Question 1

Bond prices and interest rates are inversely related.

Accepted Answer

A) True 
 B)False  True

Question 2

The return relative solves the problem of:

Accepted Answer

A)  inflation 
B) negative returns 
C)  interest rates 
D)  tax differences 
A)  inflation 
B) negative returns 
C)  interest rates 
D)  tax differences B

Question 3

The recent housing bubble and resulting credit crisis of 2008 is a perfect example of:

Accepted Answer

A)  nonsystematic risk 
B)  systematic risk 
C)  inflation risk 
D)  political risk 
A)  nonsystematic risk 
B)  systematic risk 
C)  inflation risk 
D)  political risk B

Question 4

Total return is equal to:

Accepted Answer

A)  capital gain + price change. 
B)  yield + income. 
C)  capital gain - loss. 
D)  yield + price change. 
A)  capital gain + price change. 
B)  yield + income. 
C)  capital gain - loss. 
D)  yield + price change.

Question 5

What common variable is used in the calculation of both the cumulative wealth index and the geometric mean return? How is the common variable calculated? How is it used in each?

Accepted Answer

The total return (TR) is used

Question 6

A stock is purchased for $50 on January 1 and sold on December 31 for $72. A $5.00 per share dividend is paid during the year.
(a) Calculate the TR.
(b) Calculate the RR.

Accepted Answer

(a) TR = (Dividend + Change in

Question 7

Financial risk is most associated with:

Accepted Answer

A)  the use of equity financing by corporations 
B)  the use of debt financing by corporations 
C)  equity investments held by corporations 
D)  debt investments held by corporations 
A)  the use of equity financing by corporations 
B)  the use of debt financing by corporations 
C)  equity investments held by corporations 
D)  debt investments held by corporations

Question 8

A Chinese stock denominated in Chinese yuan will have an increase in its dollar-denominated return if the Chinese yuan strengthens against the dollar.

Accepted Answer

A) True 
 B)False

Question 9

Total return as defined in the text is:

Accepted Answer

A)  the difference between the sale price and the purchase price of an investment. 
B)  measured by dividing the sum of all cash flows received by the amount invested. 
C)  the reciprocal of a return relative. 
D)  measured by dividing all cash flows received by its selling price. 
A)  the difference between the sale price and the purchase price of an investment. 
B)  measured by dividing the sum of all cash flows received by the amount invested. 
C)  the reciprocal of a return relative. 
D)  measured by dividing all cash flows received by its selling price.

Question 10

A major difference between real and nominal returns is that:

Accepted Answer

A)  real returns adjust for inflation and nominal returns do not 
B)  real returns use actual cashflows and nominal returns use expected cashflows 
C)  real returns adjust for commissions and nominal returns do not 
D)  real returns show the highest possible return and nominal returns show the lowest possible return 
A)  real returns adjust for inflation and nominal returns do not 
B)  real returns use actual cashflows and nominal returns use expected cashflows 
C)  real returns adjust for commissions and nominal returns do not 
D)  real returns show the highest possible return and nominal returns show the lowest possible return

Question 11

New financial disclosure regulations affecting the brokerage industry are a type of:

Accepted Answer

A)  market risk 
B)  financial risk 
C)  business risk 
D)  liquidity risk 
A)  market risk 
B)  financial risk 
C)  business risk 
D)  liquidity risk

Question 12

An impending recession is an example of:

Accepted Answer

A)  interest rate risk 
B)  inflation risk 
C)  market risk 
D)  financial risk 
A)  interest rate risk 
B)  inflation risk 
C)  market risk 
D)  financial risk

Question 13

Political stability is the major factor concerning:

Accepted Answer

A)  exchange-rate risk 
B)  systematic risk 
C)  nonsystematic risk 
D)  country risk 
A)  exchange-rate risk 
B)  systematic risk 
C)  nonsystematic risk 
D)  country risk

Question 14

Holding interest rates constant, a narrowing of the equity risk premium implies a decline in the rate of return on stocks because the amount earned beyond the risk-free rate is reduced.

Accepted Answer

A) True 
 B)False

Question 15

In order to determine the compound growth rate of an investment over some period, an investor would calculate the:

Accepted Answer

A)  arithmetic mean 
B)  geometric mean 
C)  calculus mean 
D)  arithmetic median 
A)  arithmetic mean 
B)  geometric mean 
C)  calculus mean 
D)  arithmetic median

Question 16

International mutual funds offer investors global diversification without exchange rate risk.

Accepted Answer

A) True 
 B)False

Question 17

The ----------- is 1 plus the total return.

Accepted Answer

A)  arithmetic mean 
B)  return relative 
C)  cumulative wealth index 
D)  geometric mean 
A)  arithmetic mean 
B)  return relative 
C)  cumulative wealth index 
D)  geometric mean

Question 18

It is generally easier to predict interest rate risk than market risk.

Accepted Answer

A) True 
 B)False

Question 19

If the Dow Jones Industrials had a price appreciation of 6 percent one year and yet total return for the year was 9 percent, the difference would be due to:

Accepted Answer

A)  the tax treatment of capital gains. 
B)  the cumulative wealth effect. 
C)  dividends. 
D)  profits. 
A)  the tax treatment of capital gains. 
B)  the cumulative wealth effect. 
C)  dividends. 
D)  profits.

Question 20

The best return measure to use if you are trying to measure the total effect of returns over time given some stated beginning amount is the:

Accepted Answer

A)  total return 
B)  return relative 
C)  cumulative wealth index 
D)  total yield 
A)  total return 
B)  return relative 
C)  cumulative wealth index 
D)  total yield

Exam 6: Return and Risk: the Foundation of Investing Worldwide

Bond prices and interest rates are inversely related.

The return relative solves the problem of:

The recent housing bubble and resulting credit crisis of 2008 is a perfect example of:

Total return is equal to:

What common variable is used in the calculation of both the cumulative wealth index and the geometric mean return? How is the common variable calculated? How is it used in each?

A stock is purchased for $50 on January 1 and sold on December 31 for $72. A $5.00 per share dividend is paid during the year. (a) Calculate the TR. (b) Calculate the RR.

Financial risk is most associated with:

A Chinese stock denominated in Chinese yuan will have an increase in its dollar-denominated return if the Chinese yuan strengthens against the dollar.

Total return as defined in the text is:

A major difference between real and nominal returns is that:

New financial disclosure regulations affecting the brokerage industry are a type of:

An impending recession is an example of:

Political stability is the major factor concerning:

Holding interest rates constant, a narrowing of the equity risk premium implies a decline in the rate of return on stocks because the amount earned beyond the risk-free rate is reduced.

In order to determine the compound growth rate of an investment over some period, an investor would calculate the:

International mutual funds offer investors global diversification without exchange rate risk.

The ----------- is 1 plus the total return.

It is generally easier to predict interest rate risk than market risk.

If the Dow Jones Industrials had a price appreciation of 6 percent one year and yet total return for the year was 9 percent, the difference would be due to:

The best return measure to use if you are trying to measure the total effect of returns over time given some stated beginning amount is the:

Investing Is an Important Activity Worldwide

Investment Alternatives: Generic Principles All Investors Must Know

Indirect Investing: a Global Activity

Securities Markets Matter to All Investors

All Financial Markets Have Regulations and Trading Practices

Portfolio Theory Is Universal

Portfolio Selection for All Investors

Asset Pricing Principles

Common Stock Valuation Lessons for All Investors

Managing a Stock Portfolio: a Worldwide Issue

What Happens If Markets Are Efficient or Not?

Economy/ market Analysis Must Be Considered by All Investor

Sector/ industry Analysis

Company Analysis

Technical Analysis

Fixed Income Securities Are Available Worldwide

Managing Bond Portfolios: Some Issues Affect All Investors

Understanding Derivative Securities: Options

Understanding Derivative Securities: Futures

All Investors Must Consider Portfolio Management

Evaluation of Investment Performance: a Global Concept

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