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    Full Download Investment Analysis and Portfolio Management Canadian 1st Edition Reilly Test Bank

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    Full Download Investment Analysis and Portfolio Management Canadian 1st Edition Reilly Test Bank

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    Investment Analysis and Portfolio Management Canadian 1st Edition Reilly Test Bank

    Investment Analysis and Portfolio


    Management Canadian 1st Edition
    Reilly Test Bank
    Visit to get the accurate and complete content:

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    adian-1st-edition-reilly-test-bank/

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    Investment Analysis and Portfolio Management Canadian 1st Edition Reilly Test Bank

    CHAPTER 1—THE INVESTMENT SETTING

    TRUE/FALSE

    1. The rate of exchange between certain future dollars and certain current dollars is known as the pure
    rate of interest.

    ANS: T PTS: 1

    2. An investment is the current commitment of dollars over time to derive future payments to compensate
    the investor for the time funds are committed, the expected rate of inflation and the uncertainty of
    future payments.

    ANS: T PTS: 1

    3. The holding period return (HPR) is equal to the holding period yield (HPY) stated as a percentage.

    ANS: F PTS: 1

    4. The geometric mean of a series of returns is always larger than the arithmetic mean and the difference
    increases with the volatility of the series.

    ANS: F PTS: 1

    5. The expected return is the average of all possible returns.

    ANS: F PTS: 1

    6. Two measures of the risk premium are the standard deviation and the variance.

    ANS: F PTS: 1

    7. The variance of expected returns is equal to the square root of the expected returns.

    ANS: F PTS: 1

    8. The coefficient of variation is the expected return divided by the standard deviation of the expected
    return.

    ANS: F PTS: 1

    9. Nominal rates are averages of all possible real rates.

    ANS: F PTS: 1

    10. The risk premium is a function of the volatility of operating earnings, sales volatility and inflation.

    ANS: F PTS: 1

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    2

    11. An individual who selects the investment that offers greater certainty when everything else is the same
    is known as a risk averse investor.

    ANS: T PTS: 1

    12. Investors are willing to forgo current consumption in order to increase future consumption for a
    nominal rate of interest.

    ANS: F PTS: 1

    MULTIPLE CHOICE

    1. The basic trade-off in the investment process is


    a. between the anticipated rate of return for a given investment instrument and its degree of
    risk.
    b. between understanding the nature of a particular investment and having the opportunity to
    purchase it.
    c. between high returns available on single instruments and the diversification of instruments
    into a portfolio.
    d. between the desired level of investment and possessing the resources necessary to carry it
    out.
    ANS: A PTS: 1

    2. The rate of exchange between future consumption and current consumption is


    a. The nominal risk-free rate.
    b. The coefficient of investment exchange.
    c. The pure rate of interest.
    d. The consumption/investment paradigm.
    e. The expected rate of return.
    ANS: C PTS: 1

    3. The _____________ the variance of returns, everything else remaining constant, the ______ the
    dispersion of expectations and the ________________ the risk.
    a. Larger, greater, lower
    b. Larger, smaller, higher
    c. Larger, greater, higher
    d. Smaller, greater, lower
    e. Smaller, greater, greater
    ANS: C PTS: 1

    4. The coefficient of variation is a measure of


    a. Central tendency.
    b. Absolute variability.
    c. Absolute dispersion.
    d. Relative variability.
    e. Relative return.
    ANS: D PTS: 1

    Copyright © 2010 by Nelson Education Ltd.


    3

    5. The nominal risk free rate of interest is a function of


    a. The real risk free rate and the investment's variance.
    b. The prime rate and the rate of inflation.
    c. The T-bill rate plus the inflation rate.
    d. The tax free rate plus the rate of inflation.
    e. The real risk free rate and the rate of inflation.
    ANS: E PTS: 1

    6. In the phrase "nominal risk free rate," nominal means


    a. Computed.
    b. Historical.
    c. Market.
    d. Average.
    e. Risk adverse.
    ANS: C PTS: 1

    7. If a significant change is noted in the yield of a T-bill, the change is most likely attributable to
    a. A downturn in the economy.
    b. A static economy.
    c. A change in the expected rate of inflation.
    d. A change in the real rate of interest.
    e. A change in risk aversion.
    ANS: C PTS: 1

    8. The real risk-free rate is affected by two factors:


    a. The relative ease or tightness in capital markets and the expected rate of inflation.
    b. The expected rate of inflation and the set of investment opportunities available in the
    economy.
    c. The relative ease or tightness in capital markets and the set of investment opportunities
    available in the economy.
    d. Time preference for income consumption and the relative ease or tightness in capital
    markets.
    e. Time preference for income consumption and the set of investment opportunities available
    in the economy.
    ANS: E PTS: 1

    9. Which of the following is not a component of the risk premium?


    a. Business risk
    b. Financial risk
    c. Liquidity risk
    d. Exchange rate risk
    e. Unsystematic market risk
    ANS: E PTS: 1

    Copyright © 2010 by Nelson Education Ltd.


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