Exam 4: Return and Risk

The risk-free rate is equal to the real rate of return plus

The standard deviation is computed by dividing the sum of the squared deviations by the number of observations.

If the discount rate is appropriate for the level of risk, a satisfactory investment will have a present value of benefits equal to or greater than than the present value of costs.

When computing an investment's yield using a financial calculator or spreadsheet such as Excel, which of the following should be entered as a negative number?

Most investors are risk averse, meaning they will always be willing to sacrifice higher return if they can avoid risk.

Which of the following is(are) issue characteristics of an investment? I. type of investment such as stocks or bonds II. state of the economy III. coupon or dividend payments IV. time to maturity

Josh purchased 100 shares of XOM for $76.63 per share at the beginning of 2007. He received dividends per share of $1.37 (2007), $1.55 (2008), $1.66 (2009), $1.74 (2010), $1.85 (2011). At the end of 2011, just after receiving the last dividend, he sold the stock for $84.76. What was his average annual rate of return form both dividends and capital gains? (Hint: compute the IRR, assume that all dividends were received at the end of the year.)

The present value is equal to the future value multiplied by the 1 plus the interest rate.

Investing in short-term debt is an effective strategy for managing the risk of falling interest rates.

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

The yield on an investment is equal to its internal rate of return.

Risk can be defined as uncertainty concerning the actual return that an investment will generate.

The internal rate of return is the correct method to use when an investor wants to determine an investment's average annual yield.

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

If the risk-free rate of return is less than the inflation rate, the real rate of return is negative.

Congress considers a bill that would eliminate the mortgage interest deduction for individuals. For the housing industry, this is an example of

Assume that $100 is deposited at the end of each year for five years at 10% compound interest and that no withdrawals are made over the five-year period. Based on this data, which one of the following statements is correct?

Explain the similarities and differences between the holding period return and the internal rate of return.

If you invest $2,000 at the end of each year for five years and you earn 7% interest compounded annually, how much will you have accumulated at the end of the fifth year?

If a stock is purchased at the beginning of a year, a single dividend is paid at the end of the year and the stock is sold immediately after the dividend has been received. In this case