Answer Options:
a. True
b. False
Answer: a. True
Question: Match the amounts that count as a “1 ounce-equivalent” in the Protein Foods Group. (Note: One of the choices will be used twice.)
Answer Options:
[A] 1 egg
[B] 1/2 almonds
[C] 1/2 walnut halves
[D] 1 tbsp peanut butter or almond butter
[E] 1/4 cup cooked beans or tofu
[F] 1 tbsp hummus
Answer: 1 egg
1/2 almonds
1/2 walnut halves
Question: Under the CAPM, the required rate of return on a firm’s common stock is determined only by the firm’s market risk. If its market risk is known, and if that risk is expected to remain constant, then analysts have all the information they need to calculate the firm’s required rate of return.
Answer Options:
a. True
b. False
Answer: b. False
Question: The coefficient of variation, calculated as the standard deviation of expected returns divided by the expected return, is a standardized measure of the risk per unit of expected return.
Answer Options:
a. True
b. False
Answer: a. True
Question: If the returns of two firms are negatively correlated, then one of them must have a negative beta.
Answer Options:
a. True
b. False
Answer: b. False
Question: If the price of money (e.g., interest rates and equity capital costs) increases due to an increase in anticipated inflation, the risk-free rate will also increase. If there is no change in investors’ risk aversion, then the market risk premium (rM – rF) will remain constant. Also, if there is no change in stocks’ betas, then the required rate of return on each stock as measured by the CAPM will increase by the same amount as the increase in expected inflation.
a. True
b. False
Answer Options:
Answer: True
Question: Your bank account pays an 8% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?
Answer Options:
a. The periodic rate of interest is 2% and the effective rate of interest is 4%.
b. The periodic rate of interest is 8% and the effective rate of interest is greater than 8%.
c. The periodic rate of interest is 4% and the effective rate of interest is less than 8%.
d. The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.
e. The periodic rate of interest is 8% and the effective rate of interest is also 8%.
Answer: d. The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.
Question: Which of the following statements is CORRECT?
Answer Options:
A. The total return on a bond during a given year is based only on the coupon interest payments received.
B. All else equal, a bond that has a coupon rate of 10% will sell at a discount if the required return for bonds of similar risk is 8%.
C. The price of a discount bond will increase over time, assuming that the bond’s yield to maturity remains constant.
Answer: C. The price of a discount bond will increase over time, assuming that the bond’s yield to maturity remains constant.
Question: The updated 2020 – 2025 Dietary Guidelines for Americans are now available within the MyPlate website.
Answer Options:
[A] True
[B] False
Answer: True
Question: Since yield curves are based on a real risk-free rate plus the expected rate of inflation, at any given time there can be only one yield curve, and it applies to both corporate and Treasury securities.
Answer Options:
a. True
b. False
Answer: b. False
Question: The realized return on a stock portfolio is the weighted average of the expected returns on the stocks in the portfolio.
Answer Options:
a. True
b. False
Answer: b. False
Question: One of the four most fundamental factors that affect the cost of money as discussed in the text is the risk inherent in a given security. The higher the risk, the higher the security’s required return, other things held constant.
Answer Options:
a. True
b. False
Answer: a. True
Question: X-1 Corp’s total assets at the end of last year were $405,000 and its EBIT was $52,500. What was its basic earning power (BEP) ratio?
Answer Options:
a. 11.70%
b. 12.31%
c. 12.96%
d. 13.61%
e. 14.29%
Answer: c. 12.96%
Question: Which of the following statements is CORRECT?
a. The yield curve for both Treasury and corporate bonds should be flat.
b. The yield curve for Treasury securities would be flat, but the yield curve for corporate securities might be downward sloping.
c. The yield curve for Treasury securities cannot be downward sloping.
d. The maturity risk premium would be zero.
e. If 2-year bonds yield more than 1-year bonds, an investor with a 2-year time horizon would almost certainly end up with more money if he or she bought 2-year bonds.
Answer Options:
Answer: e. If 2-year bonds yield more than 1-year bonds, an investor with a 2-year time horizon would almost certainly end up with more money if he or she bought 2-year bonds.
Question: Which of the following statements is CORRECT?
Answer Options:
a. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.
b. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.
c. The cash flows for an annuity due must all occur at the beginning of the periods.
d. The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year or once a month.
e. If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity.
Answer: c. The cash flows for an annuity due must all occur at the beginning of the periods.
Question: The greater the number of compounding periods within a year, then (1) the greater the future value of a lump sum investment at Time 0 and (2) the smaller the present value of a given lump sum to be received at some future date.
Answer Options:
a. True
b. False
Answer: a. True
Question: From Q18, how many moles of O2 gas is produced?
(Report 4 decimal places, since that’s the max for Canvas; otherwise it will annoyingly round your answer for you, and it could make it wrong.)
Answer Options:
[A] 0.0086 mol
[B] 0.0076 mol
[C] 0.0096 mol
[D] 0.0066 mol
Answer: 0.0076 mol
Question: Zero Corp’s total common equity at the end of last year was $405,000 and its net income was $70,000. What was its ROE?
Answer Options:
a. 14.82%
b. 15.60%
c. 16.42%
d. 17.28%
e. 18.15%
Answer: d. 17.28%
Question: Which is not one of the five “HEALTHY EATING TIPS” that will help you make healthy food choices throughout the day and improve your eating habits? [Hint: “BROWSE BY LIFE STAGES” → “Young Adults” → “Going away to college or moving out on your own?” → “HEALTHY EATING TIPS”]
Answer Options:
[A] Pack healthy snacks
[B] Limit dairy and cheese
[C] Drink plenty of water
[D] Freeze leftovers into single servings
[E] All of the above
Answer: Limit dairy and cheese
Question: A call provision gives bondholders the right to demand, or “call for,” repayment of a bond. Typically, companies call bonds if interest rates rise and do not call them if interest rates decline.
Answer Options:
a. True
b. False
Answer: b. False
Question: One of the four most fundamental factors that affect the cost of money as discussed in the text is the expected rate of inflation. If inflation is expected to be relatively high, then interest rates will tend to be relatively low, other things held constant.
Answer Options:
a. True
b. False
Answer: b. False
Question: Which of the following statements is CORRECT?
a. The higher the maturity risk premium, the higher the probability that the yield curve will be inverted.
b. The most likely explanation for an inverted yield curve is that investors expect inflation to increase.
c. The most likely explanation for an inverted yield curve is that investors expect inflation to decrease.
d. If the yield curve is inverted, short-term bonds have lower yields than long-term bonds.
e. Inverted yield curves can exist for Treasury bonds, but because of default premiums, the corporate yield curve can never be inverted.
Answer Options:
Answer: c. The most likely explanation for an inverted yield curve is that investors expect inflation to decrease.
Question: An individual stock’s diversifiable risk, which is measured by its beta, can be lowered by adding more stocks to the portfolio in which the stock is held.
Answer Options:
a. True
b. False
Answer: b. False