Question 1

Under the efficient market hypothesis,would securities be properly priced.

Accepted Answer

If markets were perfectly efficient,then investors would price a stock based on the company's expected future cash flows,so at any time the security would be properly priced.If good news becomes available,that would tend to increase the expected cash flows to a company,the stock price will go up,meaning that the new price is then the proper price for the stock.

Question 2

Marcus Berger invested $9842.33 in Hawkeyehats,Inc.four years ago.He sold the stock today for $11,396.22.What is his arithmetic average return?

Accepted Answer

A) There is insufficient information to derive an answer. 
B) 2.98% 
C) 3.73% 
D) 3.95% 
A) There is insufficient information to derive an answer. 
B) 2.98% 
C) 3.73% 
D) 3.95% A

Question 3

The expected rate of return is the weighted average of the possible returns for an investment.

Accepted Answer

A) True 
 B)False  True

Question 4

Even though an investor expects a positive rate of return,it is possible that the actual return will be negative.

Accepted Answer

A) True 
 B)False

Question 5

The expected rate of return is the sum of each possible return times it likelihood of occurrence.

Accepted Answer

A) True 
 B)False

Question 6

You are considering investing in a firm that has the following possible outcomes:  
What is the expected rate of return on the investment?

Accepted Answer

A) 15.0% 
B) 11.7% 
C) 14.5% 
D) 25.0% 
A) 15.0% 
B) 11.7% 
C) 14.5% 
D) 25.0%

Question 7

Less risky investments have lower standard deviations than do more risky investments.

Accepted Answer

A) True 
 B)False

Question 8

An investor with access to all publicly available information will be able to make higher than expected profit if the market has semi-strong efficiency.

Accepted Answer

A) True 
 B)False

Question 9

What is the geometric average return on her stock if she sells it five years from today?

Accepted Answer

A) -2.33% 
B) .59% 
C) 3.67% 
D) 4.88% 
A) -2.33% 
B) .59% 
C) 3.67% 
D) 4.88%

Question 10

What is the standard deviation of an investment that has the following expected scenario? 18% probability of a recession,2.0% return;65% probability of a moderate economy,9.5% return;17% probability of a strong economy,14.2% return.

Accepted Answer

A) 3.68% 
B) 1.23% 
C) 8.47% 
D) 6.66% 
A) 3.68% 
B) 1.23% 
C) 8.47% 
D) 6.66%

Question 11

If there is a 20% chance we will get a 16% return,a 30% chance of getting a 14% return,a 40% chance of getting a 12% return,and a 10% chance of getting an 8% return,what is the expected rate of return?

Accepted Answer

A) 12% 
B) 13% 
C) 14% 
D) 15% 
A) 12% 
B) 13% 
C) 14% 
D) 15%

Question 12

If an investor holds a stock for three years,the value at the end of three years will always be the initial cost of the stock times (1 + arithmetic average return)to the third power.

Accepted Answer

A) True 
 B)False

Question 13

What is the arithmetic average return of Roddy Richard's investment?

Accepted Answer

A) 2.42% 
B) 3.96% 
C) 5.18% 
D) 15.1% 
A) 2.42% 
B) 3.96% 
C) 5.18% 
D) 15.1%

Question 14

Which of the following best measures the risk of holding an asset in isolation (i.e. ,stand-alone risk)?

Accepted Answer

A) The mean co-variance 
B) The standard deviation 
C) The coefficient of optimization 
D) The standard asset pricing model 
E) The correlation 
A) The mean co-variance 
B) The standard deviation 
C) The coefficient of optimization 
D) The standard asset pricing model 
E) The correlation

Question 15

You are considering investing in a project with the following possible outcomes:  
Calculate the expected rate of return for this investment.

Accepted Answer

A) 9.8% 
B) 7.0% 
C) 8.3% 
D) 6.3% 
A) 9.8% 
B) 7.0% 
C) 8.3% 
D) 6.3%

Question 16

Because returns are more certain for the least risky investments,the required return on these investments should be higher than the required returns on more risky investments.

Accepted Answer

A) True 
 B)False

Question 17

You have invested in a project that has the following payoff schedule:  
What is the expected value of the investment's payoff? (Round to the nearest $1. )

Accepted Answer

A) $60 
B) $65 
C) $58 
D) $70 
A) $60 
B) $65 
C) $58 
D) $70

Question 18

How much will Susan's stock be worth if she sells it five years from today?

Accepted Answer

A) $71,423.85 
B) $73,419.66 
C) $75,628.75 
D) $80,333.40 
A) $71,423.85 
B) $73,419.66 
C) $75,628.75 
D) $80,333.40

Question 19

Investors are always rewarded for taking higher risk with higher realized returns.

Accepted Answer

A) True 
 B)False

Question 20

Riskier investments have traditionally had lower returns than less risky investments have had.

Accepted Answer

A) True 
 B)False

Under the efficient market hypothesis,would securities be properly priced.

Marcus Berger invested $9842.33 in Hawkeyehats,Inc.four years ago.He sold the stock today for $11,396.22.What is his arithmetic average return?

The expected rate of return is the weighted average of the possible returns for an investment.

Even though an investor expects a positive rate of return,it is possible that the actual return will be negative.

The expected rate of return is the sum of each possible return times it likelihood of occurrence.

You are considering investing in a firm that has the following possible outcomes: What is the expected rate of return on the investment?

Less risky investments have lower standard deviations than do more risky investments.

An investor with access to all publicly available information will be able to make higher than expected profit if the market has semi-strong efficiency.

What is the geometric average return on her stock if she sells it five years from today?

What is the standard deviation of an investment that has the following expected scenario? 18% probability of a recession,2.0% return;65% probability of a moderate economy,9.5% return;17% probability of a strong economy,14.2% return.

If there is a 20% chance we will get a 16% return,a 30% chance of getting a 14% return,a 40% chance of getting a 12% return,and a 10% chance of getting an 8% return,what is the expected rate of return?

If an investor holds a stock for three years,the value at the end of three years will always be the initial cost of the stock times (1 + arithmetic average return)to the third power.

What is the arithmetic average return of Roddy Richard's investment?

Which of the following best measures the risk of holding an asset in isolation (i.e. ,stand-alone risk)?

You are considering investing in a project with the following possible outcomes: Calculate the expected rate of return for this investment.

Because returns are more certain for the least risky investments,the required return on these investments should be higher than the required returns on more risky investments.

You have invested in a project that has the following payoff schedule: What is the expected value of the investment's payoff? (Round to the nearest $1. )

How much will Susan's stock be worth if she sells it five years from today?

Investors are always rewarded for taking higher risk with higher realized returns.

Riskier investments have traditionally had lower returns than less risky investments have had.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 7: An Introduction to Risk and Return-History of Financial Market Returns

Under the efficient market hypothesis,would securities be properly priced.

Marcus Berger invested $9842.33 in Hawkeyehats,Inc.four years ago.He sold the stock today for $11,396.22.What is his arithmetic average return?

The expected rate of return is the weighted average of the possible returns for an investment.

Even though an investor expects a positive rate of return,it is possible that the actual return will be negative.

The expected rate of return is the sum of each possible return times it likelihood of occurrence.

You are considering investing in a firm that has the following possible outcomes: What is the expected rate of return on the investment?

Less risky investments have lower standard deviations than do more risky investments.

An investor with access to all publicly available information will be able to make higher than expected profit if the market has semi-strong efficiency.

What is the geometric average return on her stock if she sells it five years from today?

What is the standard deviation of an investment that has the following expected scenario? 18% probability of a recession,2.0% return;65% probability of a moderate economy,9.5% return;17% probability of a strong economy,14.2% return.

If there is a 20% chance we will get a 16% return,a 30% chance of getting a 14% return,a 40% chance of getting a 12% return,and a 10% chance of getting an 8% return,what is the expected rate of return?

If an investor holds a stock for three years,the value at the end of three years will always be the initial cost of the stock times (1 + arithmetic average return)to the third power.

What is the arithmetic average return of Roddy Richard's investment?

Which of the following best measures the risk of holding an asset in isolation (i.e. ,stand-alone risk)?

You are considering investing in a project with the following possible outcomes: Calculate the expected rate of return for this investment.

Because returns are more certain for the least risky investments,the required return on these investments should be higher than the required returns on more risky investments.

You have invested in a project that has the following payoff schedule: What is the expected value of the investment's payoff? (Round to the nearest $1. )

How much will Susan's stock be worth if she sells it five years from today?

Investors are always rewarded for taking higher risk with higher realized returns.

Riskier investments have traditionally had lower returns than less risky investments have had.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters