Question 1

Are markets moving towards being more efficient or towards being less efficient?

Accepted Answer

Empirical evidence shows that since about the year 2000 pricing anomalies have diminished considerably.Hedge funds have been trying to exploit pricing inefficiencies, and by doing so, eliminate the inefficiencies.Hence, the market appears to be becoming more efficient over time.

Question 2

Investment variances may be either positive or negative.

Accepted Answer

A) True 
 B)False  False

Question 3

An emerging market is [blank].

Accepted Answer

A) a market for small, but rapidly growing companies. 
B) market for companies coming out from bankruptcy proceedings. 
C) market for promising, but untested technologies 
D) a market located in an economy with low-to-middle per capita income. 
A) a market for small, but rapidly growing companies. 
B) market for companies coming out from bankruptcy proceedings. 
C) market for promising, but untested technologies 
D) a market located in an economy with low-to-middle per capita income. D

Question 4

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 5

Which of the following best measures an asset's risk?

Accepted Answer

A) Expected return 
B) The standard deviation 
C) The probability distribution 
D) The cash return 
A) Expected return 
B) The standard deviation 
C) The probability distribution 
D) The cash return

Question 6

The favourable returns of shares in Australia over the past 100 years is partly explained by the concept that share prices [blank] when there is [blank] news about future profits.

Accepted Answer

A) stagnate; good 
B) rapidly decrease; good 
C) slightly increase; bad 
D) go up; good 
A) stagnate; good 
B) rapidly decrease; good 
C) slightly increase; bad 
D) go up; good

Question 7

Why do the arithmetic average return and the geometric return differ?

Accepted Answer

The arithmetic average return does not t

Question 8

What is the arithmetic average return on Susan's shares if she sells it five years from today?

Accepted Answer

A) 1.92% 
B) 3.98% 
C) 6.47% 
D) 7.11% 
A) 1.92% 
B) 3.98% 
C) 6.47% 
D) 7.11%

Question 9

Marcus Berger invested $9842.33 in Hawkeye Hats Ltd four years ago.He sold the shares today for $11 396.22.What is his geometric average return?

Accepted Answer

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

Question 10

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 11

Risky investments have the potential for higher returns, but also larger losses.

Accepted Answer

A) True 
 B)False

Question 12

Treasury notes have less default risk than do government bonds.

Accepted Answer

A) True 
 B)False

Question 13

What is the geometric average return of Kamal's investment?

Accepted Answer

A) 3.38% 
B) 4.63% 
C) 6.96% 
D) 8.78% 
A) 3.38% 
B) 4.63% 
C) 6.96% 
D) 8.78%

Question 14

The cash return on an investment is calculated as purchase price-selling price.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

The arithmetic average rate of return takes compounding into effect.

Accepted Answer

A) True 
 B)False

Question 18

Strategies that exploit market inefficiencies tend to lose their effectiveness when they become widely known.

Accepted Answer

A) True 
 B)False

Question 19

Over the period 1995-2015, the risk-return relationship appears to be [blank].

Accepted Answer

A) 
A) negative. 
B) 
B) perfectly positive. 
C) 
C) random. 
D) 
D) generally positive, but not perfect. 
A) 
A) negative. 
B) 
B) perfectly positive. 
C) 
C) random. 
D) 
D) generally positive, but not perfect.

Question 20

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%

Exam 7: Risk and Returnan Introduction: History of Financial Market Returns

Are markets moving towards being more efficient or towards being less efficient?

Investment variances may be either positive or negative.

An emerging market is [blank].

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

Which of the following best measures an asset's risk?

The favourable returns of shares in Australia over the past 100 years is partly explained by the concept that share prices [blank] when there is [blank] news about future profits.

Why do the arithmetic average return and the geometric return differ?

What is the arithmetic average return on Susan's shares if she sells it five years from today?

Marcus Berger invested $9842.33 in Hawkeye Hats Ltd four years ago.He sold the shares today for $11 396.22.What is his geometric average return?

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.

Risky investments have the potential for higher returns, but also larger losses.

Treasury notes have less default risk than do government bonds.

What is the geometric average return of Kamal's investment?

The cash return on an investment is calculated as purchase price-selling price.

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

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.

The arithmetic average rate of return takes compounding into effect.

Strategies that exploit market inefficiencies tend to lose their effectiveness when they become widely known.

Over the period 1995-2015, the risk-return relationship appears to be [blank].

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?

Getting Startedprinciples of Finance

Firms and the Financial Market

Understanding Financial Statements, Taxes and Cash Flows

Financial Analysissizing up Firm Performance

Time Value of Moneythe Basics

The Time Value of Moneyannuities and Other Topics

Risk and Returncapital Market Theory

Debt Valuation and Interest Rates

Shares Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluations

The Cost of Capital

Analysis and Impact of Leverage

Capital Structure Policy

Dividend and Share-Buyback Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

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