Question 1

New regulations concerning auto emissions would be a type of market risk for the auto industry.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is true regarding the cumulative wealth index?It:

Accepted Answer

A) is measured by adding up the total returns over the holding period and dividing by the investment. 
B) uses a beginning index value (often set to $1,but it can be set to any amount). 
C) is the present value of the future cash flows expected from the investment. 
D) uses the arithmetic mean as the rate of growth of one's wealth. 
A) is measured by adding up the total returns over the holding period and dividing by the investment. 
B) uses a beginning index value (often set to $1,but it can be set to any amount). 
C) is the present value of the future cash flows expected from the investment. 
D) uses the arithmetic mean as the rate of growth of one's wealth.

Question 3

If a U.S.investor buys foreign stock,his dollar-denominated return will increase if the dollar:

Accepted Answer

A) appreciates relative to the foreign currency. 
B) depreciates relative to the foreign currency. 
C) remains unchanged relative to the foreign currency. 
D) moves to a net gain position relative to all foreign currencies. 
A) appreciates relative to the foreign currency. 
B) depreciates relative to the foreign currency. 
C) remains unchanged relative to the foreign currency. 
D) moves to a net gain position relative to all foreign currencies.

Question 4

Over the past 50 years,which of the following financial assets showed the greatest amount of price volatility,as measured by standard deviation?

Accepted Answer

A) Small-cap stocks 
B) Large-cap stocks 
C) Treasury bonds 
D) Treasury bills 
A) Small-cap stocks 
B) Large-cap stocks 
C) Treasury bonds 
D) Treasury bills

Question 5

Total return is equal to:

Accepted Answer

A) capital gain + price change. 
B) yield + income. 
C) capital gain - loss. 
D) yield + price change. 
A) capital gain + price change. 
B) yield + income. 
C) capital gain - loss. 
D) yield + price change.

Question 6

The less the variability of return,the greater the risk.

Accepted Answer

A) True 
 B)False

Question 7

Political stability is the major factor concerning:

Accepted Answer

A) exchange-rate risk. 
B) systematic risk. 
C) nonsystematic risk. 
D) country risk. 
A) exchange-rate risk. 
B) systematic risk. 
C) nonsystematic risk. 
D) country risk.

Question 8

Which of the following is not part of the yield component of total return?

Accepted Answer

A) Dividend payment on common stock 
B) Coupon interest payment on bonds 
C) Capital gain upon sale of stock 
D) Dividend payment on preferred stock 
A) Dividend payment on common stock 
B) Coupon interest payment on bonds 
C) Capital gain upon sale of stock 
D) Dividend payment on preferred stock

Question 9

Which of the following statements regarding the arithmetic mean and the geometric mean is true?

Accepted Answer

A) The arithmetic mean is always a better measure of average performance. 
B) The geometric mean is always a better measure of average performance. 
C) The arithmetic mean is a better measure of performance over single periods. 
D) The geometric mean is the best estimate of the expected return for the next period. 
A) The arithmetic mean is always a better measure of average performance. 
B) The geometric mean is always a better measure of average performance. 
C) The arithmetic mean is a better measure of performance over single periods. 
D) The geometric mean is the best estimate of the expected return for the next period.

Question 10

Holding interest rates constant,a narrowing of the equity risk premium implies a decline in the rate of return on stocks because the amount earned beyond the risk-free rate is reduced.

Accepted Answer

A) True 
 B)False

Question 11

Adding 1 to return produces the:

Accepted Answer

A) arithmetic mean. 
B) return relative. 
C) cumulative wealth index. 
D) geometric mean. 
A) arithmetic mean. 
B) return relative. 
C) cumulative wealth index. 
D) geometric mean.

Question 12

To calculate the return on a stock that pays a year-end dividend,an investor should:

Accepted Answer

A) divide the stock's sale price by its purchase price and subtract 1. 
B) add the dividend and sale price,divide by the purchase price and subtract 1. 
C) divide the sale price by the purchase price and add the dividend yield. 
D) divide all cash flows received by the selling price and subtract 1. 
A) divide the stock's sale price by its purchase price and subtract 1. 
B) add the dividend and sale price,divide by the purchase price and subtract 1. 
C) divide the sale price by the purchase price and add the dividend yield. 
D) divide all cash flows received by the selling price and subtract 1.

Question 13

What common variable is used in the calculation of both the cumulative wealth index and the geometric mean return?How is the common variable calculated?How is it used in each?

Accepted Answer

Return (R) is used in both calculations.

Question 14

Assume an investor purchases a bond when the Euro is quoted at $0.96 per Euro and sells the bond when the Euro is quoted at $1.12 per Euro.Relative to the dollar,the Euro has:

Accepted Answer

A) appreciated,and the investor has gained from the currency move. 
B) appreciated,and the investor has lost from the currency move. 
C) depreciated,and the investor has gained from the currency move. 
D) depreciated,and the investor has lost from the currency move. 
A) appreciated,and the investor has gained from the currency move. 
B) appreciated,and the investor has lost from the currency move. 
C) depreciated,and the investor has gained from the currency move. 
D) depreciated,and the investor has lost from the currency move.

Question 15

The most common measure of inflation is the Producer Price Index.

Accepted Answer

A) True 
 B)False

Question 16

As the dollar falls,

Accepted Answer

A) foreign investors owning U.S.stocks suffer. 
B) U.S.investors owning U.S.stocks suffer. 
C) U.S.investors owning foreign stocks suffer. 
D) foreign investors owning foreign stocks suffer. 
A) foreign investors owning U.S.stocks suffer. 
B) U.S.investors owning U.S.stocks suffer. 
C) U.S.investors owning foreign stocks suffer. 
D) foreign investors owning foreign stocks suffer.

Question 17

$\mathrm{TR}$ =$\begin{array}{c}
\mathrm{CF}_{\mathrm{t}}+\left(\mathrm{P}_{\mathrm{E}}-\mathrm{P}_{\mathrm{B}}\right) \
--------- \
\mathrm{P}_{\mathrm{B}}
\end{array}$ = $\begin{array}{c}
\mathrm{CF}_{t}+\mathrm{PC} \
--------- \
\mathrm{P}_{\mathrm{B}}
\end{array}$

Where
 =______________
$\mathrm { P } _ { \mathrm { E } }$=___________
$P _ B}$=_______________
PC=______________

Accepted Answer

cash flows during measurement

Question 18

The standard deviation of returns,calculated as the square root of the variance of returns,is a measure of total risk of an asset or portfolio.

Accepted Answer

A) True 
 B)False

Question 19

When should an investor use the arithmetic mean return?The geometric mean return?

Accepted Answer

The arithmetic mean is better for single

Question 20

Another name for a capital gain is yield.

Accepted Answer

A) True 
 B)False

Exam 6: The Risks and Returns From Investing

New regulations concerning auto emissions would be a type of market risk for the auto industry.

Which of the following is true regarding the cumulative wealth index?It:

If a U.S.investor buys foreign stock,his dollar-denominated return will increase if the dollar:

Over the past 50 years,which of the following financial assets showed the greatest amount of price volatility,as measured by standard deviation?

Total return is equal to:

The less the variability of return,the greater the risk.

Political stability is the major factor concerning:

Which of the following is not part of the yield component of total return?

Which of the following statements regarding the arithmetic mean and the geometric mean is true?

Holding interest rates constant,a narrowing of the equity risk premium implies a decline in the rate of return on stocks because the amount earned beyond the risk-free rate is reduced.

Adding 1 to return produces the:

To calculate the return on a stock that pays a year-end dividend,an investor should:

What common variable is used in the calculation of both the cumulative wealth index and the geometric mean return?How is the common variable calculated?How is it used in each?

Assume an investor purchases a bond when the Euro is quoted at $0.96 per Euro and sells the bond when the Euro is quoted at $1.12 per Euro.Relative to the dollar,the Euro has:

The most common measure of inflation is the Producer Price Index.

As the dollar falls,

TR\mathrm{TR}TR = + - --------- = + --------- Where =______________ PE\mathrm { P } _ { \mathrm { E } }PE​ =___________ P _ B} =_______________ PC=______________

The standard deviation of returns,calculated as the square root of the variance of returns,is a measure of total risk of an asset or portfolio.

When should an investor use the arithmetic mean return?The geometric mean return?

Another name for a capital gain is yield.

Understanding Investments

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Securities Markets and Market Indexes

How Securities Are Traded

Portfolio Theory

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Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economy Market Analysis

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Company Analysis

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Bond Yields

Bonds: Analysis and Strategy

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