Question 1

The holding period return (HPR)can appropriately be used to

Accepted Answer

A)  compare the yield on investments held for any time period. 
B)  compare returns among investments that are held for one year or less. 
C)  isolate realized capital gains. 
D)  determine the required reinvestment rate for long-term investments. 
A)  compare the yield on investments held for any time period. 
B)  compare returns among investments that are held for one year or less. 
C)  isolate realized capital gains. 
D)  determine the required reinvestment rate for long-term investments.

Question 2

The possibility that deflation could affect the rate of return on an investment is referred to as interest rate risk.

Accepted Answer

A) True 
 B)False

Question 3

Business risk is the risk associated with the amount of debt financing used by a firm.

Accepted Answer

A) True 
 B)False

Question 4

Compound interest is interest paid not only on the initial investment but also on any interest accumulated in prior periods.

Accepted Answer

A) True 
 B)False

Question 5

Historical returns are of no use in estimating the risk of an investment.

Accepted Answer

A) True 
 B)False

Question 6

The risk associated with a sudden and unforeseen happening that has a significant and usually immediate effect on a firm's financial condition is called

Accepted Answer

A)  market risk. 
B)  speculation. 
C)  event risk. 
D)  business risk. 
A)  market risk. 
B)  speculation. 
C)  event risk. 
D)  business risk.

Question 7

Most investors are risk-averse, which means they

Accepted Answer

A)  refuse to accept any financial risk. 
B)  invest only in government insured securities. 
C)  require an increase in return for any increase in risk. 
D)  gain satisfaction from the excitement of risk. 
A)  refuse to accept any financial risk. 
B)  invest only in government insured securities. 
C)  require an increase in return for any increase in risk. 
D)  gain satisfaction from the excitement of risk.

Question 8

Each of the following investments produces the same rate of return.Which one has the greatest amount of risk?

Accepted Answer

A)  investment A with a standard deviation of 4% 
B)  investment B with a standard deviation of 12% 
C)  investment C with a standard deviation of 8% 
D)  investment D with a standard deviation of 19% 
A)  investment A with a standard deviation of 4% 
B)  investment B with a standard deviation of 12% 
C)  investment C with a standard deviation of 8% 
D)  investment D with a standard deviation of 19%

Question 9

When calculating the present value of either a future single sum or a future annuity, the applicable interest rate is usually called the

Accepted Answer

A)  yield to maturity. 
B)  compound interest rate. 
C)  internal rate of return. 
D)  discount rate. 
A)  yield to maturity. 
B)  compound interest rate. 
C)  internal rate of return. 
D)  discount rate.

Question 10

Which one following will lower required rates of return?

Accepted Answer

A)  Higher rates of inflation. 
B)  Higher risk premiums. 
C)  Lower rates of inflation . 
D)  Lower dividend yields. 
A)  Higher rates of inflation. 
B)  Higher risk premiums. 
C)  Lower rates of inflation . 
D)  Lower dividend yields.

Question 11

In response to the same external force, the return on one investment may increase while the return on another investment may decrease.

Accepted Answer

A) True 
 B)False

Question 12

Internal factors such as the quality of management and the level of corporate debt affect the rate of return on an individual stock.

Accepted Answer

A) True 
 B)False

Question 13

Lower risk investments are associated with higher expected rates of return.

Accepted Answer

A) True 
 B)False

Question 14

The yield on an investment is the discount rate that produces a present value of benefits greater than the cost of the investment.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements are correct concerning present value?
I.The present value interest factor for a single sum is always equal to or less than 1.
II.The lower the discount rate for a given year, the smaller the present value interest factor.
III.The further in time, the smaller the present value interest factor.
IV.The present value is equal to the future value only when the stated interest rate is 1%.

Accepted Answer

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

Question 16

Explain the relationship between risk, the expected rate of return and the actual rate of return.

Accepted Answer

The higher the risk, real or perceived,

Question 17

Investors who limit themselves to risk free and low risk investments can avoid purchasing power risk.

Accepted Answer

A) True 
 B)False

Question 18

If the present value of an investment's benefits equals the present value of the investment's costs, then the investor would earn a

Accepted Answer

A)  return equal to the discount rate. 
B)  negative rate of return. 
C)  0% rate of return. 
D)  return greater than the discount rate. 
A)  return equal to the discount rate. 
B)  negative rate of return. 
C)  0% rate of return. 
D)  return greater than the discount rate.

Question 19

The stated rate of interest is equal to the true rate of interest when

Accepted Answer

A)  interest is compounded annually and the period in questions is exactly 1 year. 
B)  interest is compounded continuously over one or more years. 
C)  interest is compounded annually over a period of several years. 
D)  interest is discounted rather than compounded. 
A)  interest is compounded annually and the period in questions is exactly 1 year. 
B)  interest is compounded continuously over one or more years. 
C)  interest is compounded annually over a period of several years. 
D)  interest is discounted rather than compounded.

Question 20

Which of the following statements about the standard deviation are correct?
I.The standard deviation is a measure of relative dispersion.
II.Standard deviations should be in conjunction with expected returns to compare investments.
III.The standard deviation is calculated by taking the square root of the variance.
IV.The higher the standard deviation of an investment, the lower its risk.

Accepted Answer

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

The holding period return (HPR)can appropriately be used to

The possibility that deflation could affect the rate of return on an investment is referred to as interest rate risk.

Business risk is the risk associated with the amount of debt financing used by a firm.

Compound interest is interest paid not only on the initial investment but also on any interest accumulated in prior periods.

Historical returns are of no use in estimating the risk of an investment.

The risk associated with a sudden and unforeseen happening that has a significant and usually immediate effect on a firm's financial condition is called

Most investors are risk-averse, which means they

Each of the following investments produces the same rate of return.Which one has the greatest amount of risk?

When calculating the present value of either a future single sum or a future annuity, the applicable interest rate is usually called the

Which one following will lower required rates of return?

In response to the same external force, the return on one investment may increase while the return on another investment may decrease.

Internal factors such as the quality of management and the level of corporate debt affect the rate of return on an individual stock.

Lower risk investments are associated with higher expected rates of return.

The yield on an investment is the discount rate that produces a present value of benefits greater than the cost of the investment.

Explain the relationship between risk, the expected rate of return and the actual rate of return.

Investors who limit themselves to risk free and low risk investments can avoid purchasing power risk.

If the present value of an investment's benefits equals the present value of the investment's costs, then the investor would earn a

The stated rate of interest is equal to the true rate of interest when

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency, Behavioral Finance, and Technical Analysis

Fixed-Income Securities

Bond Valuation

Mutual Funds: Professionally Managed Portfolios

Managing Your Own Portfolios

Options: Puts and Calls

Commodities and Financial Futures

Filters

Exam 4: Return and Risk

The holding period return (HPR)can appropriately be used to

The possibility that deflation could affect the rate of return on an investment is referred to as interest rate risk.

Business risk is the risk associated with the amount of debt financing used by a firm.

Compound interest is interest paid not only on the initial investment but also on any interest accumulated in prior periods.

Historical returns are of no use in estimating the risk of an investment.

The risk associated with a sudden and unforeseen happening that has a significant and usually immediate effect on a firm's financial condition is called

Most investors are risk-averse, which means they

Each of the following investments produces the same rate of return.Which one has the greatest amount of risk?

When calculating the present value of either a future single sum or a future annuity, the applicable interest rate is usually called the

Which one following will lower required rates of return?

In response to the same external force, the return on one investment may increase while the return on another investment may decrease.

Internal factors such as the quality of management and the level of corporate debt affect the rate of return on an individual stock.

Lower risk investments are associated with higher expected rates of return.

The yield on an investment is the discount rate that produces a present value of benefits greater than the cost of the investment.

Explain the relationship between risk, the expected rate of return and the actual rate of return.

Investors who limit themselves to risk free and low risk investments can avoid purchasing power risk.

If the present value of an investment's benefits equals the present value of the investment's costs, then the investor would earn a

The stated rate of interest is equal to the true rate of interest when

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency, Behavioral Finance, and Technical Analysis

Fixed-Income Securities

Bond Valuation

Mutual Funds: Professionally Managed Portfolios

Managing Your Own Portfolios

Options: Puts and Calls

Commodities and Financial Futures

Filters