Question 1

Which of the following factors would not be expected to affect the nominal interest rate?

Accepted Answer

A)  the supply of loanable funds 
B)  the demand for loanable funds 
C)  the coupon rate on previously issued government bonds 
D)  the expected rate of inflation 
E)  government spending and borrowing 
A)  the supply of loanable funds 
B)  the demand for loanable funds 
C)  the coupon rate on previously issued government bonds 
D)  the expected rate of inflation 
E)  government spending and borrowing

Question 2

An investor purchased a bond 45 days ago for $985.He received $15 in interest and sold the bond for $980.What is the holding period return on his investment?

Accepted Answer

A)  1.52% 
B)  0.50% 
C)  1.02% 
D)  0.01% 
E)  0.10% 
A)  1.52% 
B)  0.50% 
C)  1.02% 
D)  0.01% 
E)  0.10%

Question 3

In words,the real rate of interest is approximately equal to

Accepted Answer

A)  the nominal rate minus the inflation rate. 
B)  the inflation rate minus the nominal rate. 
C)  the nominal rate times the inflation rate. 
D)  the inflation rate divided by the nominal rate. 
E)  the nominal rate plus the inflation rate. 
A)  the nominal rate minus the inflation rate. 
B)  the inflation rate minus the nominal rate. 
C)  the nominal rate times the inflation rate. 
D)  the inflation rate divided by the nominal rate. 
E)  the nominal rate plus the inflation rate.

Question 4

The risk premium for common stocks

Accepted Answer

A)  cannot be zero,for investors would be unwilling to invest in common stocks. 
B)  must always be positive,in theory. 
C)  is negative,as common stocks are risky. 
D)  a and b. 
E)  a and c. 
A)  cannot be zero,for investors would be unwilling to invest in common stocks. 
B)  must always be positive,in theory. 
C)  is negative,as common stocks are risky. 
D)  a and b. 
E)  a and c.

Question 5

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 holding period return for XYZ stock?

Accepted Answer

A)  11.67% 
B)  8.33% 
C)  10.4% 
D)  12.4% 
E)  7.88% 
A)  11.67% 
B)  8.33% 
C)  10.4% 
D)  12.4% 
E)  7.88%

Question 6

LJP,Inc.has the following probability distribution of holding period returns on its stock. $$\begin{array} { l c c } 
\text { State of the Economy } & \text { Probability } & \text { HPR } \
\hline \text { Boom } & .25 & 25 \% \
\text { Normal growth } & .45 & 15 \% \
\text { Recession } & .30 & 9 \%
\end{array}$$
The expected return on LJP's stock is

Accepted Answer

A)  15.7%. 
B)  12.4%. 
C)  16.5%. 
D)  17.8%. 
E)  11.6%. 
A)  15.7%. 
B)  12.4%. 
C)  16.5%. 
D)  17.8%. 
E)  11.6%.

Question 7

You purchased a share of stock for $30.One year later you received $1.50 as a dividend and sold the share for $32.25.What was your holding-period return?

Accepted Answer

A)  12.5% 
B)  12.0% 
C)  13.6% 
D)  11.8% 
E)  14.1% 
A)  12.5% 
B)  12.0% 
C)  13.6% 
D)  11.8% 
E)  14.1%

Question 8

Which of the following measures of risk best highlights the potential loss from extreme negative returns?

Accepted Answer

A)  Standard deviation 
B)  Variance 
C)  Upper partial standard deviation 
D)  Value at Risk (VaR) 
E)  none of these 
A)  Standard deviation 
B)  Variance 
C)  Upper partial standard deviation 
D)  Value at Risk (VaR) 
E)  none of these

Question 9

Discuss the relationships between interest rates (both real and nominal),expected inflation rates,and tax rates on investment returns.

Accepted Answer

The nominal interest rate is the quoted

Question 10

You purchased a share of stock for $20.One year later you received $1 as dividend and sold the share for $29.What was your holding period return?

Accepted Answer

A)  45% 
B)  50% 
C)  5% 
D)  40% 
E)  none of these 
A)  45% 
B)  50% 
C)  5% 
D)  40% 
E)  none of these

Question 11

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 12

The holding-period return (HPR)for a stock is equal to

Accepted Answer

A)  the real yield minus the inflation rate. 
B)  the nominal yield minus the real yield. 
C)  the capital gains yield minus the tax rate. 
D)  the capital gains yield minus the dividend yield. 
E)  the dividend yield plus the capital gains yield. 
A)  the real yield minus the inflation rate. 
B)  the nominal yield minus the real yield. 
C)  the capital gains yield minus the tax rate. 
D)  the capital gains yield minus the dividend yield. 
E)  the dividend yield plus the capital gains yield.

Question 13

If a portfolio had a return of 10%,the risk free asset return was 4%,and the standard deviation of the portfolio's excess returns was 25%,the risk premium would be _____.

Accepted Answer

A)  14% 
B)  6% 
C)  35% 
D)  21% 
E)  29% 
A)  14% 
B)  6% 
C)  35% 
D)  21% 
E)  29%

Question 14

Over the past year you earned a nominal rate of interest of 10 percent on your money.The inflation rate was 5 percent over the same period.The exact actual growth rate of your purchasing power was

Accepted Answer

A)  15.5%. 
B)  10.0%. 
C)  5.0%. 
D)  4.8%. 
E)  15.0% 
A)  15.5%. 
B)  10.0%. 
C)  5.0%. 
D)  4.8%. 
E)  15.0%

Question 15

The holding period return (HPR)on a share of stock is equal to

Accepted Answer

A)  the capital gain yield over the period plus the inflation rate. 
B)  the capital gain yield over the period plus the dividend yield. 
C)  the current yield plus the dividend yield. 
D)  the dividend yield plus the risk premium. 
E)  the change in stock price 
A)  the capital gain yield over the period plus the inflation rate. 
B)  the capital gain yield over the period plus the dividend yield. 
C)  the current yield plus the dividend yield. 
D)  the dividend yield plus the risk premium. 
E)  the change in stock price

Question 16

If a portfolio had a return of 15%,the risk free asset return was 3%,and the standard deviation of the portfolio's excess returns was 34%,the risk premium would be _____.

Accepted Answer

A)  31% 
B)  18% 
C)  49% 
D)  12% 
E)  29% 
A)  31% 
B)  18% 
C)  49% 
D)  12% 
E)  29%

Question 17

An investor purchased a bond 63 days ago for $980.He received $17 in interest and sold the bond for $987.What is the holding-period return on his investment?

Accepted Answer

A)  1.52% 
B)  2.45% 
C)  1.92% 
D)  2.68% 
E)  3.28% 
A)  1.52% 
B)  2.45% 
C)  1.92% 
D)  2.68% 
E)  3.28%

Question 18

If the annual real rate of interest is 5% and the expected inflation rate is 4%,the nominal rate of interest would be approximately

Accepted Answer

A)  1%. 
B)  9%. 
C)  20%. 
D)  15%. 
E)  none of these. 
A)  1%. 
B)  9%. 
C)  20%. 
D)  15%. 
E)  none of these.

Question 19

What has been the relationship between T-Bill rates and inflation rates throughout the 1980s and 1990s?

Accepted Answer

A)  The T-Bill rate was sometimes higher than and sometimes lower than the inflation rate. 
B)  The T-Bill rate has equaled the inflation rate plus a constant percentage. 
C)  The inflation rate has equaled the T-Bill rate plus a constant percentage. 
D)  The T-Bill rate has been higher than the inflation rate. 
E)  The T-Bill rate has been lower than the inflation rate. 
A)  The T-Bill rate was sometimes higher than and sometimes lower than the inflation rate. 
B)  The T-Bill rate has equaled the inflation rate plus a constant percentage. 
C)  The inflation rate has equaled the T-Bill rate plus a constant percentage. 
D)  The T-Bill rate has been higher than the inflation rate. 
E)  The T-Bill rate has been lower than the inflation rate.

Question 20

Which of the following determine(s)the level of real interest rates?
I.the supply of savings by households and business firms
II.the demand for investment funds
III.the government's net supply and/or demand for funds

Accepted Answer

A)  I only 
B)  II only 
C)  I and II only 
D)  I,II,and III (all of these) 
E)  none of these 
A)  I only 
B)  II only 
C)  I and II only 
D)  I,II,and III (all of these) 
E)  none of these

Exam 4: Mutual Funds and Other Investment Companies

Which of the following factors would not be expected to affect the nominal interest rate?

An investor purchased a bond 45 days ago for $985.He received $15 in interest and sold the bond for $980.What is the holding period return on his investment?

In words,the real rate of interest is approximately equal to

The risk premium for common stocks

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 holding period return for XYZ stock?

LJP,Inc.has the following probability distribution of holding period returns on its stock. State of the Economy Probability HPR Boom .25 25\% Normal growth .45 15\% Recession .30 9\% The expected return on LJP's stock is

You purchased a share of stock for $30.One year later you received $1.50 as a dividend and sold the share for $32.25.What was your holding-period return?

Which of the following measures of risk best highlights the potential loss from extreme negative returns?

Discuss the relationships between interest rates (both real and nominal),expected inflation rates,and tax rates on investment returns.

You purchased a share of stock for $20.One year later you received $1 as dividend and sold the share for $29.What was your holding period return?

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

The holding-period return (HPR)for a stock is equal to

If a portfolio had a return of 10%,the risk free asset return was 4%,and the standard deviation of the portfolio's excess returns was 25%,the risk premium would be _____.

Over the past year you earned a nominal rate of interest of 10 percent on your money.The inflation rate was 5 percent over the same period.The exact actual growth rate of your purchasing power was

The holding period return (HPR)on a share of stock is equal to

If a portfolio had a return of 15%,the risk free asset return was 3%,and the standard deviation of the portfolio's excess returns was 34%,the risk premium would be _____.

An investor purchased a bond 63 days ago for $980.He received $17 in interest and sold the bond for $987.What is the holding-period return on his investment?

If the annual real rate of interest is 5% and the expected inflation rate is 4%,the nominal rate of interest would be approximately

What has been the relationship between T-Bill rates and inflation rates throughout the 1980s and 1990s?

Which of the following determine(s)the level of real interest rates? I.the supply of savings by households and business firms II.the demand for investment funds III.the government's net supply and/or demand for funds

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

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