Question 1

If a distribution has "fat tails," it exhibits

Accepted Answer

A)  positive skewness. 
B)  negative skewness. 
C)  a kurtosis of zero. 
D)  kurtosis. 
E)  positive skewness and kurtosis. 
A)  positive skewness. 
B)  negative skewness. 
C)  a kurtosis of zero. 
D)  kurtosis. 
E)  positive skewness and kurtosis.

Question 2

Ceteris paribus, a decrease in the demand for loans

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.

Question 3

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 4

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 5

A year ago, you invested $10,000 in a savings account that pays an annual interest rate of 5%. What is your approximate annual real rate of return if the rate of inflation was 3.5% over the year?

Accepted Answer

A)  1.5% 
B)  10% 
C)  7% 
D)  3% 
E)  None of the options are correct. 
A)  1.5% 
B)  10% 
C)  7% 
D)  3% 
E)  None of the options are correct.

Question 6

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 7

If the annual real rate of interest is 3.5%, and the expected inflation rate is 3.5%, the nominal rate of interest would be approximately

Accepted Answer

A)  0%. 
B)  3.5%. 
C)  12.25%. 
D)  7%. 
A)  0%. 
B)  3.5%. 
C)  12.25%. 
D)  7%.

Question 8

Practitioners often use a ________% VaR, meaning that ________% of returns will exceed the VaR, and ________% will be worse.

Accepted Answer

A)  25; 75; 25 
B)  75; 25; 75 
C)  1; 99; 51 
D)  95; 5; 95 
E)  80; 80; 20 
A)  25; 75; 25 
B)  75; 25; 75 
C)  1; 99; 51 
D)  95; 5; 95 
E)  80; 80; 20

Question 9

If 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 nor 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 nor lose. 
E)  both borrowers and savers gain.

Question 10

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 11

Over the past year, you earned a nominal rate of interest of 10% on your money. The inflation rate was 5% 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 12

If an investment provides a 0.78% return monthly, its effective annual rate is

Accepted Answer

A)  9.36%. 
B)  9.63%. 
C)  10.02%. 
D)  9.77%. 
A)  9.36%. 
B)  9.63%. 
C)  10.02%. 
D)  9.77%.

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

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

Question 15

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 16

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

Question 18

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%

Question 19

Annual percentage rates (APRs) are computed using

Accepted Answer

A)  simple interest. 
B)  compound interest. 
C)  either simple interest or compound interest. 
D)  best estimates of expected real costs. 
E)  None of the options are correct. 
A)  simple interest. 
B)  compound interest. 
C)  either simple interest or compound interest. 
D)  best estimates of expected real costs. 
E)  None of the options are correct.

Question 20

A year ago, you invested $12,000 in an investment that produced a return of 18%. What is your approximate annual real rate of return if the rate of inflation was 2% over the year?

Accepted Answer

A)  18% 
B)  2% 
C)  16% 
D)  15% 
A)  18% 
B)  2% 
C)  16% 
D)  15%

Exam 5: Risk, Return, and the Historical Record

If a distribution has "fat tails," it exhibits

Ceteris paribus, a decrease in the demand for loans

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

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

A year ago, you invested $10,000 in a savings account that pays an annual interest rate of 5%. What is your approximate annual real rate of return if the rate of inflation was 3.5% over the year?

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 the annual real rate of interest is 3.5%, and the expected inflation rate is 3.5%, the nominal rate of interest would be approximately

Practitioners often use a ________% VaR, meaning that ________% of returns will exceed the VaR, and ________% will be worse.

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

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

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

If an investment provides a 0.78% return monthly, its effective annual rate is

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?

Skewness is a measure of

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

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

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?

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?

Annual percentage rates (APRs) are computed using

A year ago, you invested $12,000 in an investment that produced a return of 18%. What is your approximate annual real rate of return if the rate of inflation was 2% 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

Filters

Practitioners often use a % VaR, meaning that % of returns will exceed the VaR, and % will be worse.