Question 1

Another name for a capital gain is yield.

Accepted Answer

A) True 
 B)False

Question 2

What was the effect on foreign investors owning U.S. stocks when the dollar fell in 2002?

Accepted Answer

Foreign investors owning U.S.

Question 3

Investors should be willing to invest in riskier investments only:

Accepted Answer

A)  if the term is short 
B)  if there are no safe alternatives except for holding cash 
C)  if the expected return is adequate for the risk level 
D)  if they are true speculators 
A)  if the term is short 
B)  if there are no safe alternatives except for holding cash 
C)  if the expected return is adequate for the risk level 
D)  if they are true speculators

Question 4

When should an investor use the arithmetic mean return? The geometric mean return?

Accepted Answer

The arithmetic mean is better

Question 5

Which of the following statements concerning the equity risk premium is true?

Accepted Answer

A)  Some scholars think it is too low 
B)  There is no direct way to measure it 
C)  It predicts high future returns on stocks 
D)  It is expected to increase in the future 
A)  Some scholars think it is too low 
B)  There is no direct way to measure it 
C)  It predicts high future returns on stocks 
D)  It is expected to increase in the future

Question 6

CFt + (PE - PB) CFt + PC
TR = -------------- = ---------
PB PB
where
CFt = ______________________________________________
PE = ______________________________________________
PB = ______________________________________________
PC = ______________________________________________

Accepted Answer

cash flows during measurement

Question 7

Which of the following is true regarding the cumulative wealth index? It:

Accepted Answer

A)  is measured by adding up the total returns over the holding period and dividing by the investment 
B)  uses a beginning index value (often set to $1 but it can be set to any amount) 
C)  is the present value of the future cash flows expected from the investment 
D)  uses the arithmetic mean as the rate of growth of one's wealth 
A)  is measured by adding up the total returns over the holding period and dividing by the investment 
B)  uses a beginning index value (often set to $1 but it can be set to any amount) 
C)  is the present value of the future cash flows expected from the investment 
D)  uses the arithmetic mean as the rate of growth of one's wealth

Question 8

Over the period 1926-2007, which of the following financial assets showed the greatest amount of price volatility, as measured by standard deviation?

Accepted Answer

A)  Small-cap stocks 
B)  Large-cap stocks 
C)  Treasury bonds 
D)  Treasury bills 
A)  Small-cap stocks 
B)  Large-cap stocks 
C)  Treasury bonds 
D)  Treasury bills

Question 9

If you invest in German bonds and the Euro becomes stronger during your holding period, then:

Accepted Answer

A)  you will be able to buy back fewer dollars when you redeem your bond or it matures 
B)  your dollar-denominated return will increase 
C)  your-dollar denominated return will decrease 
D)  your return will be the interest you receive 
A)  you will be able to buy back fewer dollars when you redeem your bond or it matures 
B)  your dollar-denominated return will increase 
C)  your-dollar denominated return will decrease 
D)  your return will be the interest you receive

Question 10

As the dollar falls,

Accepted Answer

A)  foreign investors owning U.S. stocks suffer. 
B)  U.S. investors owning U.S. stocks suffer. 
C)  U.S. investors owning foreign stocks suffer. 
D)  foreign investors owning foreign stocks suffer. 
A)  foreign investors owning U.S. stocks suffer. 
B)  U.S. investors owning U.S. stocks suffer. 
C)  U.S. investors owning foreign stocks suffer. 
D)  foreign investors owning foreign stocks suffer.

Question 11

Assume you are a U. S. citizen who purchases $20,000 worth of bonds of the Deep Shaft Mining Company in Kenya. What sources of risk can you identify with this investment?

Accepted Answer

Business risk, count

Question 12

What is the major drawback of the total return measure? Why is it the most common return calculation used by investors?

Accepted Answer

The total return measure does not accoun

Question 13

If you deposit $1,000 today at 12 percent, how much will you have in 10 years?

Accepted Answer

Using a financial ca

Question 14

Return and risk are inversely related.

Accepted Answer

A) True 
 B)False

Question 15

If interest rates are expected to rise, you would expect:

Accepted Answer

A)  bond prices to fall more than stock prices 
B)  bond prices to rise more than stock prices 
C)  stock prices to fall more than bond prices 
D)  stock prices to rise and bond prices to fall 
A)  bond prices to fall more than stock prices 
B)  bond prices to rise more than stock prices 
C)  stock prices to fall more than bond prices 
D)  stock prices to rise and bond prices to fall

Question 16

Calculate the future value of $100,000 at the end of 64 years given an interest rate of 10.38 percent.

Accepted Answer

F Value = Present Value (1 + r

Question 17

If interest rates rose, you would expect ------------ to also rise.

Accepted Answer

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

Question 18

Liquidity risk:

Accepted Answer

A)  is the risk that investment bankers normally face 
B)  is lower for small OTC stocks than for large NYSE stocks 
C)  is a risk associated with secondary market transactions 
D)  increases whenever interest rates increase 
A)  is the risk that investment bankers normally face 
B)  is lower for small OTC stocks than for large NYSE stocks 
C)  is a risk associated with secondary market transactions 
D)  increases whenever interest rates increase

Question 19

The S&P 500 showed the following TRs for a 6 year period: 11.1 percent, -5.2 percent, 20.3 percent, 26.7 percent, -12.4 percent, and 2.2 percent.
(a) Calculate the arithmetic mean return for the 6 year period.
(b) Calculate the geometric mean return for the 6 year period.

Accepted Answer

(a) Arithmetic mean = @#LAT-DLM&X/n = [11.1 + (-5.

Question 20

Present value is based on the concept of:

Accepted Answer

A)  compounding 
B)  systematic risk 
C)  duration 
D)  discounting 
A)  compounding 
B)  systematic risk 
C)  duration 
D)  discounting

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

Another name for a capital gain is yield.

What was the effect on foreign investors owning U.S. stocks when the dollar fell in 2002?

Investors should be willing to invest in riskier investments only:

When should an investor use the arithmetic mean return? The geometric mean return?

Which of the following statements concerning the equity risk premium is true?

CFt + (PE - PB) CFt + PC TR = -------------- = --------- PB PB where CFt = ______________________________________________ PE = ______________________________________________ PB = ______________________________________________ PC = ______________________________________________

Which of the following is true regarding the cumulative wealth index? It:

Over the period 1926-2007, which of the following financial assets showed the greatest amount of price volatility, as measured by standard deviation?

If you invest in German bonds and the Euro becomes stronger during your holding period, then:

As the dollar falls,

Assume you are a U. S. citizen who purchases $20,000 worth of bonds of the Deep Shaft Mining Company in Kenya. What sources of risk can you identify with this investment?

What is the major drawback of the total return measure? Why is it the most common return calculation used by investors?

If you deposit $1,000 today at 12 percent, how much will you have in 10 years?

Return and risk are inversely related.

If interest rates are expected to rise, you would expect:

Calculate the future value of $100,000 at the end of 64 years given an interest rate of 10.38 percent.

If interest rates rose, you would expect ------------ to also rise.

Liquidity risk:

The S&P 500 showed the following TRs for a 6 year period: 11.1 percent, -5.2 percent, 20.3 percent, 26.7 percent, -12.4 percent, and 2.2 percent. (a) Calculate the arithmetic mean return for the 6 year period. (b) Calculate the geometric mean return for the 6 year period.

Present value is based on the concept of:

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

Filters

CF_t + (P_E - P_B) CF_t + PC TR = -------------- = --------- P_B P_B where CF_t = ______________________________________________ P_E = ______________________________________________ P_B = PC =