1) The risk of an asset can be measured statistically on an absolute basis by the coefficient of variation and on a relative basis by the standard deviation. True or false

2) The stated rate of interest is equal to the true rate of interest only when

A. the simple interest method is used.

B. interest is compounded continuously.

C. interest is computed semi-annually.

D. interest is computed monthly.

3) When the cost of an investment exceeds the present value of its benefits, the investor would be earning a rate of return

A. greater than the discount rate.

B. equal to the discount rate.

C. equal to the compounded rate.

D. less than the discount rate.

4) In investment theory, the rate of return that could be earned in an inflation-free, perfect world where all outcomes are known and certain is known as the

A. absolute return.

B. required rate of return.

C. real rate of return.

D. expected rate of return.

5) The yield is the rate of return that causes a project to have a zero net present value. true or false

6) Which one of the following statements is correct?

A. A capital loss is computed as the reduction in the value of an investment minus the income received from that investment.

B. The total return from an investment is equal to the capital gain minus the current income.

C. A capital gain is equal to the amount paid for an investment minus the proceeds received from the sale of that investment.

D. Current income is cash or near-cash that is periodically received as a result of owning an investment.

7) The yield assumes you earn the yield rate of return on all income received during the holding period. True or false

8) Investors who favor risk free and low risk investments may still be subject to purchasing power risk. True or false

9) Most investors are risk-seeking. True or false

10) The financial concept of time value of money is dependent upon the opportunity to earn interest over time. True or false