Test Bank for Investment Analysis and Portfolio Management 12th Edition By Frank Reilly, Keith Brown, Sanford Leeds (All Chapters 1-18, 100% Original Verified, A+ Grade)

Test Bank for Investment
Analysis and Portfolio
Management 12 Edition By
th

Frank Reilly, Keith Brown,
Sanford Leeds (All Chapters
1-18, 100% Original Verified,
A+ Grade)
This is the Original 12th
Edition Test Bank. All other
Test Bank in the Market are
Fake with Old Questions.

,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

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

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,Name: Class: Date:

Ch01 - The Investment Setting

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

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
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, Name: Class: Date:

Ch01 - The Investment Setting

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

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.
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