Question 1

The net present value of an investment is computed by discounting cash flows at the internal rate of return.

Accepted Answer

A) True 
 B)False

Question 2

Investor's are motivated to purchase an asset because of its

Accepted Answer

A)  expected returns. 
B)  past returns. 
C)  emotional benefits. 
D)  all of the above. 
A)  expected returns. 
B)  past returns. 
C)  emotional benefits. 
D)  all of the above.

Question 3

Christopher invests $400 today at a 4% rate of return which is compounded annually. What is the future value of this investment after four years?

Accepted Answer

A)  $342 
B)  $416 
C)  $464 
D)  $468 
A)  $342 
B)  $416 
C)  $464 
D)  $468

Question 4

A capital loss is computed by

Accepted Answer

A)  subtracting the original cost of an investment from the proceeds received from the sale of that investment minus any income from the investment. 
B)  subtracting the original cost of an investment from the proceeds received from the sale of that investment plus any income from the investment. 
C)  subtracting the proceeds received from the sale of an investment from the original cost of the investment. 
D)  subtracting the original cost of an investment from the proceeds received from the sale of that investment. 
A)  subtracting the original cost of an investment from the proceeds received from the sale of that investment minus any income from the investment. 
B)  subtracting the original cost of an investment from the proceeds received from the sale of that investment plus any income from the investment. 
C)  subtracting the proceeds received from the sale of an investment from the original cost of the investment. 
D)  subtracting the original cost of an investment from the proceeds received from the sale of that investment.

Question 5

The holding period return is an excellent method for comparing a short-term investment to a long-term investment.

Accepted Answer

A) True 
 B)False

Question 6

Justin invests $4,000 in a savings account for two years. The account pays 2% interest compounded annually. How much interest income will Justin earn on this investment?

Accepted Answer

A)  $80.00 
B)  $81.60 
C)  $160.00 
D)  $161.60 
A)  $80.00 
B)  $81.60 
C)  $160.00 
D)  $161.60

Question 7

Investments with lower standard deviations can be expected to produce higher rates of return.

Accepted Answer

A) True 
 B)False

Question 8

The most predictable component of stock returns is

Accepted Answer

A)  capital gains. 
B)  capital losses. 
C)  inflation adjusted return. 
D)  dividend income. 
A)  capital gains. 
B)  capital losses. 
C)  inflation adjusted return. 
D)  dividend income.

Question 9

Christopher purchased 200 shares of ABC stock at $21.25 per share. After nine months, he sold all of his shares at a price of $19.88 a share. Jake received a total of $0.55 per share in dividends during the time he owned the shares. Jake's holding period return is

Accepted Answer

A)  -6.4%. 
B)  -3.9%. 
C)  2.6%. 
D)  9.7%. 
A)  -6.4%. 
B)  -3.9%. 
C)  2.6%. 
D)  9.7%.

Question 10

The required return on Beta stock is 14%. The risk-free rate of return is 4% and the real rate of return is 2%. How much are investors requiring as compensation for risk?

Accepted Answer

A)  8% 
B)  10% 
C)  12% 
D)  14% 
A)  8% 
B)  10% 
C)  12% 
D)  14%

Question 11

The return that fully compensates for the risk of an investment is called the risk-free rate of return.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following factors will increase the risk level of an investment?
I. a firm's decision to use a high percentage of debt financing
II. an economic situation in which consumer prices are rising at a rapid rate
III. the ability to trade the investment in a broad market rather than in a thin market
IV. unstable currency values

Accepted Answer

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

Question 13

The expected rate of return and standard deviations, respectively for four stocks are given below:
ABC 9%, 3%
CDE 11%, 9%
FGH 12%, 8%
IJK 14%, 10%
Which stock is clearly least desirable?

Accepted Answer

A)  ABC 
B)  CDE 
C)  FGH 
D)  IJK 
A)  ABC 
B)  CDE 
C)  FGH 
D)  IJK

Question 14

Ryan purchased a bond for $980 at the beginning of 2007. He received annual interest payments of $$55 at the end of each year through 2012 when the bond was redeemed at its face value of $1,000. Compute the yield (internal rate of return) Ryan earned on his bond purchase.

Accepted Answer

A)  5.50% 
B)  5.61% 
C)  5.91% 
D)  .34% 
A)  5.50% 
B)  5.61% 
C)  5.91% 
D)  .34%

Question 15

In which of the following circumstances would it be most appropriate to use the holding period return?

Accepted Answer

A)  to compare the capital gains on a house held for 8 years and a mutual fund held for 6 years 
B)  to compare the calendar year performance of stocks purchased in March to stocks purchased in September 
C)  to compare the dividend yield of stocks to the interest rate on bonds 
D)  to compare the performance of several stocks, each of which was held throughout an entire year 
A)  to compare the capital gains on a house held for 8 years and a mutual fund held for 6 years 
B)  to compare the calendar year performance of stocks purchased in March to stocks purchased in September 
C)  to compare the dividend yield of stocks to the interest rate on bonds 
D)  to compare the performance of several stocks, each of which was held throughout an entire year

Question 16

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 17

An investment produced annual rates of return of 4%, 8%, 14% and 6%, respectively, over the past four years. What is the standard deviation of these returns?

Accepted Answer

A)  3.7% 
B)  4.1% 
C)  4.3% 
D)  4.6% 
A)  3.7% 
B)  4.1% 
C)  4.3% 
D)  4.6%

Question 18

Negative reaction to Netflix's change of billing plans is an example of

Accepted Answer

A)  liquidity risk. 
B)  event risk. 
C)  business risk. 
D)  purchasing power risk. 
A)  liquidity risk. 
B)  event risk. 
C)  business risk. 
D)  purchasing power risk.

Question 19

A holding period return is calculated by adding the current income to the capital gains and dividing this sum by the

Accepted Answer

A)  average investment value. 
B)  beginning investment value. 
C)  total income received. 
D)  selling price of the investment. 
A)  average investment value. 
B)  beginning investment value. 
C)  total income received. 
D)  selling price of the investment.

Question 20

The closest approximation to the real, risk-free rate of interest is

Accepted Answer

A)  The short-term Treasury bill rate plus the inflation rate. 
B)  The short-term Treasury bill rate minus the inflation rate. 
C)  The 10 year Treasury bond rate minus the inflation rate. 
D)  The 10 year Treasury bond rate minus the 1 year Treasury bill rate. 
A)  The short-term Treasury bill rate plus the inflation rate. 
B)  The short-term Treasury bill rate minus the inflation rate. 
C)  The 10 year Treasury bond rate minus the inflation rate. 
D)  The 10 year Treasury bond rate minus the 1 year Treasury bill rate.

The net present value of an investment is computed by discounting cash flows at the internal rate of return.

Investor's are motivated to purchase an asset because of its

Christopher invests $400 today at a 4% rate of return which is compounded annually. What is the future value of this investment after four years?

A capital loss is computed by

The holding period return is an excellent method for comparing a short-term investment to a long-term investment.

Justin invests $4,000 in a savings account for two years. The account pays 2% interest compounded annually. How much interest income will Justin earn on this investment?

Investments with lower standard deviations can be expected to produce higher rates of return.

The most predictable component of stock returns is

Christopher purchased 200 shares of ABC stock at $21.25 per share. After nine months, he sold all of his shares at a price of $19.88 a share. Jake received a total of $0.55 per share in dividends during the time he owned the shares. Jake's holding period return is

The required return on Beta stock is 14%. The risk-free rate of return is 4% and the real rate of return is 2%. How much are investors requiring as compensation for risk?

The return that fully compensates for the risk of an investment is called the risk-free rate of return.

The expected rate of return and standard deviations, respectively for four stocks are given below: ABC 9%, 3% CDE 11%, 9% FGH 12%, 8% IJK 14%, 10% Which stock is clearly least desirable?

Ryan purchased a bond for $980 at the beginning of 2007. He received annual interest payments of $$55 at the end of each year through 2012 when the bond was redeemed at its face value of $1,000. Compute the yield (internal rate of return) Ryan earned on his bond purchase.

In which of the following circumstances would it be most appropriate to use the holding period return?

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

An investment produced annual rates of return of 4%, 8%, 14% and 6%, respectively, over the past four years. What is the standard deviation of these returns?

Negative reaction to Netflix's change of billing plans is an example of

A holding period return is calculated by adding the current income to the capital gains and dividing this sum by the

The closest approximation to the real, risk-free rate of interest is

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters

Exam 4: Return and Risk

The net present value of an investment is computed by discounting cash flows at the internal rate of return.

Investor's are motivated to purchase an asset because of its

Christopher invests $400 today at a 4% rate of return which is compounded annually. What is the future value of this investment after four years?

A capital loss is computed by

The holding period return is an excellent method for comparing a short-term investment to a long-term investment.

Justin invests $4,000 in a savings account for two years. The account pays 2% interest compounded annually. How much interest income will Justin earn on this investment?

Investments with lower standard deviations can be expected to produce higher rates of return.

The most predictable component of stock returns is

Christopher purchased 200 shares of ABC stock at $21.25 per share. After nine months, he sold all of his shares at a price of $19.88 a share. Jake received a total of $0.55 per share in dividends during the time he owned the shares. Jake's holding period return is

The required return on Beta stock is 14%. The risk-free rate of return is 4% and the real rate of return is 2%. How much are investors requiring as compensation for risk?

The return that fully compensates for the risk of an investment is called the risk-free rate of return.

The expected rate of return and standard deviations, respectively for four stocks are given below: ABC 9%, 3% CDE 11%, 9% FGH 12%, 8% IJK 14%, 10% Which stock is clearly least desirable?

Ryan purchased a bond for $980 at the beginning of 2007. He received annual interest payments of $$55 at the end of each year through 2012 when the bond was redeemed at its face value of $1,000. Compute the yield (internal rate of return) Ryan earned on his bond purchase.

In which of the following circumstances would it be most appropriate to use the holding period return?

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

An investment produced annual rates of return of 4%, 8%, 14% and 6%, respectively, over the past four years. What is the standard deviation of these returns?

Negative reaction to Netflix's change of billing plans is an example of

A holding period return is calculated by adding the current income to the capital gains and dividing this sum by the

The closest approximation to the real, risk-free rate of interest is

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters