Exam 6: The Risks and Returns From Investing

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.

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.

Bond prices and interest rates are inversely related.

When most people refer to mean rate of return,they are referring to the:

Liquidity risk:

If you invest in German bonds and the Euro becomes stronger during your holding period,then:

A number of prominent observers expect the equity risk premium in the future to be:

Calculate the future value of $100,000 at the end of 64 years given an interest rate of 10.38 percent.

The S&P 500 showed the following TRs for a 6 year period: 11.1 percent,-5.2 percent,20.3 percent,26.7 percent,-12.4 percent,and 2.2 percent. (a)Calculate the arithmetic mean return for the 6 year period. (b)Calculate the geometric mean return for the 6 year period.

Total return is equal to:

In order to determine the compound growth rate of an investment over some period,an investor would calculate the:

The recent housing bubble and resulting credit crisis of 2008 is a perfect example of:

International mutual funds offer investors global diversification without exchange rate risk.

What is the major drawback of the total return measure? Why is it the most common return calculation used by investors?

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

All of the following represent the yield component of total return EXCEPT:

Assume you are a U.S.citizen who purchases $20,000 worth of bonds of the Deep Shaft Mining Company in Kenya.What sources of risk can you identify with this investment?

The standard deviation measures:

It is generally easier to predict interest rate risk than market risk.

What is the present value of $20,000 to be received in 40 years if the interest rate is 9 percent?