ch06 - Chapter 6 THE RISKS AND RETURNS FROM INVESTING...

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Chapter 6 THE RISKS AND RETURNS FROM INVESTING Multiple Choice Questions Return 1. Total return is equal to: a. capital gain + price change. b. yield + income. c. capital gain - loss. d. yield + price change. (d, easy) 2. The return component that gives periodic cash flows to the investor is known as the: a. capital gain b. interest rate c. yield d. unrealized gain (c, easy) Risk 3. Investors should be willing to invest in riskier investments only: a. if the term is short. b. if there are no safe alternatives except for holding cash. c. if the expected return is adequate for the risk level d. if they are true speculators. (c, easy) 4. If interest rates are expected to rise, you would expect: a. bond prices to fall more than stock prices b. bond prices to rise more than stock prices c. stock prices to fall more than bond prices d. stock prices to rise and bond prices to fall (a, moderate) Chapter Six The Risks and Returns from Investing 70
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5. An impending recession is an example of: a. interest rate risk b. inflation risk c. market risk d. financial risk (c, moderate) 6. Financial risk is most associated with: a. the use of equity financing by corporations b. the use of debt financing by corporations c. equity investments held by corporations d. debt investments held by corporations (b, moderate) 7. Political stability is the major factor concerning: a. exchange risk b. systematic risk c. nonsystematic risk d. country risk (d, moderate) 8. Liquidity risk: a. is the risk that investment bankers normally face. b. is lower for small OTC stocks than for large NYSE stocks. c. is the risk associated with secondary market transactions. d. increases whenever interest rates increase. (c, moderate) 9. Which of the following is not related to overall market variability? a. Financial risk. b. Interest rate risk. c. Purchasing power risk. d. Market risk. (a, moderate) Chapter Six The Risks and Returns from Investing 71
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10. If a U.S. investor buys foreign stock, his dollar-denominated return will increase if the dollar: a. appreciates in value. b. depreciates in value. c. remains unchanged. d. moves to a net gain position. (b, difficult) 11. New financial disclosure regulations affecting the brokerage industry are a type of: a. market risk. b. financial risk. c. business risk. d. liquidity risk. (c, moderate) 12. If interest rates rose, you would expect ------------ to also rise. a. business risk. b. financial risk. c. liquidity risk. d. inflation risk. (d, moderate) Measuring Returns 13. The best return measure to use if you are trying to measure the total effect of returns over time given some stated beginning amount is the: a. total return b. return relative c. cumulative wealth index d. total yield (a, moderate) Chapter Six The Risks and Returns from Investing 72
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14. Total return as defined in the text is: a. the difference between the sale price and the purchase price of an investment.
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ch06 - Chapter 6 THE RISKS AND RETURNS FROM INVESTING...

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