Chaminade Univ MBA 754 (Investment Mgmt) Week 4 – Ch 04 Homework (Graded)

Grading SummaryThese
are the automatically computed results of your exam. Grades for essay
questions, and comments from your instructor, are in the “Details”
section below. Date Taken: Time Spent: Points Received:
Question
Type: # Of Questions: True/False 12 Multiple Choice 18

Grade
Details – All QuestionsQuestion 1. Question : In response to the same external
force, the return on one investment may increase while the return on another
investment may decrease.
Student
Answer: True False

Question
2. Question : Investments with lower standard deviations can be expected to
produce higher rates of return.
Student
Answer: True False

Question
3. Question : When calculating the present value of either a future single sum
or a future annuity, the applicable interest rate is usually called the
Student
Answer: yield to maturity.
compound
interest rate.
internal
rate of return.
discount
rate.

Question
4. Question : The required return on Beta stock is 14%. The risk-free rate of
return is 4% and the real rate of return is 2%. How much are investors
requiring as compensation for risk?
Student
Answer: 8%
10%
12%
14%

Question
5. Question : The maximum rate of return that can be earned for a given rate of
interest occurs when interest is compounded
Student
Answer: annually.
daily.
monthly.
continuously.

Question
6. Question : The possibility that deflation could affect the rate of return on
an investment is referred to as interest rate risk.
Student
Answer: True False

Question
7. Question : When using a financial calculator or electronic spreadsheet to
calculate an investment’s yield, the amount invested is expressed as a negative
number.
Student
Answer: True False

Question
8. Question : Lower risk investments are associated with higher expected rates
of return.
Student
Answer: True False

Question
9. Question : Over the long term, which one of the following has historically
had the lowest average annual rate of return?
Student
Answer: small-company stocks
long-term
government bonds
large-company
stocks
long-term
corporate bonds

Question
10. Question : If the discount rate is appropriate for the level of risk, a
satisfactory investment will have a present value of benefits equal to or
greater than than the present value of costs.
Student
Answer: True False

Question
11. Question : The standard deviation is computed by dividing the sum of the
squared deviations by the number of observations.
Student
Answer: True False

Question
12. Question : If you own an investment providing periodic returns, your actual
yield on the investment will depend on the reinvestment rate you are able to
obtain.
Student
Answer: True False

Question
13. Question : The required return on a risky investment includes a real rate
of return, an inflation premium and a risk premium.
Student
Answer: True False

Question
14. Question : An investment costs $3,500 today. This investment is expected to
produce annual cash flows of $1,200, $1,400, $1,300 and $1,100, respectively,
over the next four years. What is the internal rate of return on this
investment?
Student
Answer: 8.1%
12.4%
14.6%
16.2%

Question
15. Question : To compute the present value of $1,000 annuity received at the
end of each of the next three years and discounted at the rate of 5% per year,
you should use he following EXCEL command.
Student
Answer: ANN
TVM
RATE
PV

Question
16. Question : Ashley purchased a stock at a price of $27 a share. She received
quarterly dividends of $0.75 per share. After one year, Ashley sold the stock
at a price of $29.25 a share. What is her percentage total return on this
investment?
Student
Answer: 10.3%
11.1%
17.9%
19.4%

Question
17. Question : The adage “the sooner one receives a return on a given
investment, the better,” reflects the financial concept known as the
Student
Answer: time value of money.
total
return concept.
historical
dividend theory.
expected
yield factor.

Question
18. Question : The holding period return is an excellent method for comparing a
short-term investment to a long-term investment.
Student
Answer: True False

Question
19. Question : The stock of Plomb Co. falls sharply on news that its CEO has
drowned in a boating accident while on vacation. This is an example of
Student
Answer: liquidity risk.
event
risk.
accidental
risk.
flotation
risk.

Question
20. Question : The holding period is a useful way to compare investments
because it considers
Student
Answer: the time value of money
only
capital gains, but not income
both
income and capital gains or losses
the
relative size of investments being compared

Question
21. Question : An investment produced annual rates of return of 5%, 12%, 8% and
11% respectively over the past four years. What is the standard deviation of
these returns?
Student
Answer: 2.7%
3.2%
3.6%
3.8%

Question
22. Question : To compute the present value of $1,000 discounted at the rate of
5% per year, to be received at the end of 3 years, you should use the following
EXCEL command.
Student
Answer: DISC
TVM
PV
RATE

Question
23. Question : Inflation tends to have a favorable impact on
Student
Answer: real estate.
common
stock.
preferred
stock.
bonds.

Question
24. Question : The yield on an investment is equal to its internal rate of
return.
Student
Answer: True False

Question
25. Question : Which of the following statements are correct concerning present
value?
Student
Answer: I and II only
I and
III only
II and
III only
I, III
and IV only

Question
26. Question : The present value of $10,000 discounted at 5% per year and
received at the end of 5 years is
Student
Answer: $10,000/1.25
$10,000(1.05)5
$10,000/(1.05)5
$10,000
(1.05)1/5

Question
27. Question : To compute the present value of $1,000 annuity received at the
end of each of the next three years and discounted at the rate of 5% per year,
you should enter the following variables into a financial calculator
Student
Answer: N=3, i=5, PMT=1000
N=3,
i=5, FV=3000
N=3,
i=15, PMT=1000
N=1,
i=5, PMT=3000

Question
28. Question : Interest rates change as the result of changes in the supply and
demand for money.
Student
Answer: True False

Question
29. Question : If the present value of an investment’s benefits equals the
present value of the investment’s costs, then the investor would earn a
Student
Answer: return equal to the discount rate.
negative
rate of return.
0%
rate of return.
return
greater than the discount rate.

Question
30. Question : Which one of the following statements is correct concerning the
time value of money?
Student
Answer: The future value of $1 at the end of a year is equal to $1 times 1 plus
the annual interest rate.
As the
interest rate increases for any given year, the future value interest factor
will decrease.
The
future value of $1 decreases with the passage of time.
The
future value interest factor is equal to zero if the interest rate is zero.