Question 1

A suitable investment should have an internal rate of return equal to or greater than its required rate of return.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following internal characteristics should cause investors to expect the highest rate of return?

Accepted Answer

A) a steady record of past dividends 
B) interest and principal guaranteed by the U.S.government 
C) a record of excellent management and consistent dividend payments 
D) poor management and excessive use of debt financing 
A) a steady record of past dividends 
B) interest and principal guaranteed by the U.S.government 
C) a record of excellent management and consistent dividend payments 
D) poor management and excessive use of debt financing

Question 3

Justin invests $4,000 in a savings account for two years.The account pays 2% interest compounded annually.How much money will be in the account at the end of the second year?

Accepted Answer

A) $4,161.60 
B) $4,160.00 
C) $4,080.00 
D) $1,161.60 
A) $4,161.60 
B) $4,160.00 
C) $4,080.00 
D) $1,161.60

Question 4

As gasoline prices fell in 2015, sales of hybrid and electric vehicles dropped sharply.This 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 5

The reluctance of Congress to tinker with tax rates and deductions has virtually eliminated tax risk for U.S.businesses.

Accepted Answer

A) True 
 B)False

Question 6

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.)

Accepted Answer

Josh's cash flows on a per share basis w

Question 7

Ashley purchased a stock at a price of $27 a share.She received quarterly dividends of $0.75 per share.After one year, Ashley sold the stock at a price of $29.25 a share.What is her percentage holding period return on this investment?

Accepted Answer

A) 10.3% 
B) 11.1% 
C) 17.9% 
D) 19.4% 
A) 10.3% 
B) 11.1% 
C) 17.9% 
D) 19.4%

Question 8

For a given stated rate of interest, a sum compounded monthly will earn more interest than a sum compounded annually.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following will lower the rate of return on a stock whose price has doubled since you bought it?

Accepted Answer

A) an increase in the capital gains tax from 15% to 20% 
B) an increase in the tax rate on dividend income from 15% to 20% 
C) persistently low inflation rates 
D) the Federal Reserve acts to lower interest rates 
A) an increase in the capital gains tax from 15% to 20% 
B) an increase in the tax rate on dividend income from 15% to 20% 
C) persistently low inflation rates 
D) the Federal Reserve acts to lower interest rates

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

Jason purchased ABC stock at $40 per share and DEF stock at $35 per share on the same day in 2015.Exactly 6 months later, the ABC stock is worth $42.00 per share and has not paid a dividend while the DEF stock is worth $36 per share and has paid 2 quarterly dividends of $0.50 each.The holding period returns are

Accepted Answer

A) ABC, $2.00 and DEF $2.00. 
B) ABC 5% and DEF 2.9%. 
C) ABC 5% and DEF 5.7%. 
D) The holding period return cannot be determined because we do not know the discount rate. 
A) ABC, $2.00 and DEF $2.00. 
B) ABC 5% and DEF 2.9%. 
C) ABC 5% and DEF 5.7%. 
D) The holding period return cannot be determined because we do not know the discount rate.

Question 13

The holding period return includes the time value of money.

Accepted Answer

A) True 
 B)False

A suitable investment should have an internal rate of return equal to or greater than its required rate of return.

Which of the following internal characteristics should cause investors to expect the highest rate of return?

Justin invests $4,000 in a savings account for two years.The account pays 2% interest compounded annually.How much money will be in the account at the end of the second year?

As gasoline prices fell in 2015, sales of hybrid and electric vehicles dropped sharply.This is an example of

The reluctance of Congress to tinker with tax rates and deductions has virtually eliminated tax risk for U.S.businesses.

Ashley purchased a stock at a price of $27 a share.She received quarterly dividends of $0.75 per share.After one year, Ashley sold the stock at a price of $29.25 a share.What is her percentage holding period return on this investment?

For a given stated rate of interest, a sum compounded monthly will earn more interest than a sum compounded annually.

Which of the following will lower the rate of return on a stock whose price has doubled since you bought it?

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?

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

The holding period return includes the time value of money.

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

A suitable investment should have an internal rate of return equal to or greater than its required rate of return.

Which of the following internal characteristics should cause investors to expect the highest rate of return?

Justin invests $4,000 in a savings account for two years.The account pays 2% interest compounded annually.How much money will be in the account at the end of the second year?

As gasoline prices fell in 2015, sales of hybrid and electric vehicles dropped sharply.This is an example of

The reluctance of Congress to tinker with tax rates and deductions has virtually eliminated tax risk for U.S.businesses.

Ashley purchased a stock at a price of $27 a share.She received quarterly dividends of $0.75 per share.After one year, Ashley sold the stock at a price of $29.25 a share.What is her percentage holding period return on this investment?

For a given stated rate of interest, a sum compounded monthly will earn more interest than a sum compounded annually.

Which of the following will lower the rate of return on a stock whose price has doubled since you bought it?

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?

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

The holding period return includes the time value of money.

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