Question 1

If an investment provides a 2% return semi-annually, its effective annual rate is

Accepted Answer

A)  2%. 
B)  4%. 
C)  4.02%. 
D)  4.04%. 
E)  None of the options are correct. 
A)  2%. 
B)  4%. 
C)  4.02%. 
D)  4.04%. 
E)  None of the options are correct.

Question 2

If a portfolio had a return of 15%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 30%, the Sharpe measure would be

Accepted Answer

A)  0.20. 
B)  0.35. 
C)  0.45. 
D)  0.33. 
E)  0.25. 
A)  0.20. 
B)  0.35. 
C)  0.45. 
D)  0.33. 
E)  0.25.

Question 3

You have been given this probability distribution for the holding-period return for a stock: $$\begin{array} { l c c } 
\text { Stock of the Economy } & \text { Probability } & \text { HPR } \
\text { Boom } & 0.40 & 22 \% \
\text { Normal growth } & 0.35 & 11 \% \
\text { Recession } & 0.25 & - 9 \% \
\hline
\end{array}$$ What is the expected standard deviation for the stock?

Accepted Answer

A)  2.07% 
B)  9.96% 
C)  7.04% 
D)  1.44% 
E)  None of the options are correct. 
A)  2.07% 
B)  9.96% 
C)  7.04% 
D)  1.44% 
E)  None of the options are correct.

Question 4

"Bracket Creep" happens when

Accepted Answer

A)  tax liabilities are based on real income and there is a negative inflation rate. 
B)  tax liabilities are based on real income and there is a positive inflation rate. 
C)  tax liabilities are based on nominal income and there is a negative inflation rate. 
D)  tax liabilities are based on nominal income and there is a positive inflation rate. 
E)  too many peculiar people make their way into the highest tax bracket. 
A)  tax liabilities are based on real income and there is a negative inflation rate. 
B)  tax liabilities are based on real income and there is a positive inflation rate. 
C)  tax liabilities are based on nominal income and there is a negative inflation rate. 
D)  tax liabilities are based on nominal income and there is a positive inflation rate. 
E)  too many peculiar people make their way into the highest tax bracket.

Question 5

If a portfolio had a return of 12%, the risk-free asset return was 4%, and the standard deviation of the portfolio's excess returns was 25%, the risk premium would be

Accepted Answer

A)  8%. 
B)  16%. 
C)  37%. 
D)  21%. 
E)  29%. 
A)  8%. 
B)  16%. 
C)  37%. 
D)  21%. 
E)  29%.

Question 6

If a portfolio had a return of 12%, the risk-free asset return was 4%, and the standard deviation of the portfolio's excess returns was 25%, the Sharpe measure would be

Accepted Answer

A)  0.12. 
B)  0.04. 
C)  0.32. 
D)  0.16. 
E)  0.25. 
A)  0.12. 
B)  0.04. 
C)  0.32. 
D)  0.16. 
E)  0.25.

Question 7

Which of the following determine(s) the level of real interest rates? I) The supply of savings by households and business firms
II) The demand for investment funds
III) The government's net supply and/or demand for funds

Accepted Answer

A)  I only 
B)  II only 
C)  I and II only 
D)  I, II, and III 
A)  I only 
B)  II only 
C)  I and II only 
D)  I, II, and III

Question 8

Kurtosis is a measure of
A. how fat the tails of a distribution are.
B. the downside risk of a distribution.
C. the normality of a distribution.
D. the dividend yield of the distribution.
E. how fat the tails of a distribution are.

Accepted Answer

A E
Explanation: Kur

Question 9

You have been given this probability distribution for the holding-period return for GM stock: $$\begin{array} { l c c } 
\text { Stock of the Economy } & \text { Probability } & \text { HPR } \
\text { Boom } & 0.40 & 30 \% \
\text { Normal growth } & 0.40 & 11 \% \
\text { Recession } & 0.20 & - 10 \% \
\hline
\end{array}$$ What is the expected standard deviation for GM stock?

Accepted Answer

A)  16.91% 
B)  16.13% 
C)  13.79% 
D)  15.25% 
E)  14.87% 
A)  16.91% 
B)  16.13% 
C)  13.79% 
D)  15.25% 
E)  14.87%

Question 10

Other things equal, an increase in the government budget deficit

Accepted Answer

A)  drives the interest rate down. 
B)  drives the interest rate up. 
C)  might not have any effect on interest rates. 
D)  increases business prospects. 
A)  drives the interest rate down. 
B)  drives the interest rate up. 
C)  might not have any effect on interest rates. 
D)  increases business prospects.

Question 11

You have been given this probability distribution for the holding-period return for GM stock: $$\begin{array} { l c r } 
\text { Stock of the Economy } & \text { Probability } & \text { HPR } \
\text { Boom } & 0.40 & 30 \% \
\text { Normal growth } & 0.40 & 11 \% \
\text { Recession } & 0.20 & - 10 \% \
\hline
\end{array}$$ What is the expected variance for GM stock?

Accepted Answer

A)  200.00% 
B)  221.04% 
C)  246.37% 
D)  14.87% 
E)  16.13% 
A)  200.00% 
B)  221.04% 
C)  246.37% 
D)  14.87% 
E)  16.13%

Question 12

You purchase a share of Boeing stock for $90. One year later, after receiving a dividend of $3, you sell the stock for $92. What was your holding-period return?

Accepted Answer

A)  4.44% 
B)  2.22% 
C)  3.33% 
D)  5.56% 
E)  None of the options are correct. 
A)  4.44% 
B)  2.22% 
C)  3.33% 
D)  5.56% 
E)  None of the options are correct.

Question 13

You purchased a share of stock for $120. One year later, you received $1.82 as a dividend and sold the share for $136. What was your holding-period return?

Accepted Answer

A)  15.67% 
B)  22.12% 
C)  18.85% 
D)  13.24% 
E)  None of the options are correct. 
A)  15.67% 
B)  22.12% 
C)  18.85% 
D)  13.24% 
E)  None of the options are correct.

Question 14

If the annual real rate of interest is 4%, and the expected inflation rate is 3%, the nominal rate of interest would be approximately

Accepted Answer

A)  4%. 
B)  3%. 
C)  1%. 
D)  5%. 
E)  None of the options are correct. 
A)  4%. 
B)  3%. 
C)  1%. 
D)  5%. 
E)  None of the options are correct.

Question 15

When a distribution is positively skewed,

Accepted Answer

A)  standard deviation overestimates risk. 
B)  standard deviation correctly estimates risk. 
C)  standard deviation underestimates risk. 
D)  the tails are fatter than in a normal distribution. 
A)  standard deviation overestimates risk. 
B)  standard deviation correctly estimates risk. 
C)  standard deviation underestimates risk. 
D)  the tails are fatter than in a normal distribution.

Question 16

Over the past year, you earned a nominal rate of interest of 8% on your money. The inflation rate was 3.5% over the same period. The exact actual growth rate of your purchasing power was

Accepted Answer

A)  15.55%. 
B)  4.35%. 
C)  5.02%. 
D)  4.81%. 
E)  15.04%. 
A)  15.55%. 
B)  4.35%. 
C)  5.02%. 
D)  4.81%. 
E)  15.04%.

Question 17

You purchase a share of CAT stock for $90. One year later, after receiving a dividend of $4, you sell the stock for $97. What was your holding-period return?

Accepted Answer

A)  14.44% 
B)  12.22% 
C)  13.33% 
D)  5.56% 
A)  14.44% 
B)  12.22% 
C)  13.33% 
D)  5.56%

Question 18

Which of the following factors would not be expected to affect the nominal interest rate?

Accepted Answer

A)  The supply of loans 
B)  The demand for loans 
C)  The coupon rate on previously issued government bonds 
D)  The expected rate of inflation 
E)  Government spending and borrowing 
A)  The supply of loans 
B)  The demand for loans 
C)  The coupon rate on previously issued government bonds 
D)  The expected rate of inflation 
E)  Government spending and borrowing

Question 19

When a distribution is negatively skewed,

Accepted Answer

A)  standard deviation overestimates risk. 
B)  standard deviation correctly estimates risk. 
C)  standard deviation underestimates risk. 
D)  the tails are fatter than in a normal distribution. 
A)  standard deviation overestimates risk. 
B)  standard deviation correctly estimates risk. 
C)  standard deviation underestimates risk. 
D)  the tails are fatter than in a normal distribution.

Question 20

Which of the following measures of risk best highlights the potential loss from extreme negative returns?

Accepted Answer

A)  Standard deviation 
B)  Variance 
C)  Upper partial standard deviation 
D)  Value at risk (VaR) 
E)  None of the options are correct. 
A)  Standard deviation 
B)  Variance 
C)  Upper partial standard deviation 
D)  Value at risk (VaR) 
E)  None of the options are correct.

Exam 5: Risk, Return, and the Historical Record

If an investment provides a 2% return semi-annually, its effective annual rate is

If a portfolio had a return of 15%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 30%, the Sharpe measure would be

You have been given this probability distribution for the holding-period return for a stock: Stock of the Economy Probability HPR Boom 0.40 22\% Normal growth 0.35 11\% Recession 0.25 -9\% What is the expected standard deviation for the stock?

"Bracket Creep" happens when

If a portfolio had a return of 12%, the risk-free asset return was 4%, and the standard deviation of the portfolio's excess returns was 25%, the risk premium would be

If a portfolio had a return of 12%, the risk-free asset return was 4%, and the standard deviation of the portfolio's excess returns was 25%, the Sharpe measure would be

Which of the following determine(s) the level of real interest rates? I) The supply of savings by households and business firms II) The demand for investment funds III) The government's net supply and/or demand for funds

Kurtosis is a measure of A. how fat the tails of a distribution are. B. the downside risk of a distribution. C. the normality of a distribution. D. the dividend yield of the distribution. E. how fat the tails of a distribution are.

You have been given this probability distribution for the holding-period return for GM stock: Stock of the Economy Probability HPR Boom 0.40 30\% Normal growth 0.40 11\% Recession 0.20 -10\% What is the expected standard deviation for GM stock?

Other things equal, an increase in the government budget deficit

You have been given this probability distribution for the holding-period return for GM stock: Stock of the Economy Probability HPR Boom 0.40 30\% Normal growth 0.40 11\% Recession 0.20 -10\% What is the expected variance for GM stock?

You purchase a share of Boeing stock for $90. One year later, after receiving a dividend of $3, you sell the stock for $92. What was your holding-period return?

You purchased a share of stock for $120. One year later, you received $1.82 as a dividend and sold the share for $136. What was your holding-period return?

If the annual real rate of interest is 4%, and the expected inflation rate is 3%, the nominal rate of interest would be approximately

When a distribution is positively skewed,

Over the past year, you earned a nominal rate of interest of 8% on your money. The inflation rate was 3.5% over the same period. The exact actual growth rate of your purchasing power was

You purchase a share of CAT stock for $90. One year later, after receiving a dividend of $4, you sell the stock for $97. What was your holding-period return?

Which of the following factors would not be expected to affect the nominal interest rate?

When a distribution is negatively skewed,

Which of the following measures of risk best highlights the potential loss from extreme negative returns?

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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