Question 1

The equity risk premium is:

Accepted Answer

A)  the difference between the expected return on stocks and bonds 
B)  the difference between the expected return on high-grade stocks and low-grade stocks 
C)  the difference between the expected return on stocks and the risk-free rate 
D)  the difference between the expected return on a stock market index and the inflation rate 
A)  the difference between the expected return on stocks and bonds 
B)  the difference between the expected return on high-grade stocks and low-grade stocks 
C)  the difference between the expected return on stocks and the risk-free rate 
D)  the difference between the expected return on a stock market index and the inflation rate

Question 2

John Crossborder buys 1 share of Telmex at 140 pesos when the value of the peso is stated in dollars at $0.35. One year later, Telmex is selling for 155 pesos and paid a dividend of 5 pesos during the year. If after 1 year the value of the pesos is $0.29, what will John's rate of return be in U. S. dollars?

Accepted Answer

Return Relative in pesos = [(1

Question 3

The less the variability of return, the greater the risk.

Accepted Answer

A) True 
 B)False

Question 4

A number of prominent observers expect the equity risk premium in the future to be:

Accepted Answer

A)  Considerably lower than that of the past 
B)  Considerably higher than that of the past 
C)  Very similar to the historical average 
D)  No change is expected from recent years 
A)  Considerably lower than that of the past 
B)  Considerably higher than that of the past 
C)  Very similar to the historical average 
D)  No change is expected from recent years

Question 5

The standard deviation measures:

Accepted Answer

A)  systematic risk of a security. 
B)  unsystematic risk of a security. 
C)  total risk of a security. 
D)  the equity risk premium. 
A)  systematic risk of a security. 
B)  unsystematic risk of a security. 
C)  total risk of a security. 
D)  the equity risk premium.

Question 6

The standard deviation of returns, calculated as the square root of the variance of returns, is a measure of total risk of an asset or portfolio.

Accepted Answer

A) True 
 B)False

Question 7

New regulations concerning auto emissions would be a type of market risk for the auto industry.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements regarding the arithmetic mean and the geometric mean is true?

Accepted Answer

A)  The arithmetic mean is always a better measure of average performance 
B)  The geometric mean is always a better measure of average performance 
C)  The arithmetic mean is a better measure of performance over single periods 
D)  The geometric mean is the best estimate of the expected return for the next period 
A)  The arithmetic mean is always a better measure of average performance 
B)  The geometric mean is always a better measure of average performance 
C)  The arithmetic mean is a better measure of performance over single periods 
D)  The geometric mean is the best estimate of the expected return for the next period

Question 9

All of the following represent the yield component of total return EXCEPT:

Accepted Answer

A)  Dividend payment on common stock 
B)  Coupon interest payment on bonds 
C)  Capital gain upon sale of stock 
D)  Dividend payment on preferred stock 
A)  Dividend payment on common stock 
B)  Coupon interest payment on bonds 
C)  Capital gain upon sale of stock 
D)  Dividend payment on preferred stock

Question 10

What is the best measure of risk for returns of a sole proprietorship?

Accepted Answer

The best measure of risk for a

Question 11

When most people refer to mean rate of return, they are referring to the:

Accepted Answer

A)  holding period rate of return 
B)  arithmetic average rate of return 
C)  geometric average rate of return 
D)  cumulative average rate of return 
A)  holding period rate of return 
B)  arithmetic average rate of return 
C)  geometric average rate of return 
D)  cumulative average rate of return

Question 12

What is the present value of $20,000 to be received in 40 years if the interest rate is 9 percent?

Accepted Answer

Using a financial ca

Question 13

The returns and risk measures on this chapter are calculated from historical data. Are such measures good predictors of the future? What are some circumstances that could change to change future return and risk? How can an investor use these return and risk measures to help construct a portfolio?

Accepted Answer

Historical risk and returns are a starti

Question 14

If a U.S. investor buys foreign stock, his dollar-denominated return will increase if the dollar:

Accepted Answer

A)  appreciates in value. 
B)  depreciates in value. 
C)  remains unchanged. 
D)  moves to a net gain position. 
A)  appreciates in value. 
B)  depreciates in value. 
C)  remains unchanged. 
D)  moves to a net gain position.

Question 15

The most common measure of inflation is the Producer Price Index.

Accepted Answer

A) True 
 B)False

Question 16

Both present value and future value are based upon the concept of the time value of money.

Accepted Answer

A) True 
 B)False

The equity risk premium is:

The less the variability of return, the greater the risk.

A number of prominent observers expect the equity risk premium in the future to be:

The standard deviation measures:

The standard deviation of returns, calculated as the square root of the variance of returns, is a measure of total risk of an asset or portfolio.

New regulations concerning auto emissions would be a type of market risk for the auto industry.

Which of the following statements regarding the arithmetic mean and the geometric mean is true?

All of the following represent the yield component of total return EXCEPT:

What is the best measure of risk for returns of a sole proprietorship?

When most people refer to mean rate of return, they are referring to the:

What is the present value of $20,000 to be received in 40 years if the interest rate is 9 percent?

The returns and risk measures on this chapter are calculated from historical data. Are such measures good predictors of the future? What are some circumstances that could change to change future return and risk? How can an investor use these return and risk measures to help construct a portfolio?

If a U.S. investor buys foreign stock, his dollar-denominated return will increase if the dollar:

The most common measure of inflation is the Producer Price Index.

Both present value and future value are based upon the concept of the time value of money.

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

The equity risk premium is:

The less the variability of return, the greater the risk.

A number of prominent observers expect the equity risk premium in the future to be:

The standard deviation measures:

The standard deviation of returns, calculated as the square root of the variance of returns, is a measure of total risk of an asset or portfolio.

New regulations concerning auto emissions would be a type of market risk for the auto industry.

Which of the following statements regarding the arithmetic mean and the geometric mean is true?

All of the following represent the yield component of total return EXCEPT:

What is the best measure of risk for returns of a sole proprietorship?

When most people refer to mean rate of return, they are referring to the:

What is the present value of $20,000 to be received in 40 years if the interest rate is 9 percent?

The returns and risk measures on this chapter are calculated from historical data. Are such measures good predictors of the future? What are some circumstances that could change to change future return and risk? How can an investor use these return and risk measures to help construct a portfolio?

If a U.S. investor buys foreign stock, his dollar-denominated return will increase if the dollar:

The most common measure of inflation is the Producer Price Index.

Both present value and future value are based upon the concept of the time value of money.

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