Answer Options:
a. The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000.
b. The discount rate increases.
c. The riskiness of the investment’s cash flows decreases.
d. The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years.
e. The discount rate decreases.
Answer: b. The discount rate increases.
Question: A bond that had a 20-year original maturity with 1 year left to maturity has more price risk than a 10-year original maturity bond with 1 year left to maturity. (Assume that the bonds have equal default risk and equal coupon rates, and they cannot be called.)
Answer Options:
a. True
b. False
Answer: b. False
Question: If 1 mol of a gas is placed into a balloon under standard temperature and pressure (273 K and 1 atm), what volume would the balloon be?
Answer Options:
[A] 24.0 L
[B] 22.4 L
[C] 45.3 L
[D] 30.5 L
Answer: 22.4 L
Question: One of the four most fundamental factors that affect the cost of money as discussed in the text is the time preference for consumption. The higher the time preference, the lower the cost of money, other things held constant.
Answer Options:
a. True
b. False
Answer: b. False
Question: If a bank compounds savings accounts quarterly, the nominal rate will exceed the effective annual rate.
Answer Options:
a. True
b. False
Answer: b. False
Question: We would almost always find that the beta of a diversified portfolio is less stable over time than the beta of a single security.
Answer Options:
a. True
b. False
Answer: b. False
Question: Element X is in the same column on the periodic table as carbon. Element X could be carbon or any other element in that column. A short list of some of its properties is listed below. Which element is it most likely to be in the list of elements given?
Answer Options:
brittle
lustrous
it can conduct heat and electricity
melting point is over 2000°F
Answer: silicon
Question: The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation.
Answer Options:
a. True
b. False
Answer: b. False
Question: If investors are risk averse and hold only one stock, we can conclude that the required rate of return on a stock whose standard deviation is 0.21 will be greater than the required return on a stock whose standard deviation is 0.10. However, if stocks are held in portfolios, it is possible that the required return could be higher on the stock with the lower standard deviation.
Answer Options:
a. True
b. False
Answer: a. True
Question: A 10-year bond pays an annual coupon, its YTM is 8%, and it currently trades at a premium. Which of the following statements is CORRECT?
a. The bond’s current yield is less than 8%.
b. If the yield to maturity remains at 8%, then the bond’s price will decline over the next year.
c. The bond’s coupon rate is less than 8%.
d. If the yield to maturity increases, then the bond’s price will increase.
e. If the yield to maturity remains at 8%, then the bond’s price will remain constant over the next year.
Answer Options:
a. False
b. True
c. False
d. False
e. False
Answer: b. True
Question: Because of differences in the expected returns on different investments, the standard deviation is not always an adequate measure of risk. However, the coefficient of variation adjusts for differences in expected returns and thus allows investors to make better comparisons of investments’ stand-alone risk.
Answer Options:
a. True
b. False
Answer: a. True
Question: Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face value of $1,000, an 8% yield to maturity, and are noncallable. Which of the following statements is CORRECT?
a. Bond A’s capital gains yield is greater than Bond B’s capital gains yield.
b. Bond A trades at a discount, whereas Bond B trades at a premium.
c. If the yield to maturity for both bonds remains at 8%, Bond A’s price one year from now will be higher than it is today, but Bond B’s price one year from now will be lower than it is today.
d. If the yield to maturity for both bonds immediately decreases to 6%, Bond A’s bond will have a larger percentage increase in value.
e. Bond A’s current yield is greater than that of Bond B.
Answer Options:
a. False
b. False
c. False
d. True
e. False
Answer: d. True
Question: Market risk refers to the tendency of a stock to move with the general stock market. A stock with above-average market risk will tend to be more volatile than an average stock, and its beta will be greater than 1.0.
Answer Options:
a. True
b. False
Answer: a. True