File: Ch.06, Chapter 6: The Risks and Returns from Investing
Multiple Choice Questions
1. Total return is equal to:
a. capital gain + price change.
b. yield + income.
c. capital gain - loss.
d. yield + price change.
Ans: d
Difficulty: Easy
Ref: Return
2. All of the following represent the yield component of total return EXCEPT:
a. Dividend payment on common stock
b. Coupon interest payment on bonds
c. Capital gain upon sale of stock
d. Dividend payment on preferred stock
Ans: c
Difficulty: Easy
Ref: Return
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
Ans: c
Difficulty: Easy
Ref: Risk
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
Ans: a
Difficulty: Moderate
Chapter Six 70
The Risks and Returns from Investing
, Ref: Risk
5. An impending recession is an example of:
a. interest rate risk
b. inflation risk
c. market risk
d. financial risk
Ans: c
Difficulty: Moderate
Ref: Risk
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
Ans: b
Difficulty: Moderate
Ref: Risk
7. Political stability is the major factor concerning:
a. exchange-rate risk
b. systematic risk
c. nonsystematic risk
d. country risk
Ans: d
Difficulty: Moderate
Ref: Risk
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 a risk associated with secondary market transactions
d. increases whenever interest rates increase
Ans: c
Difficulty: Moderate
Ref: Risk
9. The recent housing bubble and resulting credit crisis of 2008 is a perfect example
of:
a. nonsystematic risk
Chapter Six 71
The Risks and Returns from Investing
Multiple Choice Questions
1. Total return is equal to:
a. capital gain + price change.
b. yield + income.
c. capital gain - loss.
d. yield + price change.
Ans: d
Difficulty: Easy
Ref: Return
2. All of the following represent the yield component of total return EXCEPT:
a. Dividend payment on common stock
b. Coupon interest payment on bonds
c. Capital gain upon sale of stock
d. Dividend payment on preferred stock
Ans: c
Difficulty: Easy
Ref: Return
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
Ans: c
Difficulty: Easy
Ref: Risk
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
Ans: a
Difficulty: Moderate
Chapter Six 70
The Risks and Returns from Investing
, Ref: Risk
5. An impending recession is an example of:
a. interest rate risk
b. inflation risk
c. market risk
d. financial risk
Ans: c
Difficulty: Moderate
Ref: Risk
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
Ans: b
Difficulty: Moderate
Ref: Risk
7. Political stability is the major factor concerning:
a. exchange-rate risk
b. systematic risk
c. nonsystematic risk
d. country risk
Ans: d
Difficulty: Moderate
Ref: Risk
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 a risk associated with secondary market transactions
d. increases whenever interest rates increase
Ans: c
Difficulty: Moderate
Ref: Risk
9. The recent housing bubble and resulting credit crisis of 2008 is a perfect example
of:
a. nonsystematic risk
Chapter Six 71
The Risks and Returns from Investing
