Question 1

The present value of $1,000 discounted at the rate of 5% per year, to be received at the end of 3 years is equal to

Accepted Answer

A) $1,000/(1.03)5. 
B) $1,000/(1.05)3. 
C) $1,000 × (1.05)3. 
D) $1,000 - ($1,000)× .03 × 5. 
A) $1,000/(1.03)5. 
B) $1,000/(1.05)3. 
C) $1,000 × (1.05)3. 
D) $1,000 - ($1,000)× .03 × 5.

Question 2

Business risk resulting from uncertainty over a firm's earnings is a concern for stockholders, but not for debt holders.

Accepted Answer

A) True 
 B)False

Question 3

Investing in short-term debt decreases exposure to interest rate risk.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The required rate of return on the Cosmos Corporation's common stock is 10%, the current real rate of return in the market is 1%, and the inflation rate is 3%.In this case, the risk premium associated with Cosmos stock is

Accepted Answer

A) 5%. 
B) 6%. 
C) 7%. 
D) 8%. 
A) 5%. 
B) 6%. 
C) 7%. 
D) 8%.

Question 6

The internal rate of return is the rate of return that causes a project to have a zero net present value.

Accepted Answer

A) True 
 B)False

Question 7

Zachary has purchased an investment that he expects to produce income of $3,000 at the end of the first year and $4,000 at the end of the second year.If he pays $5,800 for this investment, what is the internal rate of return?

Accepted Answer

$3,000/1.128 + $4,000/1.1282 =

Question 8

Which of the following choices is in the correct order from less risk to more risk?

Accepted Answer

A) corporate bonds, certificates of deposit, mutual funds that invest in stock, common stock 
B) certificates of deposit, corporate bonds, common stock, mutual funds that invest in stock 
C) certificates of deposit, mutual funds that invest in stock, common stock, corporate bonds 
D) certificates of deposit, corporate bonds, mutual funds that invest in stock, common stock 
A) corporate bonds, certificates of deposit, mutual funds that invest in stock, common stock 
B) certificates of deposit, corporate bonds, common stock, mutual funds that invest in stock 
C) certificates of deposit, mutual funds that invest in stock, common stock, corporate bonds 
D) certificates of deposit, corporate bonds, mutual funds that invest in stock, common stock

Question 9

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?

Accepted Answer

A) $10,700 
B) $11,501 
C) $12,307 
D) $14,026 
A) $10,700 
B) $11,501 
C) $12,307 
D) $14,026

Question 10

Short-term U.S.Treasury bills are yielding 0.5%.The expected inflation rate is 2%.Therefore, the real rate of interest must be negative 1.5%.

Accepted Answer

A) True 
 B)False

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 types of risk can not be avoided by carefully researching a company's business prospects and financial statements?

Accepted Answer

Market risk is the risk that market forc

Question 13

Identify and discuss five sources of risk.

Accepted Answer

Students can select

Question 14

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

Accepted Answer

A) an expected inflation premium. 
B) a risk premium. 
C) both an inflation and a risk premium. 
D) the prevailing prime rate. 
A) an expected inflation premium. 
B) a risk premium. 
C) both an inflation and a risk premium. 
D) the prevailing prime rate.

Question 15

Most investors are risk-averse, which means they

Accepted Answer

A) refuse to accept any financial risk. 
B) invest only in government insured securities. 
C) require an increase in return for any increase in risk. 
D) gain satisfaction from the excitement of risk. 
A) refuse to accept any financial risk. 
B) invest only in government insured securities. 
C) require an increase in return for any increase in risk. 
D) gain satisfaction from the excitement of risk.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Which one of the following is an example of an annuity?

Accepted Answer

A) the receipt of $50 in January, March, April, June, August, September and December 
B) the payment of $259 a month for three consecutive years 
C) the payment of $389 in January, $200 in February, and $200 in March 
D) the receipt of $100 a month for three months and then $150 a month for two months 
A) the receipt of $50 in January, March, April, June, August, September and December 
B) the payment of $259 a month for three consecutive years 
C) the payment of $389 in January, $200 in February, and $200 in March 
D) the receipt of $100 a month for three months and then $150 a month for two months

Question 18

Compound interest is interest paid not only on the initial investment but also on any interest earned after the initial investment.

Accepted Answer

A) True 
 B)False

Question 19

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.Christopher 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 20

To compute the present value of $1,000 annuity received at the end of each of the next three years and discounted at the rate of 5% per year, you should enter the following variables into a financial calculator.

Accepted Answer

A) N=3, i=5, PMT=1000 
B) N=3, i=5, FV=3000 
C) N=3, i=15, PMT=1000 
D) N=1, i=5, PMT=3000 
A) N=3, i=5, PMT=1000 
B) N=3, i=5, FV=3000 
C) N=3, i=15, PMT=1000 
D) N=1, i=5, PMT=3000

The present value of $1,000 discounted at the rate of 5% per year, to be received at the end of 3 years is equal to

Business risk resulting from uncertainty over a firm's earnings is a concern for stockholders, but not for debt holders.

Investing in short-term debt decreases exposure to interest rate risk.

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

The required rate of return on the Cosmos Corporation's common stock is 10%, the current real rate of return in the market is 1%, and the inflation rate is 3%.In this case, the risk premium associated with Cosmos stock is

The internal rate of return is the rate of return that causes a project to have a zero net present value.

Zachary has purchased an investment that he expects to produce income of $3,000 at the end of the first year and $4,000 at the end of the second year.If he pays $5,800 for this investment, what is the internal rate of return?

Which of the following choices is in the correct order from less risk to more risk?

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?

Short-term U.S.Treasury bills are yielding 0.5%.The expected inflation rate is 2%.Therefore, the real rate of interest must be negative 1.5%.

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

Which types of risk can not be avoided by carefully researching a company's business prospects and financial statements?

Identify and discuss five sources of risk.

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

Most investors are risk-averse, which means they

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

Which one of the following is an example of an annuity?

Compound interest is interest paid not only on the initial investment but also on any interest earned after the initial investment.

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.Christopher received a total of $0.55 per share in dividends during the time he owned the shares.Jake's holding period return is

To compute the present value of $1,000 annuity received at the end of each of the next three years and discounted at the rate of 5% per year, you should enter the following variables into a financial calculator.

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 present value of $1,000 discounted at the rate of 5% per year, to be received at the end of 3 years is equal to

Business risk resulting from uncertainty over a firm's earnings is a concern for stockholders, but not for debt holders.

Investing in short-term debt decreases exposure to interest rate risk.

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

The required rate of return on the Cosmos Corporation's common stock is 10%, the current real rate of return in the market is 1%, and the inflation rate is 3%.In this case, the risk premium associated with Cosmos stock is

The internal rate of return is the rate of return that causes a project to have a zero net present value.

Zachary has purchased an investment that he expects to produce income of $3,000 at the end of the first year and $4,000 at the end of the second year.If he pays $5,800 for this investment, what is the internal rate of return?

Which of the following choices is in the correct order from less risk to more risk?

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?

Short-term U.S.Treasury bills are yielding 0.5%.The expected inflation rate is 2%.Therefore, the real rate of interest must be negative 1.5%.

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

Which types of risk can not be avoided by carefully researching a company's business prospects and financial statements?

Identify and discuss five sources of risk.

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

Most investors are risk-averse, which means they

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

Which one of the following is an example of an annuity?

Compound interest is interest paid not only on the initial investment but also on any interest earned after the initial investment.

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.Christopher received a total of $0.55 per share in dividends during the time he owned the shares.Jake's holding period return is

To compute the present value of $1,000 annuity received at the end of each of the next three years and discounted at the rate of 5% per year, you should enter the following variables into a financial calculator.

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