Question 1

Ceteris paribus,a decrease in the demand for loanable funds

Accepted Answer

A)  drives the interest rate down. 
B)  drives the interest rate up. 
C)  might not have any effect on interest rate. 
D)  results from an increase in business prospects and a decrease in the level of savings. 
E)  none of these. 
A)  drives the interest rate down. 
B)  drives the interest rate up. 
C)  might not have any effect on interest rate. 
D)  results from an increase in business prospects and a decrease in the level of savings. 
E)  none of these. A

Question 2

Historical records regarding return on stocks,bonds,and Treasury bills between 1957 and 2009 show that

Accepted Answer

A)  stocks offered investors greater rates of return than bonds and bills. 
B)  stock returns were less volatile than those of bonds and bills. 
C)  bonds offered investors greater rates of return than stocks and bills. 
D)  bills outperformed stocks and bonds. 
E)  treasury bills always offered a rate of return greater than inflation 
A)  stocks offered investors greater rates of return than bonds and bills. 
B)  stock returns were less volatile than those of bonds and bills. 
C)  bonds offered investors greater rates of return than stocks and bills. 
D)  bills outperformed stocks and bonds. 
E)  treasury bills always offered a rate of return greater than inflation A

Question 3

Discuss some reasons why an investor with a long time horizon might choose to invest in common stocks,even though they have historically been riskier than government bonds or T-bills.

Accepted Answer

Common stocks can be expected to provide for the best growth in purchasing power based on historical data.An investor with a long time horizon can tolerate fluctuations in stock returns because of the long-term upward trend in stock returns.How much common stock an investor is willing to hold and what types of stocks he chooses for his portfolio will depend on his level of risk aversion.

Question 4

Toyco stock has the following probability distribution of expected prices one year from now: $\begin{array}{ccc}
\text { State } & \text { Probability } & \text { Price } \
1 & 25\% & \$ 50 \
2&40\% & \$ 60\
3&35\%&\$70
\end{array}$
If you buy Toyco today for $55 and it will pay a dividend during the year of $4 per share,what is your expected holding period return on Toyco?

Accepted Answer

A)  7.27% 
B)  18.18% 
C)  10.91% 
D)  16.36% 
E)  9.09% 
A)  7.27% 
B)  18.18% 
C)  10.91% 
D)  16.36% 
E)  9.09%

Question 5

If the Bank of Canada lowers the discount rate,ceteris paribus,the equilibrium levels of funds lent will __________ and the equilibrium level of real interest rates will ___________

Accepted Answer

A)  increase;increase 
B)  increase;decrease 
C)  decrease;increase 
D)  decrease;decrease 
E)  reverse direction from their previous trends 
A)  increase;increase 
B)  increase;decrease 
C)  decrease;increase 
D)  decrease;decrease 
E)  reverse direction from their previous trends

Question 6

Which of the following statement(s)is(are)true?
I.The real rate of interest is determined by the supply and demand for funds.
II.The real rate of interest is determined by the expected rate of inflation.
III.The real rate of interest can be affected by actions of the Bank of Canada.
IV.The real rate of interest is equal to the nominal interest rate plus the expected rate of inflation.

Accepted Answer

A)  I and II only. 
B)  I and III only. 
C)  III and IV only. 
D)  II and III only. 
E)  I,II,III,and IV only 
A)  I and II only. 
B)  I and III only. 
C)  III and IV only. 
D)  II and III only. 
E)  I,II,III,and IV only

Question 7

If both the interest rate paid by borrowers and the interest rate received by savers accurately reflect the realized rate of inflation:

Accepted Answer

A)  borrowers gain and savers lose. 
B)  savers gain and borrowers lose. 
C)  both borrowers and savers lose. 
D)  neither borrowers nor savers gain or lose. 
E)  both borrowers and savers gain. 
A)  borrowers gain and savers lose. 
B)  savers gain and borrowers lose. 
C)  both borrowers and savers lose. 
D)  neither borrowers nor savers gain or lose. 
E)  both borrowers and savers gain.

Question 8

You purchase a share of Yestel stock for $90.One year later,after receiving a dividend of $3,you sell the stock for $92.What was your holding period return?

Accepted Answer

A)  5.56% 
B)  2.22% 
C)  3.33% 
D)  1.11% 
E)  40% 
A)  5.56% 
B)  2.22% 
C)  3.33% 
D)  1.11% 
E)  40%

Question 9

Over the past year you earned a nominal rate of interest of 8 percent on your money.The inflation rate was 4 percent over the same period.The exact actual growth rate of your purchasing power was

Accepted Answer

A)  15.5%. 
B)  10.0%. 
C)  3.8%. 
D)  4.8%. 
E)  15.0%. 
A)  15.5%. 
B)  10.0%. 
C)  3.8%. 
D)  4.8%. 
E)  15.0%.

Question 10

Other things equal,an increase in the government budget deficit

Accepted Answer

A)  drives the interest rate down 
B)  drives the interest rate up 
C)  might not have any effect on interest rates 
D)  increases business prospects 
E)  none of these. 
A)  drives the interest rate down 
B)  drives the interest rate up 
C)  might not have any effect on interest rates 
D)  increases business prospects 
E)  none of these.

Question 11

You have been given this probability distribution for the holding period return for XYZ stock: $$\begin{array} { l c c } 
\text { State of the Economy } & \text { Probability } & \text { HPR } \
\hline \text { Boom } & .30 & 18 \% \
\text { Normal growth } & .50 & 12 \% \
\text { Recession } & .20 & - 5 \%
\end{array}$$
What is the expected standard deviation for XYZ stock?

Accepted Answer

A)  2.07% 
B)  9.96% 
C)  7.04% 
D)  1.44% 
E)  8.13% 
A)  2.07% 
B)  9.96% 
C)  7.04% 
D)  1.44% 
E)  8.13%

Question 12

A risk-free intermediate or long-term investment

Accepted Answer

A)  is free of all types of risk. 
B)  does not guarantee the future purchasing power of its cash flows. 
C)  does guarantee the future purchasing power of its cash flows as it is insured by the Canadian government. 
D)  a and b. 
E)  b and c. 
A)  is free of all types of risk. 
B)  does not guarantee the future purchasing power of its cash flows. 
C)  does guarantee the future purchasing power of its cash flows as it is insured by the Canadian government. 
D)  a and b. 
E)  b and c.

Question 13

Which of the following statements is true?

Accepted Answer

A)  Inflation has no effect on the nominal rate of interest. 
B)  The realized nominal rate of interest is always positive. 
C)  The realized nominal rate of interest is always greater than the real rate of interest. 
D)  Certificates of deposit offer a guaranteed real rate of interest. 
E)  None of these is true. 
A)  Inflation has no effect on the nominal rate of interest. 
B)  The realized nominal rate of interest is always positive. 
C)  The realized nominal rate of interest is always greater than the real rate of interest. 
D)  Certificates of deposit offer a guaranteed real rate of interest. 
E)  None of these is true.

Question 14

Discuss concepts covariance and correlation.How do these concepts differ in terms of calculation and interpretation?

Accepted Answer

Covariance is a measure of the how the r

Question 15

Discuss some reasons why an investor with a long time horizon might choose to invest in common stocks,even though they have historically been riskier than government bonds or T-bills.

Accepted Answer

Common stocks can be expected to provide

Question 16

Your Certificate of Deposit will mature in one week and you are considering how to invest the proceeds.If you invest in a 30-day CD the bank will pay you 4%.If you invest in a 2-year CD the bank will pay you 6% interest.Which option would you choose?

Accepted Answer

A)  the 30-day CD,no matter what you expect interest rates to do in the future 
B)  the 2-year CD,no matter what you expect interest rates to do in the future 
C)  the 30-day CD if you expect that interest rates will fall in the future 
D)  the 2-year CD if you expect that interest rates will fall in the future 
E)  You would be indifferent between the 30-day and the 2-year CDs. 
A)  the 30-day CD,no matter what you expect interest rates to do in the future 
B)  the 2-year CD,no matter what you expect interest rates to do in the future 
C)  the 30-day CD if you expect that interest rates will fall in the future 
D)  the 2-year CD if you expect that interest rates will fall in the future 
E)  You would be indifferent between the 30-day and the 2-year CDs.

Question 17

What does it mean if we are being told that the 5% VaR of a portfolio is -4.75%?

Accepted Answer

A)  The average return of the portfolio is -4.75% 
B)  The average loss of the portfolio is 4.75% 
C)  There is only a 5% probability of a loss greater than 4.75% 
D)  The maximum loss of the portfolio is 4.75% with probability 95% 
E)  c and d 
A)  The average return of the portfolio is -4.75% 
B)  The average loss of the portfolio is 4.75% 
C)  There is only a 5% probability of a loss greater than 4.75% 
D)  The maximum loss of the portfolio is 4.75% with probability 95% 
E)  c and d

Question 18

Over the past year you earned a nominal rate of interest of 8 percent on your money.The inflation rate was 3.5 percent over the same period.The exact actual growth rate of your purchasing power was

Accepted Answer

A)  15.55%. 
B)  4.35%. 
C)  5.02%. 
D)  4.81%. 
E)  15.04%. 
A)  15.55%. 
B)  4.35%. 
C)  5.02%. 
D)  4.81%. 
E)  15.04%.

Question 19

A year ago,you invested $1,000 in a savings account that pays an annual interest rate of 4%.What is your approximate annual real rate of return if the rate of inflation was 2% over the year?

Accepted Answer

A)  4%. 
B)  2%. 
C)  6%. 
D)  3%. 
E)  1%. 
A)  4%. 
B)  2%. 
C)  6%. 
D)  3%. 
E)  1%.

Question 20

If the nominal return is constant,the after-tax real rate of return

Accepted Answer

A)  declines as the inflation rate increases. 
B)  increases as the inflation rate increases. 
C)  declines as the inflation rate declines. 
D)  increases as the inflation rate decreases. 
E)  a and d. 
A)  declines as the inflation rate increases. 
B)  increases as the inflation rate increases. 
C)  declines as the inflation rate declines. 
D)  increases as the inflation rate decreases. 
E)  a and d.

Exam 4: Mutual Funds and Other Investment Companies

Ceteris paribus,a decrease in the demand for loanable funds

Historical records regarding return on stocks,bonds,and Treasury bills between 1957 and 2009 show that

Discuss some reasons why an investor with a long time horizon might choose to invest in common stocks,even though they have historically been riskier than government bonds or T-bills.

Toyco stock has the following probability distribution of expected prices one year from now: State Probability Price 1 25\% \ 50 2 40\% \ 60 3 35\% \7 0 If you buy Toyco today for $55 and it will pay a dividend during the year of $4 per share,what is your expected holding period return on Toyco?

If the Bank of Canada lowers the discount rate,ceteris paribus,the equilibrium levels of funds lent will __________ and the equilibrium level of real interest rates will ___________

If both the interest rate paid by borrowers and the interest rate received by savers accurately reflect the realized rate of inflation:

You purchase a share of Yestel stock for $90.One year later,after receiving a dividend of $3,you sell the stock for $92.What was your holding period return?

Over the past year you earned a nominal rate of interest of 8 percent on your money.The inflation rate was 4 percent over the same period.The exact actual growth rate of your purchasing power was

Other things equal,an increase in the government budget deficit

You have been given this probability distribution for the holding period return for XYZ stock: State of the Economy Probability HPR Boom .30 18\% Normal growth .50 12\% Recession .20 -5\% What is the expected standard deviation for XYZ stock?

A risk-free intermediate or long-term investment

Which of the following statements is true?

Discuss concepts covariance and correlation.How do these concepts differ in terms of calculation and interpretation?

Discuss some reasons why an investor with a long time horizon might choose to invest in common stocks,even though they have historically been riskier than government bonds or T-bills.

Your Certificate of Deposit will mature in one week and you are considering how to invest the proceeds.If you invest in a 30-day CD the bank will pay you 4%.If you invest in a 2-year CD the bank will pay you 6% interest.Which option would you choose?

What does it mean if we are being told that the 5% VaR of a portfolio is -4.75%?

Over the past year you earned a nominal rate of interest of 8 percent on your money.The inflation rate was 3.5 percent over the same period.The exact actual growth rate of your purchasing power was

A year ago,you invested $1,000 in a savings account that pays an annual interest rate of 4%.What is your approximate annual real rate of return if the rate of inflation was 2% over the year?

If the nominal return is constant,the after-tax real rate of return

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

If the Bank of Canada lowers the discount rate,ceteris paribus,the equilibrium levels of funds lent will and the equilibrium level of real interest rates will _