Exam 4: Return and Risk

The financial concept of time value of money is dependent upon the opportunity to earn interest over time.

When using a financial calculator or electronic spreadsheet to calculate an investment's yield, the amount invested is expressed as a negative number.

If you own an investment providing periodic returns, your actual yield on the investment will depend on the reinvestment rate you are able to obtain.

Identify and discuss five sources of risk.

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%.

The markets in general are paying a 2% real rate of return. Inflation is expected to be 3%. ABC stock commands a 6% risk premium. What is the expected rate of return on ABC stock?

Meaningful measures of an investment's return must consider both income and capital gains.

When using a financial calculator to compute the present value of a lump sum, the future value is entered as PMT.

Roy is going to receive a payment of $5,000 one year from today. He earns an average of 6% on his investments. What is the present value of this payment?

There is no limit to the increase in the true rate of interest as compounding becomes more frequent.