QUESTION 1

1. A flow of unending and equal payments that occur at regular intervals of time is called a(n):
2. A.amortized cash flow stream.
3. B.perpetuity.
4. C.indemnity.
5. D.annuity due.
6. E.amortization table.

1 points

QUESTION 2

1. A portfolio consists of three stocks. There are 540 shares of Stock A valued at $24.20 per share, 310 shares of Stock B valued at $48.10 a share, and 200 shares of Stock C priced at $26.50 a share. Stocks A, B, and C are expected to return 8.3 percent, 16.4 percent, and 11.7 percent, respectively. What is the expected return on this portfolio?
2. A.11.67%
3. B.12.50%
4. C.12.78%
5. D.12.47%
6. E.11.87%

2 points

QUESTION 3

1. A portfolio is entirely invested into BBB stock, which is expected to return 16.4 percent, and ZI bonds, which are expected to return 8.6 percent. 48 percent of the funds are invested in BBB and the rest in ZI. What is the expected return on the portfolio?
2. A.14.36%
3. B.14.20%
4. C.13.64%
5. D.12.34%
6. E.11.69%

1 points

QUESTION 4

1. A stock had returns of 9%, -6%, 4%, and 16% over the past four years. What is the standard deviation of these returns?
2. A.6.67%
3. B.7.14%
4. C.9.25%
5. D.7.98%
6. E.8.56%

1 points

QUESTION 5

1. A stock with an actual return that lies above the security market line has:
2. A.less systematic risk than the overall market.
3. B.yielded a return equivalent to the level of risk assumed.
4. C.yielded a higher return than expected for the level of risk assumed.
5. D.more risk than warranted based on the realized rate of return.
6. E.more systematic risk than the overall market.

1 points

QUESTION 6

1. Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period.
2. A.late annuities; straight annuities
3. B.ordinary annuities; annuities due
4. C.annuities due; ordinary annuities
5. D.ordinary annuities; early annuities
6. E.straight annuities; late annuities

1 points

QUESTION 7

1. BPJ stock is expected to earn 14.8 percent in a recession, 6.3 percent in a normal economy, and lose 4.7 percent in a booming economy. The probability of a boom is 20 percent while the probability of a normal economy is 55 percent. What is the expected rate of return on this stock?
2. A.6.72%
3. B.6.23%
4. C.7.60%
5. D.5.25%
6. E.8.11%

1 points

QUESTION 8

1. Eight months ago, you purchased 400 shares of Winston stock at a price of $46.40 a share. The company pays quarterly dividends of $1.05 a share and has made two dividend payments during the time you owned the shares. Today, you sold all of your shares for $48.30 a share. What is your total percentage return on this investment?
2. A.4.09%
3. B.8.62%
4. C.10.12%
5. D.7.34%
6. E.12.08%

1 points

QUESTION 9

1. Given a stated interest rate, which form of compounding will yield the highest effective rate of interest?
2. A.daily compounding
3. B.monthly compounding
4. C.annual compounding
5. D.continuous compounding
6. E.semiannual compounding

1 points

QUESTION 10

1. Kali's Ski Resort, Inc. stock is quite cyclical. In a boom economy, the stock is expected to return 30 percent in comparison to 12 percent in a normal economy and a negative 20 percent in a recessionary period. The probability of a recession is 15 percent while there is a 30 percent chance of a boom economy. The remainder of the time, the economy will be at normal levels. What is the standard deviation of the returns?
2. A.25.04%
3. B.15.83%
4. C.10.05%
5. D.12.60%
6. E.17.46%

1 points

QUESTION 11

1. Olivia is willing to pay $185 a month for four years for a car payment. If the interest rate is 4.9 percent, compounded monthly, and she has a cash down payment of $2,500, what price car can she afford to purchase?
2. A.$8,049.07
3. B.$10,961.36
4. C.$8,686.82
5. D.$10,549.07
6. E.$8,533.84

1 points

QUESTION 12

1. One year ago, you purchased a stock at a price of $33.48. The stock paid quarterly dividends of $.60 per share. Today, the stock is worth $35.20 per share. What is your holding period total return?
2. A.6.59%
3. B.6.93%
4. C.12.31%
5. D.9.80%
6. E.10.00%

1 points

QUESTION 13

1. Over the past four years, a stock produced returns of 14 percent, 22 percent, 6 percent, and -19 percent. Assuming that this stock's returns are normally distributed, what is the approximate probability that an investor in the stock willnotlose more than 30 percent nor earn more than 41 percent in any one given year?
2. A.95%
3. B.34%
4. C.84%
5. D.99%
6. E.68%

1 points

QUESTION 14

1. Risk that affects a large number of assets, each to a greater or lesser degree, is called _____ risk.
2. A.systematic
3. B.diversifiable
4. C.idiosyncratic
5. D.total
6. E.asset-specific

1 points

QUESTION 15

1. Risk that affects at most a small number of assets is called _____ risk.
2. A.nondiversifiable
3. B.market
4. C.portfolio
5. D.total
6. E.unsystematic

1 points

QUESTION 16

1. Shawn has $2,500 invested at a guaranteed rate of 4.35 percent, compounded annually. What will his investment be worth after five years?
2. A.$3,093.16
3. B.$2,020.59
4. C.$2,997.04
5. D.$3,288.00
6. E.$3,321.32

1 points

QUESTION 17

1. Standard deviation measures _____ risk while beta measures ____ risk.
2. A.nondiversifiable; diversifiable
3. B.total; unsystematic
4. C.unsystematic; systematic
5. D.total; systematic
6. E.unsystematic; total

1 points

QUESTION 18

1. Starting today, Alicia is going to contribute $100 a month to her retirement account. Her employer matches her contribution by 50 percent. If these contributions remain constant, and she earns a monthly rate of 0.55 percent, how much will her savings be worth 40 years from now?
2. A.$354,087.88
3. B.$299,189.16
4. C.$349,981.21
5. D.$300,456.74
6. E.$352,151.04

1 points

QUESTION 19

1. Stock A has a beta of 0.68 and an expected return of 8.1 percent. Stock B has a 1.42 beta and expected return of 13.9 percent. Stock C has a 1.23 beta and an expected return of 12.4 percent. Stock D has a 1.31 beta and an expected return of 12.6 percent. Stock E has a 0.94 beta and an expected return of 9.8 percent. Which one of these stocks is correctly priced if the risk-free rate of return is 2.5 percent and the market risk premium is 8 percent?
2. A.Stock B
3. B.Stock E
4. C.Stock D
5. D.Stock A
6. E.Stock C

1 points

QUESTION 20

1. Stock A has a beta of 1.2, Stock B's beta is 1.46, and Stock C's beta is 0.72. If you invest $2,000 in Stock A, $3,000 in Stock B, and $5,000 in Stock C, what will be the beta of your portfolio?
2. A.1.008
3. B.1.038
4. C.1.014
5. D.1.127
6. E.1.067

1 points

QUESTION 21

1. Stock S is expected to return 12 percent in a boom, 9 percent in a normal economy, and 2 percent in a recession. Stock T is expected to return 4 percent in a boom, 6 percent in a normal economy, and 9 percent in a recession. There is a 10 percent probability of a boom and a 25 percent probability of a recession. What is the standard deviation of a portfolio which is comprised of $4,500 of Stock S and $3,000 of Stock T?
2. A.2.6%
3. B.5.7%
4. C.7.2%
5. D.1.4%
6. E.1.9%

2 points

QUESTION 22

1. TH Manufacturers expects to generate cash flows of $129,600 per yearfor the next two years. At the end of the two years the business will be sold for an estimated $3.2 million. What is the value of this business today if the relevant discount rate is 14 percent?
2. A.$2,675,703.29
3. B.$2,704,654.82
4. C.$2,900,411.36
5. D.$2,848,391.60
6. E.$2,284,644.28

1 points

QUESTION 23

1. Ted purchased an annuity today that will pay $1,000 a month for five years. He received his first monthly payment today. Allison purchased an annuity today that will pay $1,000 a month for five years. She will receive her first payment one month from today. Assuming the same interest rate applies, whichone of the following statements is correct concerning these two annuities?
2. A.Ted's annuity has a higher present value than Allison's.
3. B.Both annuities are of equal value today.
4. C.Ted's annuity is an ordinary annuity.
5. D.Allison's annuity has a higher present value than Ted's.
6. E.Allison's annuity is an annuity due.

1 points

QUESTION 24

1. The expected return on a portfolio is best described as ____ average of the expected returns on the individual securities held in the portfolio.
2. A.a geometric
3. B.a compounded
4. C.a weighted
5. D.an arithmetic
6. E.a minimum

1 points

QUESTION 25

1. The principle of diversification tells us that:
2. A.concentrating an investment in two or three large stocks will eliminate all of your risk.
3. B.concentrating an investment in three companies all within the same industry will greatly reduce your overall risk.
4. C.spreading an investment across many diverse assets will eliminate idiosyncratic risk.
5. D.spreading an investment across five diverse companies will not lower your overall risk at all.
6. E.spreading an investment across many diverse assets will eliminate all of the risk.

1 points

QUESTION 26

1. The returns on a portfolio over the last five years were: --5.2 percent, 21.6 percent, 4.5 percent, 11.7 percent, and 5.9 percent. What is the standard deviation of these returns?
2. A.9.08%
3. B.9.73%
4. C.8.82%
5. D.9.21%
6. E.9.86%

1 points

QUESTION 27

1. The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.32?
2. A.9.24%
3. B.13.12%
4. C.9.17%
5. D.14.36%
6. E.14.03%

1 points

QUESTION 28

1. The stock of Martin Industries has a beta of 1.43. The risk-free rate of return is 3.6 percent and the market expected return is 12.6 percent. What is the stock's expected rate of return?
2. A.21.62%
3. B.17.48%
4. C.16.47%
5. D.18.03%
6. E.14.17%

1 points

QUESTION 29

1. There is a 20 percent probability the economy will boom, 70 percent probability it will be normal, and a 10 percent probability of a recession. Stock A will return 18 percent in a boom, 11 percent in a normal economy, and lose 10 percent in a recession. Stock B will return 9 percent in boom, 7 percent in a normal economy, and 4 percent in a recession. Stock C will return 6 percent in a boom, 9 percent in a normal economy, and 13 percent in a recession. What is the expected return on a portfolio which is invested 20 percent in Stock A, 50 percent in Stock B, and 30 percent in Stock C?
2. A.9.50%
3. B.9.45%
4. C.8.25%
5. D.7.40%
6. E.8.33%

1 points

QUESTION 30

1. What is the present value of $6,811 to be received in one year if the discount rate is 6.5 percent?
2. A.$6,643.29
3. B.$6,395.31
4. C.$6,023.58
5. D.$7,253.72
6. E.$6,671.13

1 points

QUESTION 31

1. Which one of the following is an example of a nondiversifiable risk?
2. A.a well-respected president of a firm suddenly resigns
3. B.a well-managed firm reduces its work force and automates several jobs
4. C.a poorly managed firm suddenly goes out of business due to lack of sales
5. D.a well-respected chairman of the Federal Reserve Bank suddenly resigns
6. E.a key employee suddenly resigns and accepts employment with a key competitor

1 points

QUESTION 32

1. Which one of the following statements is correct concerning the standard deviation of a portfolio?
2. A.The standard deviation of a portfolio is equal to the geometric average standard deviation of the individual securities held within that portfolio.
3. B.The standard deviation of a portfolio can be lowered by changing the weights of the securities in the portfolio.
4. C.The greater the diversification of a portfolio, the greater the standard deviation of that portfolio.
5. D.Standard deviation is used to determine the amount of risk premium that should apply to a portfolio.
6. E.The standard deviation of a portfolio is equal to a weighted average of the standard deviations of the individual securities held within the portfolio.

1 points

QUESTION 33

1. Which one of these conditions must exist if the standard deviation of a portfolio is to be less than the weighted average of the standard deviations of the individual securities held within that portfolio?
2. A.Rm > 1
3. B. < 1
4. C. >1
5. D. < 1
6. E. = 0

1 points

QUESTION 34

1. You are borrowing $5,200 at 7.8 percent, compounded monthly. The monthly loan payment is $141.88. How many loan payments must you make before the loan is paid in full?
2. A.36
3. B.30
4. C.48
5. D.40
6. E.42

1 points

QUESTION 35

1. You are buying a car for $7,500, paying $900 down in cash, and financing the balance for 24 months at 6.5 percent, compounded monthly. What is the amount of each monthly loan payment?
2. A.$275.00
3. B.$334.10
4. C.$318.64
5. D.$294.01
6. E.$245.09

1 points

QUESTION 36

1. You are considering two insurance settlement offers. The first offer includes annual payments of $36,000, $42,000, and $50,000 over the next three years, respectively, with the first payment being made one year from today. The other offer is the payment of one lump sum amount today. The relevant discount rate is 7 percent. What is the minimum amount you should accept today if you are to select the lump sum offer?
2. A.$118,924.27
3. B.$128,000.00
4. C.$114,556.88
5. D.$119,877.67
6. E.$111,144.18

1 points

QUESTION 37

1. You are retired, have $264,500 in your savings, withdraw $2,000 each month, and earn 4.5 percent, compounded monthly. How many yearswill it be until you run out of money?
2. A.15.25 years
3. B.13.67 years
4. C.11.02 years
5. D.13.02 years
6. E.18.78 years

1 points

QUESTION 38

1. You are the beneficiary of a life insurance policy. The insurance company offers two options for receiving the proceeds: a lump sum of $50,000 today or payments of $550 a month for ten years starting one month from today. If you can earn 6 percent, compounded monthly, which option should you take and why?
2. A.You should accept the lump sum because the payments are only worth $49,540.40 today.
3. B.You should accept the payments because they are worth $51,523.74 today.
4. C.You should accept the $50,000 because the payments are only worth $49,757.69 today.
5. D.You should accept the $50,000 because the payments are only worth $48,808.17 today.
6. E.You should accept the payments because they are worth $53,737.08 today.

1 points

QUESTION 39

1. You borrow $199,000 to buy a house. The mortgage rate is 5.5 percent, compounded monthly. The loan period is 30 years, and payments are made monthly. If you pay for the house according to the loan agreement, how much total interest will you pay?
2. A.$211,086
3. B.$198,161
4. C.$207,764
5. D.$185,059
6. E.$218,086

2 points

QUESTION 40

1. You have $2,500 to deposit into a savings account. The five banks in your area offer the following rates. In which bank should you deposit your savings?
2. A.Bank B: 3.69%, compounded monthly
3. B.Bank E; 3.65% compounded quarterly
4. C.Bank C: 3.70% compounded semi-annually
5. D.Bank A: 3.75%, compounded annually
6. E.Bank D: 3.67% compounded continuously

2 points

QUESTION 41

1. You just won the lottery! As your prize you will receive $1,500 a month for 150 months and an additional $5,000at the end of the 150months. If you can earn 7 percent, compounded monthly, on your money, what is this prize worth to you today?
2. A.$149,676.91
3. B.$148,104.26
4. C.$137,003.69
5. D.$151,766.53
6. E.$147,587.30

1 points

QUESTION 42

1. You plan to save $2,400 a year and earn an average rate of interest of 5.6 percent. How much more will your savings be worth at the end of 40 years if you save at the beginning of each year rather than at the end of each year?
2. A.$18,911.21
3. B.$19,103.04
4. C.$18,821.10
5. D.$18,115.31
6. E.$17,822.73

2 points

QUESTION 43

1. You purchased 300 shares of Deltona stock for $43.90 a share. You have received a total of $630 in dividends and $14,620 in proceeds from selling the shares. What is your capital gains yield on this stock?
2. A.11.01%
3. B.9.55%
4. C.6.23%
5. D.15.79%
6. E.17.68%

1 points

QUESTION 44

1. You purchased 300 shares of stock at a price of $21.72 per share. Over the last year, you have received total dividend income of $240. What is the dividend yield?
2. A.3.92%
3. B.3.22%
4. C.3.68%
5. D.2.94%
6. E.2.80%

1 points

QUESTION 45

1. You would like to combine a highly risky stock with a beta of 2.6 with U.S. Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in Treasury bills?
2. A.50.00%
3. B.38.46%
4. C.61.54%
5. D.57.91%
6. E.42.09%