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Valuation, Risk, Return, and Uncertainty
A 1. An ordinary annuity is a _____ series of _____ cash.
B 2. The winner of a state lottery usually receives a(n)
B 3. Using a discount rate of 8% per year, what is the present value of an ordinary annuity of $100 per year for 10 years?
A 4. Using a discount rate of 8% per year, what is the present value of an annuity due of $100 per year with 10 payments?
D 5. Using a discount rate of 8% per year (compounded quarterly), what is the present value of an ordinary annuity of $100 per year for 10 years?
C 6. A perpetual cash flow stream makes its first payment of $500 in one year. Using a 7% annual discount rate and a 3% growth rate in the value of subsequent payments, what is the present value of this growing perpetuity?
B 7. A perpetuity makes annual payments of $250. The perpetuity is valued using a 10% discount rate. What is the value of the perpetuity if the first payment is made immediately?
A 8. The fact that most investors are risk averse means they will
B 9. Which of the following statements is true?
A 10. Risk must involve
C 11. Overall variability of returns is called
B 12. Risk is often measured as
A 13. Riskier securities have _____ returns.
B 14. The market rewards investors for bearing _____risk.
B 15. The diminishing marginal utility of money explains why
C 16. The text described an example of the diminishing marginal utility of money with a statement made by a _____ player.
C 17. Individual investment behavior is more a function of _____ than _____.
B 18. The St. Petersburg paradox explains why
A 19. In economic theory, if money is not saved, it is
D 20. Wearing a Rolex watch is an example of someone getting
B 21. Two large classes of risk are
C 22. Individual consumption decisions are a major factor in determining
B 23. If a stock has a higher than average expected return, you would logically expect it is
D 24. What is the present value of a growing perpetuity with an initial cash flow of 1000 (C0), a growth rate of 3% per year (g), and a required rate of return of 8% (R)?
C 25. Most investors would not be interested in a fair bet because
B 26. The holding period return is calculated as
C 27. You bought 100 shares of stock at $35, received $3 per share in dividends, and sold the shares for $50. Your holding period return is
B 28. Which of the following is true of the holding period return?
C 29. A holding period return should only be compared with returns calculated
D 30. A stocks return is 15.5%. The return relative is
D 31. Return relatives are calculated primarily to deal with the potential problem of
A 32. A stock has monthly returns of 4%, 5%, 2%, and -3%. Its arithmetic average return is
A 33. A stock has monthly returns of 4%, 5%, 2%, and -3%. Its geometric average return is
B 34. You buy a stock for $50 per share. Over the next four months, it has monthly returns of 4%, 5%, 2%, and -3%. The value of a share at the end of the fourth month is
A 35. Suppose a stock pays no dividends. Another method of calculating the return relative is
A 36. The arithmetic mean is always _______ the geometric mean.
A 37. The _____ the dispersion in a series of numbers, the ____ the gap between the arithmetic and geometric mean.
A 38. Technically, _____ refers to the past; _____ refers to the future.
C 39. According to the book, which of the following terms can mean different things to different people?
B 40. The use of _____ can dramatically affect an investors return.
D 41. Total risk can be measured by all of the following except
D 42. The variance of x is 25. What is the variance of 2x?
B 43. Semi-variance only considers
C 44. Discrete random variables are _____; continuous random variables are ______.
B 45. A variable whose value is based on the value of other variables is a(n)
A 46. Random variables reside in a
A 47. A jar contains a mixture of coins; you need a quarter. From your perspective, the distribution of coins in the jar is
D 48. If a distribution shows more possible outcomes on one side of the mean than the other, the distribution shows
D 49. A coin-flipping experiment in which you measure heads or tails takes observations from a _____ distribution.
D 50. Which of the following is a measure of central tendency?
D 51. The expected value of a random variable is also called the
D 52. A jar contains 100 quarters, 50 dimes, and 50 nickels. What is the expected value of a single observation from this coin population?
D 53. Which of the following can help reduce the effect of outliers?
C 54. The expected value of x is 5%. What is E(6x)?
A 55. The correlation coefficient is equal to
A 56. The minimum value of the correlation coefficient is
D 57. The minimum value of covariance is
A 58. R squared is a measure of
B 59. A sample of 100 observations has a standard deviation of 25. What is the standard error?
C 60. A sample of 100 observations has a standard deviation of 25 and a mean of 75. What is the 95% confidence interval?
B 61. The expected return on A is 12%; the expected return on B is 15%. What is the expected return of a portfolio that contains one-third A and the remainder B?
A 62. A tilde (~) over a symbol indicates it is a
B 63. If two securities are negatively correlated, their covariance is
C 64. The covariance between a random variable and a constant is
A 65. Return is the
C 66. Assume the risk-free rate is constant over time. The correlation between the return on security x and the return on the risk-free asset is
A 67. The correct method for measuring the average return over several periods in the past is with a(n)
B 68. Using semivariance to measure risk is appropriate if the return distribution is
C 69. The median of a distribution is the
D 70. If the variance of x is 0.10, what is the variance of 2x?
B 71. If the standard deviations of Stock A and B are 0.20 and 0.30 respectively and the COV(A,B) equals 0.012, what is the correlation coefficient?
C 1. Retirement plans in the United States are subject to
A 2. All of the following are purposes of an investment policy statement EXCEPT
B 3. Clients are responsible for all of the following EXCEPT
D 4. The investment manager is responsible for all of the following EXCEPT
B 5. In the Bailard, Biehl, and Kaiser classification system what kind of person is impetuous and anxious?
A 6. In the Bailard, Biehl, and Kaiser classification system what kind of person is confident and careful?
C 7. In the Bailard, Biehl, and Kaiser classification system what kind of person is impetuous and confident?
D 8. All of the following are true regarding an endowment fund except
B 9. An endowment is most similar to a
C 10. The legal literature speaks of the ______ between the needs of current beneficiaries and future beneficiaries.
A 11. An investors tendency to look at their investment portfolio too often is partially explained by a phenomenon known as
D 12. Surplus management is most associated with
C 13. The single most important investment decision is
B 14. A good performance benchmark should be
B 15. All of the following are infeasible return objectives except
A 16. Most states have adopted the
D 17. Major categories of constraints in the investment policy statement include all of the following except
A 18. Purposes of an endowment fund include all of the following except
B 19. The two main types of pension funds are
D 20. The investment policy of which of the following is mostly liability driven?
A 21. Characteristics of a good investment policy statement include all of the following except
B 22. The investment policy is the responsibility of the
C 23. Enforcing the ERISA regulations is the responsibility of
D 24. The investment policy statement should be changed if there is a material change in
C 25. A foundation is
D 26. A fiduciary is
A 27. Socially responsible investing based on religious beliefs is known as
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