Question 1

If the dispersion around a security's return is larger

Answer

the expected return is smaller

the standard deviation is smaller

the stock's price is higher

the security's risk is higher

1 points

Question 2

The future value of a dollar

1. increases with higher interest rates

2. decreases with higher interest rates

3. increases as the time period increases

4. decreases as the time period increases

Answer

1 and 3

1 and 4

2 and 3

2 and 4

1 points

Question 3

The security market line does not

Answer

indicate the relationship between risk and return

relate the market return and beta to a stock's return

identify the optimal portfolio for the investor

use beta coefficients as a measure of risk

1 points

Question 4

Exchange rate risk refers to fluctuations in

Answer

the prices of stocks on the New York Stock Exchange

the values of bonds and other debt instruments

the price of one currency relative to other currencies

the value of the investor's portfolio

1 points

Question 5

The future value of an annuity will be larger if

1. the annuity is an ordinary annuity

2. the annuity is an annuity due

3. the payments are made at the beginning of the year

4. the payments are made at the end of the year

Answer

1 and 3

1 and 4

2 and 3

2 and 4

1 points

Question 6

Reinvestment rate risk refers to fluctuations in

Answer

a stock's price

a stock's dividend

rates earned when funds are reinvested

the cost of an investment

1 points

Question 7

Unsystematic risk is

Answer

the risk associated with movements in stock prices

reduced through diversification

higher when interest rates rise

the risk of loss of purchasing power

1 points

Question 8

Time value concepts may not be used to determine

Answer

the present value of an annuity

the margin required on a stock purchase

the future value of $100 deposited in a bank

the present value of a lump sum

1 points

Question 9

Diversification reduces

Answer

systematic risk

unsystematic risk

market risk

purchasing power risk

1 points

Question 10

According to the arbitrage pricing theory, the return on a stock

Answer

is not related to the expected return on the stock

depends on the stock's responsiveness to unexpected changes

is reduced through the construction of diversified portfolios

equals the market return if the expected rate of inflation is realized

1 points

Question 11

The efficient frontier in portfolio theory

Answer

indicates the highest return for a given risk

illustrates the optimal trade off between long and short-term capital gains

quantifies systematic and unsystematic risk

identifies the optimal portfolio for the investor

1 points

Question 12

Time value concepts may be used to determine

1. the annual growth rate in dividends

2. the amount in an IRA account after ten years

3. the tax owed on a capital gain

Answer

1 and 2

1 and 3

2 and 3

only 2

1 points

Question 13

The expected return on an investment in stock is

Answer

the expected dividend payments

the anticipated capital gains

the sum of expected dividends and capital gains

less than the realized return

1 points

Question 14

An annuity is a series of

Answer

rising annual payments

random payments

equal payments

unequal payments

1 points

Question 15

Unsystematic risk

Answer

is increased through diversification

is reduced when markets fluctuate less

is affected by the nature of how a firm finances its operations

increases during periods of volatile interest rates

1 points

Question 16

Beta coefficients of 1.3 indicate

Answer

the stock has more unsystematic risk

the stock has less unsystematic risk

the stock is more volatile than the market

the stock is less volatile than the market

1 points

Question 17

Discounting

Answer

expresses the present in the future

brings the future back to the present

is synonymous with compounding

depends on the rate of interest

1 points

Question 18

The future value of an annuity is

1. larger the higher the rate of interest

2. smaller the higher the rate of interest

3. larger the greater the number of years

4. smaller the greater the number of years

Answer

1 and 3

1 and 4

2 and 3

2 and 4

1 points

Question 19

An efficient portfolio

1. maximizes risk for a given return

2. minimizes risk for a given return

3. maximizes return for a given level of risk

4. minimizes return for a given level of risk

Answer

1 and 3

1 and 4

2 and 3

2 and 4

1 points

Question 20

For diversification to reduce risk,

Answer

the returns on the individual securities should be highly correlated

the prices of the stocks should be stable

the returns on the individual securities should be negatively correlated

one firm should offer dividends and the other should offer capital gains

1 points

Question 21

Which is the smallest if interest rates are 8 percent?

Answer

$100 to be received after five years

the present value of an annuity of $100 for 5 years

$100 received in the present

$100 received for two years

1 points

Question 22

Portfolio risk encompasses

1. a firm's financing decisions

2. interest rate risk

3. loss of purchasing power

Answer

1 and 2

1 and 3

2 and 3

all of these choices

1 points

Question 23

Beta coefficients

1. are a measure of systematic risk

2. relate the return on an individual security to the return on the market

3. measure the variability of as asset's return

Answer

1 and 2

1 and 3

2 and 3

all of these choices

1 points

Question 24

Sources of unsystematic risk include

1. the firm's financing decisions

2. the firm's operations

3. fluctuating market prices

Answer

1 and 2

1 and 3

2 and 3

all of these choices

1 points

Question 25

Which is the largest if interest rates are 7 percent?

Answer

$100 compounded for three years

the future value of a $100 annuity for three years

the present value of $100 after three years

the present value of a $100 annuity