Week 13: Sample Test (1-hour)
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SAMPLE MULTIPLE CHOICE QUESTIONS
- Riesenrad GmbH has borrowed from their bank at a rate of 8 per cent and will repay the loan with interest over the next five years. Their scheduled payments, starting at the end of the year are as follows—€450,000, €560,000, €750,000, €875,000 and €1,000,000. What is the present value of these payments? (Round to the nearest euro.)
- €2,735,200 b. €2,615,432 c. €2,431,224 d. €2,815,885
- Zhijie Jiang is saving to buy a new car in four years. She will save €5,500 at the end of each of the next four years. If she invests her savings at 6.75 per cent, how much will she have after four years? (Round to the nearest euro.)
- €22,000 b. €23,345 c. €27,556 d. €24,329
- Jack Benny is planning to invest in an insurance company product. The product will pay €10,000 at the end of this year. Thereafter, the payments will grow annually at a 3 per cent rate forever. Jack will be able to invest his cash flows at a rate of 6.5 per cent. What is the present value of this investment cash flow stream? (Round to the nearest euro.)
- €326 908 b. €312 766 c. €285 714 d. €258 133
- Which of the following is correct? With strong-form market efficiency,
a.the price of a security in the market reflects all public information only.
b. it would not be possible to earn abnormally high returns by trading on private information.
c. investors who have access to inside or private information will be able to earn abnormal returns.
d. None of the above
- You are planning to invest in a portfolio containing two stocks A and B. You want to create a portfolio that has a standard deviation of returns of 7%. The standard deviation of returns for each respective stock is 5% and 9%. The returns on these stocks are perfectly, positively correlated. The expected rate of returns on each respective stock is 12% and 19%. The return of return that you expect to receive in this portfolio will be:
a. 12% b. 13.5% c. 15.5% d. 20%
- An investor is holding an investment portfolio that has an expected rate of return of 12% and standard deviation of returns equal to 14%. The portfolio contains two stocks, Alpha and Beta. The investor is planning to replace stock Alpha with another stock Delta that has a higher expected rate of return than stock Alpha. How will the portfolio’s expected return and standard deviation change after the replacement takes place?
a. Expected return will be higher than 12%; standard deviation of returns will be higher than 14%.
b. Expected return will be higher than 12%; the information is not sufficient to suggest whether standard deviation of returns will change.
c. Expected return will be lower than 12%; standard deviation of returns will be lower than 14%.
d. Expected return will be lower than 12%; the information is not sufficient to suggest whether standard deviation of returns will change.
- An investor wants to create a portfolio of investments in Treasury Bills and risky stock A expecting to receive a return of 10% on this portfolio. The expected rate of return for each of these investments is respectively 4% and 13%. The standard deviation of returns for stock A is 9%. The standard deviation of returns on the portfolio will be:
0.00% b. 3.00% c. 6.00% d. 9.00