Question 1

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 the options 
A) Standard deviation 
B) Variance 
C) Upper partial standard deviation 
D) Value at risk (VaR) 
E) None of the options D

Question 2

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 rates. 
D) results from an increase in business prospects and a decrease in the level of savings. 
A) drives the interest rate down. 
B) drives the interest rate up. 
C) might not have any effect on interest rates. 
D) results from an increase in business prospects and a decrease in the level of savings. A

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. A

Question 4

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) 1.02% 
B) 0.50% 
C) 1.92% 
D) 0.01% 
A) 1.02% 
B) 0.50% 
C) 1.92% 
D) 0.01%

Question 5

If a portfolio had a return of 8%, the risk-free asset return was 3%, and the standard deviation of the portfolio's excess returns was 20%, the Sharpe measure would be

Accepted Answer

A) 0.08. 
B) 0.03. 
C) 0.20. 
D) 0.11. 
E) 0.25. 
A) 0.08. 
B) 0.03. 
C) 0.20. 
D) 0.11. 
E) 0.25.

Question 6

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 7

You have been given this probability distribution for the holding-period return for KMP stock:   What is the expected holding-period return for KMP stock

Accepted Answer

A) 10.40% 
B) 9.32% 
C) 11.63% 
D) 11.54% 
E) 10.88% 
A) 10.40% 
B) 9.32% 
C) 11.63% 
D) 11.54% 
E) 10.88%

Question 8

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 
A) I only 
B) II only 
C) I and II only 
D) I, II, and III

Question 9

Skewness is a measure of

Accepted Answer

A) how fat the tails of a distribution are. 
B) the downside risk of a distribution. 
C) the normality of a distribution. 
D) the dividend yield of the distribution. 
E) None of the options 
A) how fat the tails of a distribution are. 
B) the downside risk of a distribution. 
C) the normality of a distribution. 
D) the dividend yield of the distribution. 
E) None of the options

Question 10

If a portfolio had a return of 18%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 34%, the risk premium would be

Accepted Answer

A) 13%. 
B) 18%. 
C) 49%. 
D) 12%. 
E) 29%. 
A) 13%. 
B) 18%. 
C) 49%. 
D) 12%. 
E) 29%.

Question 11

If an investment provides a 2.1% return quarterly, its effective annual rate is

Accepted Answer

A) 2.1%. 
B) 8.4%. 
C) 8.56%. 
D) 8.67%. 
A) 2.1%. 
B) 8.4%. 
C) 8.56%. 
D) 8.67%.

Question 12

Toyota stock has the following probability distribution of expected prices one year from now:   If you buy Toyota today for $55 and it will pay a dividend during the year of $4 per share, what is your expected holding-period return on Toyota

Accepted Answer

A) 17.72% 
B) 18.89% 
C) 17.91% 
D) 18.18% 
A) 17.72% 
B) 18.89% 
C) 17.91% 
D) 18.18%

Question 13

If a portfolio had a return of 15%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 30%, the Sharpe measure would be

Accepted Answer

A) 0.20. 
B) 0.35. 
C) 0.45. 
D) 0.33. 
E) 0.25. 
A) 0.20. 
B) 0.35. 
C) 0.45. 
D) 0.33. 
E) 0.25.

Question 14

Historical records regarding return on stocks, Treasury bonds, and Treasury bills between 1926 and 2012 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.

Question 15

You have been given this probability distribution for the holding-period return for a stock:   What is the expected variance for the stock

Accepted Answer

A) 142.07% 
B) 189.96% 
C) 177.04% 
D) 128.17% 
E) None of the options 
A) 142.07% 
B) 189.96% 
C) 177.04% 
D) 128.17% 
E) None of the options

Question 16

You have been given this probability distribution for the holding-period return for a stock:   What is the expected standard deviation for the stock

Accepted Answer

A) 2.07% 
B) 9.96% 
C) 7.04% 
D) 1.44% 
E) None of the options 
A) 2.07% 
B) 9.96% 
C) 7.04% 
D) 1.44% 
E) None of the options

Question 17

If the annual real rate of interest is 2.5% and the expected inflation rate is 3.4%, the nominal rate of interest would be approximately

Accepted Answer

A) 4.9%. 
B) 0.9%. 
C) -0.9%. 
D) 7%. 
E) None of the options 
A) 4.9%. 
B) 0.9%. 
C) -0.9%. 
D) 7%. 
E) None of the options

Question 18

"Bracket Creep" happens when

Accepted Answer

A) tax liabilities are based on real income and there is a negative inflation rate. 
B) tax liabilities are based on real income and there is a positive inflation rate. 
C) tax liabilities are based on nominal income and there is a negative inflation rate. 
D) tax liabilities are based on nominal income and there is a positive inflation rate. 
E) too many peculiar people make their way into the highest tax bracket. 
A) tax liabilities are based on real income and there is a negative inflation rate. 
B) tax liabilities are based on real income and there is a positive inflation rate. 
C) tax liabilities are based on nominal income and there is a negative inflation rate. 
D) tax liabilities are based on nominal income and there is a positive inflation rate. 
E) too many peculiar people make their way into the highest tax bracket.

Question 19

You purchased a share of CSCO stock for $20.One year later you received $2 as a dividend and sold the share for $31.What was your holding-period return

Accepted Answer

A) 45% 
B) 50% 
C) 60% 
D) 40% 
E) None of the options 
A) 45% 
B) 50% 
C) 60% 
D) 40% 
E) None of the options

Question 20

A year ago, you invested $10,000 in a savings account that pays an annual interest rate of 3%.What is your approximate annual real rate of return if the rate of inflation was 4% over the year

Accepted Answer

A) 1% 
B) -1% 
C) 7% 
D) 3% 
A) 1% 
B) -1% 
C) 7% 
D) 3%

Exam 5: Risk, Return, and the Historical Record

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

Ceteris paribus, a decrease in the demand for loanable funds

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

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

If a portfolio had a return of 8%, the risk-free asset return was 3%, and the standard deviation of the portfolio's excess returns was 20%, the Sharpe measure would be

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

You have been given this probability distribution for the holding-period return for KMP stock: What is the expected holding-period return for KMP stock

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

Skewness is a measure of

If a portfolio had a return of 18%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 34%, the risk premium would be

If an investment provides a 2.1% return quarterly, its effective annual rate is

Toyota stock has the following probability distribution of expected prices one year from now: If you buy Toyota today for $55 and it will pay a dividend during the year of $4 per share, what is your expected holding-period return on Toyota

If a portfolio had a return of 15%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 30%, the Sharpe measure would be

Historical records regarding return on stocks, Treasury bonds, and Treasury bills between 1926 and 2012 show that

You have been given this probability distribution for the holding-period return for a stock: What is the expected variance for the stock

You have been given this probability distribution for the holding-period return for a stock: What is the expected standard deviation for the stock

If the annual real rate of interest is 2.5% and the expected inflation rate is 3.4%, the nominal rate of interest would be approximately

"Bracket Creep" happens when

You purchased a share of CSCO stock for $20.One year later you received $2 as a dividend and sold the share for $31.What was your holding-period return

A year ago, you invested $10,000 in a savings account that pays an annual interest rate of 3%.What is your approximate annual real rate of return if the rate of inflation was 4% over the year

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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