluation

Fiduciary Duties and Responsibilities

Principles of the Futures Market

Benching the Equity Players

Removing Interest Rate Risk

Integrating Derivative Assets and Portfolio Management

Contemporary Issues in Portfolio Management

Filters

What is the present value of a growing perpetuity with an initial cash flow of 1000 (C₀), a growth rate of 3% per year (g), and a required rate of return of 8% (R)?

Technically, _ refers to the past; _ refers to the future.

Discrete random variables are _; continuous random variables are __.