Fina 3315 exam 2 UPDATED ACTUAL
Exam Questions and CORRECT Answers
The required rate of return on the Cosmos Corporation's common stock is 10%, the current real
rate of return in the market is 1%, and the inflation rate is 3%. In this case, the risk premium
associated with Cosmos stock is - CORRECT ANSWER - 6%
in the real world, most of the assets available to investors - CORRECT ANSWER - Tend
to be somewhat positively correlated.
When an investor places a_ order he agrees to buy or sell at the best available price when the
trade is executed. - CORRECT ANSWER - market
the present value of $1000 discounted at the rate of 5% per year, to be received at the end of 3
years is equal to - CORRECT ANSWER - $1,000/(1.05)^3
Research indicates that investors who closely monitor their portfolios and trade quickly in
response to minor fluctuations in price - CORRECT ANSWER - underperform those who
hold investments for the long- term and trade infrequently
compound interest is interest paid not only on the initial investment but also on any interest
earned after the initial investment. - CORRECT ANSWER - true
the purchase of stock with cash in the hope of earning a capital gain is known as taking a -
CORRECT ANSWER - long position in the stock
short- term securities are bought and sold in the - CORRECT ANSWER - money market
the efficient frontier - CORRECT ANSWER✅✅- represents the best attainable tradeoff
between risk and return
,correlation is the measure of the relationship between two series of numbers - CORRECT
ANSWER - true
historically, what is the correct ranking of the following securities from lowest rate of return to
the highest? - CORRECT ANSWER - short- term government bills, long-term government
bonds, stocks
Which one of the following statements concerning the primary market is correct? - CORRECT
ANSWER - the first public sale of a company's stock is called an IPO
One feature that mutual funds and exchange traded funds have in common is - CORRECT
ANSWER - They invest in broadly diversified porfortlios of securities
liquidity risk is defined as the risk of - CORRECT ANSWER - not being able to sell an
investment conveniently and at a reasonable price.
analysts commonly use the_ to measure market return. - CORRECT ANSWER - the
Standard & Poor's 500 index
Charting is the technique of - CORRECT ANSWER - plotting the performance of a
security over time.
Two assets have a coefficient of correlation of -.4. - CORRECT ANSWER - combining
these assets will reduce risk
Investments advisors are legally responsible for losses incurred by their clients. - CORRECT
ANSWER - false
The holding period return (HPR) can appropriately be used to - CORRECT ANSWER -
compare returns among investments that are held for the same period of time.
, if there is no relationship between the rates of return of two assets over time, these assets are -
CORRECT ANSWER - uncorrelated
Negatively correlated assets reduce risk more than positively correlated assets. - CORRECT
ANSWER - true
stocks purchased in the secondary market are purchased - CORRECT ANSWER - from
other investors
IPOs are typically underpriced so that the price rises during the first few days of trading. -
CORRECT ANSWER - true
Mcdonald's stock is now selling for $92 per share. Kim wants to buy 100 shares but only if she
can do so at $90 or less. She should place a(n) - CORRECT ANSWER - limit order
A business has strong sales and profits, but its stock price falls anyway because stock prices in
general are declining. This is an example of - CORRECT ANSWER - market risk
Each of the following investments produces the same rate of return. Which one has the greatest
amount of risk? - CORRECT ANSWER - investment D with a standard deviation of 19%
An informal, voluntary agreement to solve disputes between an investor and his/her broker by
utilizing a person to facilitate negotiations between the two parties is called - CORRECT
ANSWER - mediation
On a net basis, funds in the financial markets are generally supplied by - CORRECT
ANSWER - individuals
The closest approximation to the real, risk - free rate of interest is - CORRECT
ANSWER - the short-term Treasury bill rate minus the inflation rate.
Exam Questions and CORRECT Answers
The required rate of return on the Cosmos Corporation's common stock is 10%, the current real
rate of return in the market is 1%, and the inflation rate is 3%. In this case, the risk premium
associated with Cosmos stock is - CORRECT ANSWER - 6%
in the real world, most of the assets available to investors - CORRECT ANSWER - Tend
to be somewhat positively correlated.
When an investor places a_ order he agrees to buy or sell at the best available price when the
trade is executed. - CORRECT ANSWER - market
the present value of $1000 discounted at the rate of 5% per year, to be received at the end of 3
years is equal to - CORRECT ANSWER - $1,000/(1.05)^3
Research indicates that investors who closely monitor their portfolios and trade quickly in
response to minor fluctuations in price - CORRECT ANSWER - underperform those who
hold investments for the long- term and trade infrequently
compound interest is interest paid not only on the initial investment but also on any interest
earned after the initial investment. - CORRECT ANSWER - true
the purchase of stock with cash in the hope of earning a capital gain is known as taking a -
CORRECT ANSWER - long position in the stock
short- term securities are bought and sold in the - CORRECT ANSWER - money market
the efficient frontier - CORRECT ANSWER✅✅- represents the best attainable tradeoff
between risk and return
,correlation is the measure of the relationship between two series of numbers - CORRECT
ANSWER - true
historically, what is the correct ranking of the following securities from lowest rate of return to
the highest? - CORRECT ANSWER - short- term government bills, long-term government
bonds, stocks
Which one of the following statements concerning the primary market is correct? - CORRECT
ANSWER - the first public sale of a company's stock is called an IPO
One feature that mutual funds and exchange traded funds have in common is - CORRECT
ANSWER - They invest in broadly diversified porfortlios of securities
liquidity risk is defined as the risk of - CORRECT ANSWER - not being able to sell an
investment conveniently and at a reasonable price.
analysts commonly use the_ to measure market return. - CORRECT ANSWER - the
Standard & Poor's 500 index
Charting is the technique of - CORRECT ANSWER - plotting the performance of a
security over time.
Two assets have a coefficient of correlation of -.4. - CORRECT ANSWER - combining
these assets will reduce risk
Investments advisors are legally responsible for losses incurred by their clients. - CORRECT
ANSWER - false
The holding period return (HPR) can appropriately be used to - CORRECT ANSWER -
compare returns among investments that are held for the same period of time.
, if there is no relationship between the rates of return of two assets over time, these assets are -
CORRECT ANSWER - uncorrelated
Negatively correlated assets reduce risk more than positively correlated assets. - CORRECT
ANSWER - true
stocks purchased in the secondary market are purchased - CORRECT ANSWER - from
other investors
IPOs are typically underpriced so that the price rises during the first few days of trading. -
CORRECT ANSWER - true
Mcdonald's stock is now selling for $92 per share. Kim wants to buy 100 shares but only if she
can do so at $90 or less. She should place a(n) - CORRECT ANSWER - limit order
A business has strong sales and profits, but its stock price falls anyway because stock prices in
general are declining. This is an example of - CORRECT ANSWER - market risk
Each of the following investments produces the same rate of return. Which one has the greatest
amount of risk? - CORRECT ANSWER - investment D with a standard deviation of 19%
An informal, voluntary agreement to solve disputes between an investor and his/her broker by
utilizing a person to facilitate negotiations between the two parties is called - CORRECT
ANSWER - mediation
On a net basis, funds in the financial markets are generally supplied by - CORRECT
ANSWER - individuals
The closest approximation to the real, risk - free rate of interest is - CORRECT
ANSWER - the short-term Treasury bill rate minus the inflation rate.
