Question 1

Macro risks are faced by all common stock investors.

Accepted Answer

A) True 
 B)False

Question 2

Sue purchased a stock for $25 a share,held it for one year,received a $1.34 dividend,and sold the stock for $26.45.What nominal rate of return did she earn?

Accepted Answer

A)  11.16% 
B)  14.23% 
C)  12.09% 
D)  10.55% 
A)  11.16% 
B)  14.23% 
C)  12.09% 
D)  10.55%

Question 3

Which one of the following risks would be classified as a specific risk for an auto manufacturer?

Accepted Answer

A)  Interest rates 
B)  Delays in launching a new model 
C)  Business cycles 
D)  Foreign exchange rates 
A)  Interest rates 
B)  Delays in launching a new model 
C)  Business cycles 
D)  Foreign exchange rates

Question 4

An investor holds a stock for one year.She then receives a dividend of $10 and sells the stock for $120.If her return was 16%,at what price did she buy the stock?

Accepted Answer

A)  $103.45 
B)  $64.80 
C)  $139.20 
D)  $112.07 
A)  $103.45 
B)  $64.80 
C)  $139.20 
D)  $112.07

Question 5

What is the expected return on a portfolio that will decline in value by 13% in a recession,will increase by 16% in normal times,and will increase by 23% during boom times? Each scenario has an equal likelihood of occurrence.

Accepted Answer

A)  8.67% 
B)  13.00% 
C)  13.43% 
D)  17.33% 
A)  8.67% 
B)  13.00% 
C)  13.43% 
D)  17.33%

Question 6

What is the percentage return on a stock that was purchased for $48.40,paid a $1.67 dividend,and was then sold after one year for $46.20?

Accepted Answer

A)  −2.50% 
B)  −1.10% 
C)  0.23% 
D)  −0.33% 
A)  −2.50% 
B)  −1.10% 
C)  0.23% 
D)  −0.33%

Question 7

A project's expected return is 15%,which represents a 35% return in a boom and a 5% return in a stagnant economy.What is the probability of a boom if these are the only two economic states?

Accepted Answer

A)  18.33% 
B)  25.00% 
C)  33.33% 
D)  50.00% 
A)  18.33% 
B)  25.00% 
C)  33.33% 
D)  50.00%

Question 8

The actual real rate of return on an investment will be positive as long as the:

Accepted Answer

A)  nominal return is positive. 
B)  inflation rate is positive. 
C)  nominal return exceeds the inflation rate. 
D)  inflation rate exceeds the real return. 
A)  nominal return is positive. 
B)  inflation rate is positive. 
C)  nominal return exceeds the inflation rate. 
D)  inflation rate exceeds the real return.

Question 9

Averaging the deviations from the mean for a portfolio of securities will:

Accepted Answer

A)  compute the standard deviation. 
B)  compute the variance. 
C)  equal zero. 
D)  equal the number of securities in the portfolio. 
A)  compute the standard deviation. 
B)  compute the variance. 
C)  equal zero. 
D)  equal the number of securities in the portfolio.

Question 10

Every additional stock added to a portfolio reduces the portfolio's level of risk by an equal amount.

Accepted Answer

A) True 
 B)False

Question 11

If the toss of a coin comes down heads,you win a dollar.If it comes down tails,you lose fifty cents.How much would you expect to gain after 20 tosses?

Accepted Answer

A)  $5.00 
B)  $7.50 
C)  $10.00 
D)  $15.00 
A)  $5.00 
B)  $7.50 
C)  $10.00 
D)  $15.00

Question 12

Periods of market decline are called:

Accepted Answer

A)  discount factors. 
B)  bull markets. 
C)  coupons. 
D)  bear markets. 
A)  discount factors. 
B)  bull markets. 
C)  coupons. 
D)  bear markets.

Question 13

The incremental risk to a portfolio from adding another stock:

Accepted Answer

A)  is always greater than the average portfolio risk. 
B)  is always less than the average portfolio risk. 
C)  is always positive. 
D)  may be either positive or negative. 
A)  is always greater than the average portfolio risk. 
B)  is always less than the average portfolio risk. 
C)  is always positive. 
D)  may be either positive or negative.

Question 14

A share of stock currently sells for $60,pays an annual dividend of $4.00,and earned a rate of return of 20% over the past year.What did this stock sell for one year ago?

Accepted Answer

A)  $42.00 
B)  $46.15 
C)  $48.46 
D)  $53.33 
A)  $42.00 
B)  $46.15 
C)  $48.46 
D)  $53.33

Question 15

Over a 20-year period an investment of $1,000 in common stocks returned an average of 11% in nominal terms and 4% in real terms.At the end of the 20 years,the portfolio value was:

Accepted Answer

A)  $1,800 in real terms. 
B)  $3,679.19 in real terms. 
C)  $7,870.59 in nominal terms. 
D)  $8,062.31 in nominal terms. 
A)  $1,800 in real terms. 
B)  $3,679.19 in real terms. 
C)  $7,870.59 in nominal terms. 
D)  $8,062.31 in nominal terms.

Question 16

How is it possible for real rates of return to increase during times when the rate of inflation increases?

Accepted Answer

A)  Inflation increased more than the real return. 
B)  Nominal returns actually decreased. 
C)  Nominal returns increased more than inflation. 
D)  Nominal returns increased less than inflation. 
A)  Inflation increased more than the real return. 
B)  Nominal returns actually decreased. 
C)  Nominal returns increased more than inflation. 
D)  Nominal returns increased less than inflation.

Question 17

Average returns on high-risk assets are higher than those on low-risk assets.

Accepted Answer

A) True 
 B)False

Question 18

The higher the standard deviation of a stock's returns,the:

Accepted Answer

A)  lower the level of specific risk. 
B)  lower the expected rate of return. 
C)  higher the accuracy of predictions of the stock's return for any given year. 
D)  wider the dispersion of those returns over time. 
A)  lower the level of specific risk. 
B)  lower the expected rate of return. 
C)  higher the accuracy of predictions of the stock's return for any given year. 
D)  wider the dispersion of those returns over time.

Question 19

In general,which stocks should be combined into a portfolio if the goal is the greatest reduction possible in overall portfolio risk?

Accepted Answer

A)  Stocks with returns that are positively correlated 
B)  Stocks with returns that are not correlated 
C)  Stocks with returns that have the highest specific risk 
D)  Stocks that have the highest expected returns 
A)  Stocks with returns that are positively correlated 
B)  Stocks with returns that are not correlated 
C)  Stocks with returns that have the highest specific risk 
D)  Stocks that have the highest expected returns

Question 20

Which one of the following guarantees is offered to common stock investors?

Accepted Answer

A)  Guarantee to receive dividends 
B)  Guarantee to receive capital gains 
C)  Guarantee only to receive a refund of principal 
D)  No guarantees of any form 
A)  Guarantee to receive dividends 
B)  Guarantee to receive capital gains 
C)  Guarantee only to receive a refund of principal 
D)  No guarantees of any form

Exam 11: Introduction to Risk, Return, and the Opportunity Cost of Capital

Macro risks are faced by all common stock investors.

Sue purchased a stock for $25 a share,held it for one year,received a $1.34 dividend,and sold the stock for $26.45.What nominal rate of return did she earn?

Which one of the following risks would be classified as a specific risk for an auto manufacturer?

An investor holds a stock for one year.She then receives a dividend of $10 and sells the stock for $120.If her return was 16%,at what price did she buy the stock?

What is the expected return on a portfolio that will decline in value by 13% in a recession,will increase by 16% in normal times,and will increase by 23% during boom times? Each scenario has an equal likelihood of occurrence.

What is the percentage return on a stock that was purchased for $48.40,paid a $1.67 dividend,and was then sold after one year for $46.20?

A project's expected return is 15%,which represents a 35% return in a boom and a 5% return in a stagnant economy.What is the probability of a boom if these are the only two economic states?

The actual real rate of return on an investment will be positive as long as the:

Averaging the deviations from the mean for a portfolio of securities will:

Every additional stock added to a portfolio reduces the portfolio's level of risk by an equal amount.

If the toss of a coin comes down heads,you win a dollar.If it comes down tails,you lose fifty cents.How much would you expect to gain after 20 tosses?

Periods of market decline are called:

The incremental risk to a portfolio from adding another stock:

A share of stock currently sells for $60,pays an annual dividend of $4.00,and earned a rate of return of 20% over the past year.What did this stock sell for one year ago?

Over a 20-year period an investment of $1,000 in common stocks returned an average of 11% in nominal terms and 4% in real terms.At the end of the 20 years,the portfolio value was:

How is it possible for real rates of return to increase during times when the rate of inflation increases?

Average returns on high-risk assets are higher than those on low-risk assets.

The higher the standard deviation of a stock's returns,the:

In general,which stocks should be combined into a portfolio if the goal is the greatest reduction possible in overall portfolio risk?

Which one of the following guarantees is offered to common stock investors?

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Risk,Return,and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers,Acquisitions,and Corporate Control

International Financial Management

Options

Risk Management

Filters