Question 1

When ranking the riskiness of securities using the standard deviation, the highest risk security to the lowest risk security is as follows:

Accepted Answer

A) Small stocks, large stocks, long-term government bonds, U.S. treasury bills. 
B) Long-term government bonds, small stocks, large stocks, U.S. treasury bills. 
C) Large stocks, small stocks, long-term government bonds, U.S. treasury bills. 
D) Small stocks, long-term government bonds, large stocks, U.S. treasury bills. 
E) U.S. treasury bills, long-term government bonds, large stocks, small stocks. 
A) Small stocks, large stocks, long-term government bonds, U.S. treasury bills. 
B) Long-term government bonds, small stocks, large stocks, U.S. treasury bills. 
C) Large stocks, small stocks, long-term government bonds, U.S. treasury bills. 
D) Small stocks, long-term government bonds, large stocks, U.S. treasury bills. 
E) U.S. treasury bills, long-term government bonds, large stocks, small stocks. A

Question 2

Every investment requires a total return comprised of a real rate of return, compensation for inflationary expectations, and a risk premium.

Accepted Answer

A) True 
 B)False  True

Question 3

What is the risk-free rate in an environment where the real rate is 3% and inflation is running at 3%? Use either method found in chapter one.

Accepted Answer

A) 14.5% or just 14% 
B) 10.21% or just 10% 
C) 6.09% or just 6% 
D) 9.09% or just 9% 
E) 0% 
A) 14.5% or just 14% 
B) 10.21% or just 10% 
C) 6.09% or just 6% 
D) 9.09% or just 9% 
E) 0% C

Question 4

Liquidity refers to how little the sales price of an asset has decreased from its cost.

Accepted Answer

A) True 
 B)False

Question 5

Common stock represents a direct equity claim.

Accepted Answer

A) True 
 B)False

Question 6

It is generally thought that young, upwardly mobile people should take less risk than elderly people living on a fixed income.

Accepted Answer

A) True 
 B)False

Question 7

Assume the real rate of return in the economy is 4.25%, the expected rate of inflation is 3.5%, and the risk premium is 6.75%. Compute the risk-free rate and required rate of return.

Accepted Answer

Risk free rate = .079 or 7.9%
or
Rf = .1

Question 8

Unlike the risk-free rate, the level of the risk premium varies by investment.

Accepted Answer

A) True 
 B)False

Question 9

To achieve maximum diversification benefits, an investor should invest in projects which are highly correlated.

Accepted Answer

A) True 
 B)False

Question 10

An aggressive portfolio might include real assets.

Accepted Answer

A) True 
 B)False

Question 11

The ability of the investor to convert an investment into cash in a short period of time is called:

Accepted Answer

A) short-term orientation. 
B) low investment risk. 
C) liquidity. 
D) capital appreciation. 
E) None of the above 
A) short-term orientation. 
B) low investment risk. 
C) liquidity. 
D) capital appreciation. 
E) None of the above

Question 12

Which of the following is not a form of real asset?

Accepted Answer

A) Rare paintings 
B) Baseball cards 
C) Diamonds 
D) Real estate 
E) Commodity futures 
A) Rare paintings 
B) Baseball cards 
C) Diamonds 
D) Real estate 
E) Commodity futures

Question 13

An investor can totally eliminate time-consuming investment management activities by participating in a mutual fund or limited partnership.

Accepted Answer

A) True 
 B)False

Question 14

The only compensation anticipated from an investment is for inflation protection.

Accepted Answer

A) True 
 B)False

Question 15

Beta measures a security's return relative to the market.

Accepted Answer

A) True 
 B)False

Question 16

Pension funds are a form of indirect equity claims.

Accepted Answer

A) True 
 B)False

Question 17

Prior to the Taxpayer Relief Act of 1997, long-term capital gains were taxed at ordinary income tax rates.

Accepted Answer

A) True 
 B)False

Question 18

One of the reasons a short-term trader has difficulty in beating the market is because of:

Accepted Answer

A) risk. 
B) lack of information. 
C) large institutional investors. 
D) commissions. 
A) risk. 
B) lack of information. 
C) large institutional investors. 
D) commissions.

Question 19

Those who attempt to engage in short-term market tactics are termed traders.

Accepted Answer

A) True 
 B)False

Question 20

Deposits in an IRA are:

Accepted Answer

A) allowed to grow tax free until withdrawal. 
B) deducted from current income tax due. 
C) deducted from current income to reduce income tax due. 
D) A and C 
A) allowed to grow tax free until withdrawal. 
B) deducted from current income tax due. 
C) deducted from current income to reduce income tax due. 
D) A and C

Exam 1: The Investment Setting

When ranking the riskiness of securities using the standard deviation, the highest risk security to the lowest risk security is as follows:

Every investment requires a total return comprised of a real rate of return, compensation for inflationary expectations, and a risk premium.

What is the risk-free rate in an environment where the real rate is 3% and inflation is running at 3%? Use either method found in chapter one.

Liquidity refers to how little the sales price of an asset has decreased from its cost.

Common stock represents a direct equity claim.

It is generally thought that young, upwardly mobile people should take less risk than elderly people living on a fixed income.

Assume the real rate of return in the economy is 4.25%, the expected rate of inflation is 3.5%, and the risk premium is 6.75%. Compute the risk-free rate and required rate of return.

Unlike the risk-free rate, the level of the risk premium varies by investment.

To achieve maximum diversification benefits, an investor should invest in projects which are highly correlated.

An aggressive portfolio might include real assets.

The ability of the investor to convert an investment into cash in a short period of time is called:

Which of the following is not a form of real asset?

An investor can totally eliminate time-consuming investment management activities by participating in a mutual fund or limited partnership.

The only compensation anticipated from an investment is for inflation protection.

Beta measures a security's return relative to the market.

Pension funds are a form of indirect equity claims.

Prior to the Taxpayer Relief Act of 1997, long-term capital gains were taxed at ordinary income tax rates.

One of the reasons a short-term trader has difficulty in beating the market is because of:

Those who attempt to engage in short-term market tactics are termed traders.

Deposits in an IRA are:

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, Exchange-Traded Funds, Closed-End Funds, and Unit Investment Trusts

Economic Activity

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

Efficient Markets and Anomalies

Behavioral Finance and Technical Analysis

Bond and Fixed-Income Fundamentals

Principles of Bond Valuation and Investment

Convertible Securities and Warrants

Put and Call Options

Commodities and Financial Futures

Stock Index Futures and Options

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Alternative Investments: Private Equity and Hedge Funds

Measuring Risks and Returns of Portfolio Managers

A Comprehensive Analysis for Real Estate Investment Decisions

The Makeup of Institutional Investors

Filters