, TESTBANK FOR Investment Analysis and Portfolio Management 12th
Edition Reilly
Important Notes
The file includes the complete test bank, organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
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editions.
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,Name: Class: Date:
Ch01 - The Investment Setting
1. Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of
interest.
a. True
b. False
ANSWER: True
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.
a. True
b. False
ANSWER: True
3. The rate of exchange between certain future dollars and certain current dollars is known as the pure rate of interest.
a. True
b. False
ANSWER: True
4. The holding period return (HPR) is equal to the holding period yield (HPY) stated as a percentage.
a. True
b. False
ANSWER: False
5. 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.
a. True
b. False
ANSWER: False
6. The expected return is the arithmetic average of all possible returns.
a. True
b. False
ANSWER: True
7. An individual who selects the investment that offers greater certainty when everything else is the same is known as a
risk-averse investor.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
Ch01 - The Investment Setting
8. Two measures of the risk premium are the standard deviation and the variance.
a. True
b. False
ANSWER: False
9. The variance of expected returns is equal to the square root of the expected returns.
a. True
b. False
ANSWER: False
10. The coefficient of variation is the expected return divided by the standard deviation of the expected return.
a. True
b. False
ANSWER: False
11. The two most common calculations investors use to measure return performance are arithmetic mean and geometric
mean.
a. True
b. False
ANSWER: True
12. The arithmetic mean is a superior measure of long-term performance because it indicates the compound annual rate
of return based on the ending value of the investment versus its beginning value.
a. True
b. False
ANSWER: False
13. Nominal rates are averages of all possible real rates.
a. True
b. False
ANSWER: False
14. The risk premium is a function of the volatility of operating earnings, sales volatility, and inflation.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
Ch01 - The Investment Setting
15. The line that reflects the combination of risk and return available on alternative investments is referred to as the
security market line (SML).
a. True
b. False
ANSWER: True
16. 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 the 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.
e. None of these are correct.
ANSWER: a
17. The rate of exchange between future consumption and current consumption is the
a. nominal risk-free rate.
b. coefficient of investment exchange.
c. pure rate of interest.
d. consumption/investment paradigm.
e. expected rate of return.
ANSWER: c
18. 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. static economy.
c. change in the expected rate of inflation.
d. change in the real rate of interest.
e. change in risk aversion.
ANSWER: c
19. 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.
ANSWER: e
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
Ch01 - The Investment Setting
20. 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
ANSWER: c
21. The coefficient of variation is a measure of
a. central tendency.
b. absolute variability.
c. absolute dispersion.
d. relative variability.
e. relative return.
ANSWER: d
22. The nominal risk-free rate of interest is a function of the
a. real risk-free rate and the investment’s variance.
b. prime rate and the rate of inflation.
c. T-bill rate plus the inflation rate.
d. tax-free rate plus the rate of inflation.
e. real risk-free rate and the rate of inflation.
ANSWER: e
23. Assume you bought 100 shares of NewTech common stock on January 15, 2003, at $50.00 per share and sold them
on January 15, 2004, for $40.00 per share.
What was your holding period return?
a. −10%
b. −0.8
c. 25%
d. 0.8
e. −20%
ANSWER: d
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
Ch01 - The Investment Setting
24. Assume you bought 100 shares of NewTech common stock on January 15, 2003, at $50.00 per share and sold them
on January 15, 2004, for $40.00 per share. What was your holding period yield?
a. −10%
b. −0.8
c. 25%
d. 0.8
e. −20%
ANSWER: e
25. Suppose you bought a GM corporate bond on January 25, 2001, for $750 and sold it on January 25, 2004, for $650.00.
What was your annual holding period return?
a. 0.8667
b. −0.1333
c. 0.0333
d. 0.9534
e. −0.0466
ANSWER: d
26. Suppose you bought a GM corporate bond on January 25, 2001, for $750 and solid it on January 25, 2004, for $650.00.
What was your annual holding period yield?
a. −0.0466
b. −0.1333
c. 0.0333
d. 0.3534
e. 0.8667
ANSWER: a
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
Ch01 - The Investment Setting
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
27. The common stock of XMen Inc. had the following historic prices.
Time Price of X-Tech
3/01/2019 50.00
3/01/2020 47.00
3/01/2021 76.00
3/01/2022 80.00
3/01/2023 85.00
3/01/2024 90.00
What was your holding period return for the time period of 3/1/2019 to 3/1/2024?
a. 0.1247
b. 1.8
c. 0.1462
d. 0.40
e. 0.25
ANSWER: b
28. The common stock of XMen Inc. had the following historic prices.
Time Price of X-Tech
3/01/2019 50.00
3/01/2020 47.00
3/01/2021 76.00
3/01/2022 80.00
3/01/2023 85.00
3/01/2024 90.00
What was your annual holding period yield (annual HPY)?
a. 0.1462
b. 0.1247
c. 1.8
d. 0.40
e. 0.25
ANSWER: b
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
Ch01 - The Investment Setting
29. You have concluded that next year the following relationships are possible:
Economic Status Probability Rate of Return
Weak Economy 0.15 −5%
Static Economy 0.60 5%
Strong Economy 0.25 15%
What is your expected rate of return [E(Ri)] for next year?
a. 4.25%
b. 6.00%
c. 6.25%
d. 7.75%
e. 8.00%
ANSWER: b
30. You have concluded that next year the following relationships are possible:
Economic Status Probability Rate of Return
Weak Economy 0.15 −5%
Static Economy 0.60 5%
Strong Economy 0.25 15%
Compute the coefficient of variation for your portfolio.
a. 0.043
b. 0.12
c. 1.40
d. 0.69
e. 1.04
ANSWER: e
Copyright Cengage Learning. Powered by Cognero. Page 7
, Name: Class: Date:
Ch01 - The Investment Setting
31. Assume that during the past year the consumer price index increased by 1.5% and the securities listed below returned
the following nominal rates of return.
U.S. Government T-bills 2.75%
U.S. Long-term bonds 4.75%
What are the real rates of return for each of these securities?
a. 4.29% and 6.32%
b. 1.23% and 4.29%
c. 3.20% and 6.32%
d. 1.23% and 3.20%
e. 3.75% and 5.75%
ANSWER: d
32. Assume that you hold a two-stock portfolio. You are provided with the following information on your holdings:
Stock Shares Price(t) Price(t + 1)
1 15 10 12
2 25 15 16
Calculate the HPY for stock 1.
a. 10%
b. 20%
c. 15%
d. 12%
e. 7%
ANSWER: b
33. Assume that you hold a two-stock portfolio. You are provided with the following information on your holdings:
Stock Shares Price(t) Price(t + 1)
1 15 10 12
2 25 15 16
Calculate the HPY for stock 2.
a. 5.3%
b. 6.4%
c. 6.7%
d. 8.2%
e. 10.1%
ANSWER: c
Copyright Cengage Learning. Powered by Cognero. Page 8
Edition Reilly
Important Notes
The file includes the complete test bank, organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
⏰ 24/7 Support: We are always here – reach out anytime and expect a fast response.
Contact Email:
,Name: Class: Date:
Ch01 - The Investment Setting
1. Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of
interest.
a. True
b. False
ANSWER: True
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.
a. True
b. False
ANSWER: True
3. The rate of exchange between certain future dollars and certain current dollars is known as the pure rate of interest.
a. True
b. False
ANSWER: True
4. The holding period return (HPR) is equal to the holding period yield (HPY) stated as a percentage.
a. True
b. False
ANSWER: False
5. 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.
a. True
b. False
ANSWER: False
6. The expected return is the arithmetic average of all possible returns.
a. True
b. False
ANSWER: True
7. An individual who selects the investment that offers greater certainty when everything else is the same is known as a
risk-averse investor.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
Ch01 - The Investment Setting
8. Two measures of the risk premium are the standard deviation and the variance.
a. True
b. False
ANSWER: False
9. The variance of expected returns is equal to the square root of the expected returns.
a. True
b. False
ANSWER: False
10. The coefficient of variation is the expected return divided by the standard deviation of the expected return.
a. True
b. False
ANSWER: False
11. The two most common calculations investors use to measure return performance are arithmetic mean and geometric
mean.
a. True
b. False
ANSWER: True
12. The arithmetic mean is a superior measure of long-term performance because it indicates the compound annual rate
of return based on the ending value of the investment versus its beginning value.
a. True
b. False
ANSWER: False
13. Nominal rates are averages of all possible real rates.
a. True
b. False
ANSWER: False
14. The risk premium is a function of the volatility of operating earnings, sales volatility, and inflation.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
Ch01 - The Investment Setting
15. The line that reflects the combination of risk and return available on alternative investments is referred to as the
security market line (SML).
a. True
b. False
ANSWER: True
16. 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 the 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.
e. None of these are correct.
ANSWER: a
17. The rate of exchange between future consumption and current consumption is the
a. nominal risk-free rate.
b. coefficient of investment exchange.
c. pure rate of interest.
d. consumption/investment paradigm.
e. expected rate of return.
ANSWER: c
18. 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. static economy.
c. change in the expected rate of inflation.
d. change in the real rate of interest.
e. change in risk aversion.
ANSWER: c
19. 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.
ANSWER: e
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
Ch01 - The Investment Setting
20. 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
ANSWER: c
21. The coefficient of variation is a measure of
a. central tendency.
b. absolute variability.
c. absolute dispersion.
d. relative variability.
e. relative return.
ANSWER: d
22. The nominal risk-free rate of interest is a function of the
a. real risk-free rate and the investment’s variance.
b. prime rate and the rate of inflation.
c. T-bill rate plus the inflation rate.
d. tax-free rate plus the rate of inflation.
e. real risk-free rate and the rate of inflation.
ANSWER: e
23. Assume you bought 100 shares of NewTech common stock on January 15, 2003, at $50.00 per share and sold them
on January 15, 2004, for $40.00 per share.
What was your holding period return?
a. −10%
b. −0.8
c. 25%
d. 0.8
e. −20%
ANSWER: d
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
Ch01 - The Investment Setting
24. Assume you bought 100 shares of NewTech common stock on January 15, 2003, at $50.00 per share and sold them
on January 15, 2004, for $40.00 per share. What was your holding period yield?
a. −10%
b. −0.8
c. 25%
d. 0.8
e. −20%
ANSWER: e
25. Suppose you bought a GM corporate bond on January 25, 2001, for $750 and sold it on January 25, 2004, for $650.00.
What was your annual holding period return?
a. 0.8667
b. −0.1333
c. 0.0333
d. 0.9534
e. −0.0466
ANSWER: d
26. Suppose you bought a GM corporate bond on January 25, 2001, for $750 and solid it on January 25, 2004, for $650.00.
What was your annual holding period yield?
a. −0.0466
b. −0.1333
c. 0.0333
d. 0.3534
e. 0.8667
ANSWER: a
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
Ch01 - The Investment Setting
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
27. The common stock of XMen Inc. had the following historic prices.
Time Price of X-Tech
3/01/2019 50.00
3/01/2020 47.00
3/01/2021 76.00
3/01/2022 80.00
3/01/2023 85.00
3/01/2024 90.00
What was your holding period return for the time period of 3/1/2019 to 3/1/2024?
a. 0.1247
b. 1.8
c. 0.1462
d. 0.40
e. 0.25
ANSWER: b
28. The common stock of XMen Inc. had the following historic prices.
Time Price of X-Tech
3/01/2019 50.00
3/01/2020 47.00
3/01/2021 76.00
3/01/2022 80.00
3/01/2023 85.00
3/01/2024 90.00
What was your annual holding period yield (annual HPY)?
a. 0.1462
b. 0.1247
c. 1.8
d. 0.40
e. 0.25
ANSWER: b
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
Ch01 - The Investment Setting
29. You have concluded that next year the following relationships are possible:
Economic Status Probability Rate of Return
Weak Economy 0.15 −5%
Static Economy 0.60 5%
Strong Economy 0.25 15%
What is your expected rate of return [E(Ri)] for next year?
a. 4.25%
b. 6.00%
c. 6.25%
d. 7.75%
e. 8.00%
ANSWER: b
30. You have concluded that next year the following relationships are possible:
Economic Status Probability Rate of Return
Weak Economy 0.15 −5%
Static Economy 0.60 5%
Strong Economy 0.25 15%
Compute the coefficient of variation for your portfolio.
a. 0.043
b. 0.12
c. 1.40
d. 0.69
e. 1.04
ANSWER: e
Copyright Cengage Learning. Powered by Cognero. Page 7
, Name: Class: Date:
Ch01 - The Investment Setting
31. Assume that during the past year the consumer price index increased by 1.5% and the securities listed below returned
the following nominal rates of return.
U.S. Government T-bills 2.75%
U.S. Long-term bonds 4.75%
What are the real rates of return for each of these securities?
a. 4.29% and 6.32%
b. 1.23% and 4.29%
c. 3.20% and 6.32%
d. 1.23% and 3.20%
e. 3.75% and 5.75%
ANSWER: d
32. Assume that you hold a two-stock portfolio. You are provided with the following information on your holdings:
Stock Shares Price(t) Price(t + 1)
1 15 10 12
2 25 15 16
Calculate the HPY for stock 1.
a. 10%
b. 20%
c. 15%
d. 12%
e. 7%
ANSWER: b
33. Assume that you hold a two-stock portfolio. You are provided with the following information on your holdings:
Stock Shares Price(t) Price(t + 1)
1 15 10 12
2 25 15 16
Calculate the HPY for stock 2.
a. 5.3%
b. 6.4%
c. 6.7%
d. 8.2%
e. 10.1%
ANSWER: c
Copyright Cengage Learning. Powered by Cognero. Page 8
