| | The required rate of return on an outstanding bond is the current rate of interest on similar bonds of equal risk. Two years ago, you invested $1,000 in a healthcare stock. Your return during the first year was 50 percent, while your return in the second year was +50 percent. Your investment is now (at the end of two years) worth less than $1,000. A.)True B.) False The present value of a future lump sum decreases as either the discount rate or the number of compounding periods per year increases. Question 7 options: | | A) True | | | B) False In the real world, as more and more randomly chosen investments are added to a portfolio, the riskiness of the portfolio decreases. If enough investments are added, all risk can be eliminated. Question 9 options: | | A) True | | | B) False Which of the following statements concerning financial risk is false? Question 11 options: | | | A) | Generically, financial risk is related to the probability of a return less than expected. | | | | | B) | If the returns on two investments move in unison (are perfectly positively correlated), combining the two into a portfolio will lower risk. | | | | | C) | If the returns on two investments move in unison (are perfectly positively correlated), combining the two into a portfolio will not impact risk. | | | | | D) | In the real world, it is impossible to create a riskless portfolio because all investment returns, to a greater or lesser extent, move with the overall economy. | | | | | E) | Assume you know for certain that an investment will return negative 10 percent. (In other words, the probability of a -10% return is 100 percent.) Although the expected return is negative, the investment is riskless. | | | | Which of the following statements is false? Question 20 options: | | | A) | When the required rate of return on a bond equals its coupon rate, the bond will sell at its par value. | | | | | B) | When interest rates rise, bond prices on outstanding issues fall. | | | | | C) | When interest rates fall, bond prices on outstanding issues rise. | | | | | D) | The price of a bond at its maturity is equal to the final coupon payment. | | | | | E) | The required rate of return on an outstanding bond is the current rate of interest on similar bonds of equal risk. | | |
