Question 1

The variability of operating earnings is associated with

Accepted Answer

A)  Business risk. 
B)  Liquidity risk. 
C)  Exchange rate risk. 
D)  Financial risk. 
E)  Market risk. 
A)  Business risk. 
B)  Liquidity risk. 
C)  Exchange rate risk. 
D)  Financial risk. 
E)  Market risk.

Question 2

Two factors that influence the nominal risk-free rate are:

Accepted Answer

A)  The relative ease or tightness in capital markets and the expected rate of inflation. 
B)  The expected rate of inflation and the set of investment opportunities available in the economy. 
C)  The relative ease or tightness in capital markets and the set of investment opportunities available in the economy. 
D)  Time preference for income consumption and the relative ease or tightness in capital markets. 
E)  Time preference for income consumption and the set of investment opportunities available in the economy. 
A)  The relative ease or tightness in capital markets and the expected rate of inflation. 
B)  The expected rate of inflation and the set of investment opportunities available in the economy. 
C)  The relative ease or tightness in capital markets and the set of investment opportunities available in the economy. 
D)  Time preference for income consumption and the relative ease or tightness in capital markets. 
E)  Time preference for income consumption and the set of investment opportunities available in the economy.

Question 3

An investment is the current commitment of dollars over time to derive future payments to compensate the investor for the time funds are committed, the expected rate of inflation and the uncertainty of future payments.

Accepted Answer

A) True 
 B)False

Question 4

The variance of expected returns is equal to the square root of the expected returns.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 1-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Assume that you hold a two stock portfolio. You are provided with the following information on your holdings. $\begin{array}{|l|l|l|l|}
\hline \text { Stock } & \text { Shares } & \text { Price }(t) & \text { Price }(t+1) \
\hline 1 & 15 & 10 & 12 \
\hline 2 & 25 & 15 & 16 \
\hline
\end{array}$
-Refer to Exhibit 1-8. Calculate the HPY for the portfolio

Accepted Answer

A)  10.6% 
B)  6.95% 
C)  13.5% 
D)  10% 
E)  15.7% 
A)  10.6% 
B)  6.95% 
C)  13.5% 
D)  10% 
E)  15.7%

Question 6

Exhibit 1-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Assume that you hold a two stock portfolio. You are provided with the following information on your holdings. $\begin{array}{|l|l|l|l|}
\hline \text { Stock } & \text { Shares } & \text { Price }(t) & \text { Price }(t+1) \
\hline 1 & 15 & 10 & 12 \
\hline 2 & 25 & 15 & 16 \
\hline
\end{array}$
-Refer to Exhibit 1-8. Calculate the market weights for Stocks 1 and 2 based on period t values

Accepted Answer

A)  39% for stock 1 and 61% for stock 2 
B)  50% for stock 1 and 50% for stock 2 
C)  71% for stock 1 and 29% for stock 2 
D)  29% for stock 1 and 71% for stock 2 
E)  None of the above 
A)  39% for stock 1 and 61% for stock 2 
B)  50% for stock 1 and 50% for stock 2 
C)  71% for stock 1 and 29% for stock 2 
D)  29% for stock 1 and 71% for stock 2 
E)  None of the above

Question 7

Exhibit 1-9
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
You purchased 100 shares of GE common stock on January 1, for $29 per share. A year later you received $1.25 in dividends per share and you sold it for $28 per share.
-Refer to Exhibit 1-9. Calculate your holding period return (HPR) for this investment in GE stock.

Accepted Answer

A)  0.9655 
B)  1.0086 
C)  1.0357 
D)  1.0804 
E)  1.0973 
A)  0.9655 
B)  1.0086 
C)  1.0357 
D)  1.0804 
E)  1.0973

Question 8

The _____________ the variance of returns, everything else remaining constant, the ______ the dispersion of expectations and the ________________ the risk.

Accepted Answer

A)  Larger, greater, lower 
B)  Larger, smaller, higher 
C)  Larger, greater, higher 
D)  Smaller, greater, lower 
E)  Smaller, greater, greater 
A)  Larger, greater, lower 
B)  Larger, smaller, higher 
C)  Larger, greater, higher 
D)  Smaller, greater, lower 
E)  Smaller, greater, greater

Question 9

Measures of risk for an investment include

Accepted Answer

A)  Variance of returns and business risk 
B)  Coefficient of variation of returns and financial risk 
C)  Business risk and financial risk 
D)  Variance of returns and coefficient of variation of returns 
E)  All of the above 
A)  Variance of returns and business risk 
B)  Coefficient of variation of returns and financial risk 
C)  Business risk and financial risk 
D)  Variance of returns and coefficient of variation of returns 
E)  All of the above

Question 10

Exhibit 10
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The annual rates of return of Stock Z for the last four years are 0.10, 0.15, -0.05, and 0.20, respectively.
-Refer to Exhibit 1-10. Compute the geometric mean rate of return for Stock Z.

Accepted Answer

A)  0.051 
B)  0.074 
C)  0.096 
D)  0.150 
E)  1.090 
A)  0.051 
B)  0.074 
C)  0.096 
D)  0.150 
E)  1.090

Question 11

Exhibit 1-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Assume you bought 100 shares of NewTech common stock on January 15, 2009 at $50.00 per share and sold it on January 15, 2010 for $40.00 per share.
-Refer to Exhibit 1-1. What was your holding period yield?

Accepted Answer

A)  -10% 
B)  -0.8 
C)  25% 
D)  0.8 
E)  -20% 
A)  -10% 
B)  -0.8 
C)  25% 
D)  0.8 
E)  -20%

Question 12

Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of interest.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 1-9
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
You purchased 100 shares of GE common stock on January 1, for $29 per share. A year later you received $1.25 in dividends per share and you sold it for $28 per share.
-Refer to Exhibit 1-9. Calculate your holding period yield (HPY) for this investment in GE stock.

Accepted Answer

A)  0.0345 
B)  0.0090 
C)  0.0086 
D)  0.0643 
E)  0.0804 
A)  0.0345 
B)  0.0090 
C)  0.0086 
D)  0.0643 
E)  0.0804

Question 14

The rate of exchange between future consumption and current consumption is

Accepted Answer

A)  The nominal risk-free rate. 
B)  The coefficient of investment exchange. 
C)  The pure rate of interest. 
D)  The consumption/investment paradigm. 
E)  The expected rate of return. 
A)  The nominal risk-free rate. 
B)  The coefficient of investment exchange. 
C)  The pure rate of interest. 
D)  The consumption/investment paradigm. 
E)  The expected rate of return.

Question 15

Exhibit 1-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Assume that during the past year the consumer price index increased by 1.5% percent and the securities listed below returned the following nominal rates of return.
 $\begin{array}{l}
\text {Canadian T-bils  } &2.75 \% \
\text {Canadian corporate bonds  } &4.75 \%
\end{array}$
-Given investments A and B with the following risk return characteristics, which one would you prefer and why? $\begin{array}{lll}
\text { Investment } & \text { Expected Return } & \begin{array}{l}
\text { Standard Deviation } \
\text { of Expected Returns }
\end{array} \
\hline \mathrm{A} & 12.2 \% & 7 \% \
\mathrm{~B} & 8.8 \% & 5 \%
\end{array}$

Accepted Answer

A)  Investment A because it has the highest expected return. 
B)  Investment A because it has the lowest relative risk. 
C)  Investment B because it has the lowest absolute risk. 
D)  Investment B because it has the lowest coefficient of variation. 
E)  Investment A because it has the highest coefficient of variation. 
A)  Investment A because it has the highest expected return. 
B)  Investment A because it has the lowest relative risk. 
C)  Investment B because it has the lowest absolute risk. 
D)  Investment B because it has the lowest coefficient of variation. 
E)  Investment A because it has the highest coefficient of variation.

Question 16

In the phrase "nominal risk free rate," nominal means

Accepted Answer

A)  Computed. 
B)  Historical. 
C)  Market. 
D)  Average. 
E)  Risk adverse. 
A)  Computed. 
B)  Historical. 
C)  Market. 
D)  Average. 
E)  Risk adverse.

Question 17

The security market line (SML) graphs the expected relationship between

Accepted Answer

A)  Business risk and financial risk 
B)  Systematic risk and unsystematic risk 
C)  Risk and return 
D)  Systematic risk and unsystematic return 
E)  None of the above 
A)  Business risk and financial risk 
B)  Systematic risk and unsystematic risk 
C)  Risk and return 
D)  Systematic risk and unsystematic return 
E)  None of the above

Question 18

The uncertainty of investment returns associated with how a firm finances its investments is known as

Accepted Answer

A)  Business risk. 
B)  Liquidity risk. 
C)  Exchange rate risk. 
D)  Financial risk. 
E)  Market risk. 
A)  Business risk. 
B)  Liquidity risk. 
C)  Exchange rate risk. 
D)  Financial risk. 
E)  Market risk.

Question 19

Exhibit 1-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The common stock of XMen had the following historic prices. $$\begin{array} { l l } 
\text { Time } & \text { Price of XMen } \
\hline 3 / 01 / 2004 & 50.00 \
3 / 01 / 2005 & 47.00 \
3 / 01 / 2006 & 76.00 \
3 / 01 / 2007 & 80.00 \
3 / 01 / 2008 & 85.00 \
3 / 01 / 2009 & 90.00
\end{array}$$
-Refer to Exhibit 1-3. What was your holding period return for the time period 3/1/2004 to 3/1/2009?

Accepted Answer

A)  0.1247 
B)  1.8 
C)  0.1462 
D)  0.40 
E)  0.25 
A)  0.1247 
B)  1.8 
C)  0.1462 
D)  0.40 
E)  0.25

Question 20

The coefficient of variation is a measure of

Accepted Answer

A)  Central tendency. 
B)  Absolute variability. 
C)  Absolute dispersion. 
D)  Relative variability. 
E)  Relative return. 
A)  Central tendency. 
B)  Absolute variability. 
C)  Absolute dispersion. 
D)  Relative variability. 
E)  Relative return.

The variability of operating earnings is associated with

Two factors that influence the nominal risk-free rate are:

An investment is the current commitment of dollars over time to derive future payments to compensate the investor for the time funds are committed, the expected rate of inflation and the uncertainty of future payments.

The variance of expected returns is equal to the square root of the expected returns.

Exhibit 1-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Assume that you hold a two stock portfolio. You are provided with the following information on your holdings. Stock Shares Price (t) Price (t+1) 1 15 10 12 2 25 15 16 -Refer to Exhibit 1-8. Calculate the HPY for the portfolio

The _ the variance of returns, everything else remaining constant, the the dispersion of expectations and the ______ the risk.

Measures of risk for an investment include

Exhibit 10 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) The annual rates of return of Stock Z for the last four years are 0.10, 0.15, -0.05, and 0.20, respectively. -Refer to Exhibit 1-10. Compute the geometric mean rate of return for Stock Z.

Exhibit 1-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Assume you bought 100 shares of NewTech common stock on January 15, 2009 at $50.00 per share and sold it on January 15, 2010 for $40.00 per share. -Refer to Exhibit 1-1. What was your holding period yield?

Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of interest.

The rate of exchange between future consumption and current consumption is

In the phrase "nominal risk free rate," nominal means

The security market line (SML) graphs the expected relationship between

The uncertainty of investment returns associated with how a firm finances its investments is known as

The coefficient of variation is a measure of

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

Filters

Exam 1: The Investment Setting

The variability of operating earnings is associated with

Two factors that influence the nominal risk-free rate are:

An investment is the current commitment of dollars over time to derive future payments to compensate the investor for the time funds are committed, the expected rate of inflation and the uncertainty of future payments.

The variance of expected returns is equal to the square root of the expected returns.

Exhibit 1-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Assume that you hold a two stock portfolio. You are provided with the following information on your holdings. Stock Shares Price (t) Price (t+1) 1 15 10 12 2 25 15 16 -Refer to Exhibit 1-8. Calculate the HPY for the portfolio

The _____________ the variance of returns, everything else remaining constant, the ______ the dispersion of expectations and the ________________ the risk.

Measures of risk for an investment include

Exhibit 10 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) The annual rates of return of Stock Z for the last four years are 0.10, 0.15, -0.05, and 0.20, respectively. -Refer to Exhibit 1-10. Compute the geometric mean rate of return for Stock Z.

Exhibit 1-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Assume you bought 100 shares of NewTech common stock on January 15, 2009 at $50.00 per share and sold it on January 15, 2010 for $40.00 per share. -Refer to Exhibit 1-1. What was your holding period yield?

Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of interest.

The rate of exchange between future consumption and current consumption is

In the phrase "nominal risk free rate," nominal means

The security market line (SML) graphs the expected relationship between

The uncertainty of investment returns associated with how a firm finances its investments is known as

The coefficient of variation is a measure of

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

Filters

The _ the variance of returns, everything else remaining constant, the the dispersion of expectations and the ______ the risk.