Question 1

Which of the following statement(s) is(are) true

Accepted Answer

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

Question 2

If the annual real rate of interest is 4% and the expected inflation rate is 3%, the nominal rate of interest would be approximately

Accepted Answer

A) 4%. 
B) 3%. 
C) 1%. 
D) 5%. 
E) None of the options 
A) 4%. 
B) 3%. 
C) 1%. 
D) 5%. 
E) None of the options

Question 3

The most common measure of loss associated with extremely negative returns is

Accepted Answer

A) lower partial standard deviation. 
B) value at risk. 
C) expected shortfall. 
D) standard deviation. 
A) lower partial standard deviation. 
B) value at risk. 
C) expected shortfall. 
D) standard deviation.

Question 4

You purchased a share of stock for $20.One year later you received $1 as a 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 the options 
A) 45% 
B) 50% 
C) 5% 
D) 40% 
E) None of the options

Question 5

________ is a risk measure that indicates vulnerability to extreme negative returns.

Accepted Answer

A) Value at risk 
B) Lower partial standard deviation 
C) Standard deviation 
D) Value at risk and lower partial standard deviation 
E) None of the options 
A) Value at risk 
B) Lower partial standard deviation 
C) Standard deviation 
D) Value at risk and lower partial standard deviation 
E) None of the options

Question 6

What has been the relationship between T-Bill rates and inflation rates since the 1980s

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 almost the entire period. 
E) The T-Bill rate has been lower than the inflation rate almost the entire period. 
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 almost the entire period. 
E) The T-Bill rate has been lower than the inflation rate almost the entire period.

Question 7

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) declines as the inflation rate increases and increases as the inflation rate decreases. 
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) declines as the inflation rate increases and increases as the inflation rate decreases.

Question 8

If the annual real rate of interest is 2.5% and the expected inflation rate is 3.7%, the nominal rate of interest would be approximately

Accepted Answer

A) 3.7%. 
B) 6.2%. 
C) 2.5%. 
D) -1.2%. 
A) 3.7%. 
B) 6.2%. 
C) 2.5%. 
D) -1.2%.

Question 9

Over the past year you earned a nominal rate of interest of 8% on your money.The inflation rate was 4% 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

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 Fed.
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 11

Over the past year you earned a nominal rate of interest of 14% on your money.The inflation rate was 2% over the same period.The exact actual growth rate of your purchasing power was

Accepted Answer

A) 11.76%. 
B) 16.00%. 
C) 15.02%. 
D) 14.32%. 
A) 11.76%. 
B) 16.00%. 
C) 15.02%. 
D) 14.32%.

Question 12

If a portfolio had a return of 12%, 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) 8%. 
B) 16%. 
C) 37%. 
D) 21%. 
E) 29%. 
A) 8%. 
B) 16%. 
C) 37%. 
D) 21%. 
E) 29%.

Question 13

A year ago, you invested $2,500 in a savings account that pays an annual interest rate of 2.5%.What is your approximate annual real rate of return if the rate of inflation was 3.4% over the year

Accepted Answer

A) 0.9% 
B) -0.9% 
C) 5.9% 
D) 3.4% 
A) 0.9% 
B) -0.9% 
C) 5.9% 
D) 3.4%

Question 14

A year ago, you invested $1,000 in a savings account that pays an annual interest rate of 4.3%.What is your approximate annual real rate of return if the rate of inflation was 3% over the year

Accepted Answer

A) 4.3% 
B) -1.3% 
C) 7.3% 
D) 3% 
E) None of the options 
A) 4.3% 
B) -1.3% 
C) 7.3% 
D) 3% 
E) None of the options

Question 15

If an investment provides a 3% return semi-annually, its effective annual rate is

Accepted Answer

A) 3%. 
B) 6%. 
C) 6.06%. 
D) 6.09%. 
A) 3%. 
B) 6%. 
C) 6.06%. 
D) 6.09%.

Question 16

You purchased a share of stock for $12.One year later you received $0.25 as a dividend and sold the share for $12.92.What was your holding-period return

Accepted Answer

A) 9.75% 
B) 10.65% 
C) 11.75% 
D) 11.25% 
E) None of the options 
A) 9.75% 
B) 10.65% 
C) 11.75% 
D) 11.25% 
E) None of the options

Question 17

A year ago, you invested $2,500 in a savings account that pays an annual interest rate of 5.7%.What is your approximate annual real rate of return if the rate of inflation was 1.6% over the year

Accepted Answer

A) 4.1% 
B) 2.5% 
C) 2.9% 
D) 1.6% 
A) 4.1% 
B) 2.5% 
C) 2.9% 
D) 1.6%

Question 18

If the Federal Reserve 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; 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; reverse direction from their previous trends

Question 19

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%. 
A) 1%. 
B) 9%. 
C) 20%. 
D) 15%.

Question 20

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. 
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.

Exam 5: Risk, Return, and the Historical Record

Which of the following statement(s) is(are) true

If the annual real rate of interest is 4% and the expected inflation rate is 3%, the nominal rate of interest would be approximately

The most common measure of loss associated with extremely negative returns is

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

________ is a risk measure that indicates vulnerability to extreme negative returns.

What has been the relationship between T-Bill rates and inflation rates since the 1980s

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

If the annual real rate of interest is 2.5% and the expected inflation rate is 3.7%, the nominal rate of interest would be approximately

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

Over the past year you earned a nominal rate of interest of 14% on your money.The inflation rate was 2% over the same period.The exact actual growth rate of your purchasing power was

If a portfolio had a return of 12%, the risk-free asset return was 4%, and the standard deviation of the portfolio's excess returns was 25%, the risk premium would be

A year ago, you invested $2,500 in a savings account that pays an annual interest rate of 2.5%.What is your approximate annual real rate of return if the rate of inflation was 3.4% over the year

A year ago, you invested $1,000 in a savings account that pays an annual interest rate of 4.3%.What is your approximate annual real rate of return if the rate of inflation was 3% over the year

If an investment provides a 3% return semi-annually, its effective annual rate is

You purchased a share of stock for $12.One year later you received $0.25 as a dividend and sold the share for $12.92.What was your holding-period return

A year ago, you invested $2,500 in a savings account that pays an annual interest rate of 5.7%.What is your approximate annual real rate of return if the rate of inflation was 1.6% over the year

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

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

Other things equal, an increase in the government budget deficit

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

Filters

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