Question 1

An impending recession is an example of:

Accepted Answer

A) interest rate risk 
B) inflation risk 
C) market risk 
D) financial risk 
A) interest rate risk 
B) inflation risk 
C) market risk 
D) financial risk

Question 2

What was the effect on foreign investors owning U.S.stocks when the dollar fell in 2002?

Accepted Answer

cash flows during measurement

Question 3

The return relative solves the problem of:

Accepted Answer

A) inflation 
B)  negative returns 
C) interest rates 
D) tax differences 
A) inflation 
B)  negative returns 
C) interest rates 
D) tax differences

Question 4

New financial disclosure regulations affecting the brokerage industry are a type of:

Accepted Answer

A) market risk 
B) financial risk 
C) business risk 
D) liquidity risk 
A) market risk 
B) financial risk 
C) business risk 
D) liquidity risk

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

The answer of What common variable is used in the...

Question 7

The equity risk premium is:

Accepted Answer

A) the difference between the expected return on stocks and bonds 
B) the difference between the expected return on high-grade stocks and low-grade stocks 
C) the difference between the expected return on stocks and the risk-free rate 
D) the difference between the expected return on a stock market index and the inflation rate 
A) the difference between the expected return on stocks and bonds 
B) the difference between the expected return on high-grade stocks and low-grade stocks 
C) the difference between the expected return on stocks and the risk-free rate 
D) the difference between the expected return on a stock market index and the inflation rate

Question 8

Another name for a capital gain is yield.

Accepted Answer

A) True 
 B)False

Question 9

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 10

The ----------- is 1 plus the total return.

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 11

Total return as defined in the text is:

Accepted Answer

A) the difference between the sale price and the purchase price of an investment. 
B) measured by dividing the sum of all cash flows received by the amount invested. 
C) the reciprocal of a return relative. 
D) measured by dividing all cash flows received by its selling price. 
A) the difference between the sale price and the purchase price of an investment. 
B) measured by dividing the sum of all cash flows received by the amount invested. 
C) the reciprocal of a return relative. 
D) measured by dividing all cash flows received by its selling price.

Question 12

Return and risk are inversely related.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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

Accepted Answer

A) appreciates in value. 
B) depreciates in value. 
C) remains unchanged. 
D) moves to a net gain position. 
A) appreciates in value. 
B) depreciates in value. 
C) remains unchanged. 
D) moves to a net gain position.

Question 15

The best return measure to use if you are trying to measure the total effect of returns over time given some stated beginning amount is the:

Accepted Answer

A) total return 
B) return relative 
C) cumulative wealth index 
D) total yield 
A) total return 
B) return relative 
C) cumulative wealth index 
D) total yield

Question 16

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 17

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

Accepted Answer

The arithmetic mean is better

Question 18

Over the period 1926-2007,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 19

Investors should be willing to invest in riskier investments only:

Accepted Answer

A) if the term is short 
B) if there are no safe alternatives except for holding cash 
C) if the expected return is adequate for the risk level 
D) if they are true speculators 
A) if the term is short 
B) if there are no safe alternatives except for holding cash 
C) if the expected return is adequate for the risk level 
D) if they are true speculators

Question 20

A major difference between real and nominal returns is that:

Accepted Answer

A) real returns adjust for inflation and nominal returns do not 
B) real returns use actual cashflows and nominal returns use expected cashflows 
C) real returns adjust for commissions and nominal returns do not 
D) real returns show the highest possible return and nominal returns show the lowest possible return 
A) real returns adjust for inflation and nominal returns do not 
B) real returns use actual cashflows and nominal returns use expected cashflows 
C) real returns adjust for commissions and nominal returns do not 
D) real returns show the highest possible return and nominal returns show the lowest possible return

Exam 6: The Risks and Returns From Investing

An impending recession is an example of:

What was the effect on foreign investors owning U.S.stocks when the dollar fell in 2002?

The return relative solves the problem of:

New financial disclosure regulations affecting the brokerage industry are a type of:

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

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?

The equity risk premium is:

Another name for a capital gain is yield.

Political stability is the major factor concerning:

The ----------- is 1 plus the total return.

Total return as defined in the text is:

Return and risk are inversely related.

As the dollar falls,

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

The best return measure to use if you are trying to measure the total effect of returns over time given some stated beginning amount is the:

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

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

Over the period 1926-2007,which of the following financial assets showed the greatest amount of price volatility,as measured by standard deviation?

Investors should be willing to invest in riskier investments only:

A major difference between real and nominal returns is that:

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

Portfolio Theory

Portfolio Selection

Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis

Market Efficiency

Economy Market Analysis

Industry Analysis

Company Analysis

Technical Analysis

Bond Yields

Bonds: Analysis and Strategy

Options

Futures

Portfolio Management

Evaluation of Investment

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