ETS Exam-Finance-Business Exam Fully
Solved #11
The prices of bonds fluctuate with changes in interest rates, giving rise to interest rate
risk. Which of the following investments will be subject to the greatest amount of interest
rate risk?
Select one:
A.Corporate bond due in 1 year
B.Governments bonds due in 3 year
C.Corporate bond due in 5 years
D.Government bonds due in 15 years - correct answer d. Government bonds due in 15
years
If a corporate bond compounds interest annually and has a 6% nominal yield and the
inflation rate is 2%, then the real rate of interest is which of the following?
Select one:
A.10%
B.6%
C.4%
D.2% - correct answer c. 4%
Which of the following best describes what the goal is for investment diversification in a
portfolio?
Select one:
A.Strategy of combining investments in such a way as to reduce the overall risk of a
stock portfolio.
B.Strategy of combining investments in such a way as to increase the return on
individual stocks in the stock portfolio.
C.Strategy of combining investments in such a way as to eliminate market risk of an
individual stock.
D.All of the above are correct. - correct answer a. Strategy of combining investments in
such a way as to reduce the overall risk of a stock portfolio.
King Corporation has the following information related to the rate of return that is
expected by investors. The risk free rate of return is 3% and the market rate is 10%.
Which of the following Beta's would produce the highest expected rate of return for an
investor?
Select one:
A..5
B.1.0
C.1.5
, D.-1.5 - correct answer c. 1.5
King Corporation stock has the following information related to the rate of return that is
expected by investors. The risk free rate of return is 3% and the market rate is 10%. If
the stock has a beta of 1, what is the required rate of return?
Select one:
A.13%
B.10%
C.7%
D.3% - correct answer b. 10%
Beta is a measure of a stock's volatility relative to the overall market. A stock's beta is
determined by analyzing how much its return fluctuates in relation to the overall market
return. Which of the following best describes how an individual stock will react in relation
to the stocks individual beta?
Select one:
A.A stock with a beta greater than 1.0 tends to move with less volatility than the overall
stock market
B.A stock with a beta of 1.0 will tend to move higher and lower in lockstep with the
overall stock market
C.A stock with a beta lower than 1.0 tends to move with more volatility than the overall
stock market
D.All of the above are correct - correct answer b. A stock with a beta of 1.0 will tend to
move higher and lower in lockstep with the overall stock market
Kelly plans to put her graduation money into an account and leave it there for 2 years
while she goes to college. She receives $7,500 in graduation money that she puts it into
an account that earns 15.00% interest compounded annually. How much will be in
Kelly's account at the end of two years?
Select one:
A.$7,500.00
B.$9,918.75
C.$10,016.02
D.$11,574.76 - correct answer b. $9,918.75
The net present value of a new project is determined to be a positive $19, 724. The
calculation was based upon the following
:Initial investment (Outflow)................................. $543,000
Expected cash inflows per month............................$50,000 each month for 12
months.Salvage value of the project is zero.
Target rate of return (Weighted average cost of capital)........12% per annum.
Which of the following statements is correct:
Solved #11
The prices of bonds fluctuate with changes in interest rates, giving rise to interest rate
risk. Which of the following investments will be subject to the greatest amount of interest
rate risk?
Select one:
A.Corporate bond due in 1 year
B.Governments bonds due in 3 year
C.Corporate bond due in 5 years
D.Government bonds due in 15 years - correct answer d. Government bonds due in 15
years
If a corporate bond compounds interest annually and has a 6% nominal yield and the
inflation rate is 2%, then the real rate of interest is which of the following?
Select one:
A.10%
B.6%
C.4%
D.2% - correct answer c. 4%
Which of the following best describes what the goal is for investment diversification in a
portfolio?
Select one:
A.Strategy of combining investments in such a way as to reduce the overall risk of a
stock portfolio.
B.Strategy of combining investments in such a way as to increase the return on
individual stocks in the stock portfolio.
C.Strategy of combining investments in such a way as to eliminate market risk of an
individual stock.
D.All of the above are correct. - correct answer a. Strategy of combining investments in
such a way as to reduce the overall risk of a stock portfolio.
King Corporation has the following information related to the rate of return that is
expected by investors. The risk free rate of return is 3% and the market rate is 10%.
Which of the following Beta's would produce the highest expected rate of return for an
investor?
Select one:
A..5
B.1.0
C.1.5
, D.-1.5 - correct answer c. 1.5
King Corporation stock has the following information related to the rate of return that is
expected by investors. The risk free rate of return is 3% and the market rate is 10%. If
the stock has a beta of 1, what is the required rate of return?
Select one:
A.13%
B.10%
C.7%
D.3% - correct answer b. 10%
Beta is a measure of a stock's volatility relative to the overall market. A stock's beta is
determined by analyzing how much its return fluctuates in relation to the overall market
return. Which of the following best describes how an individual stock will react in relation
to the stocks individual beta?
Select one:
A.A stock with a beta greater than 1.0 tends to move with less volatility than the overall
stock market
B.A stock with a beta of 1.0 will tend to move higher and lower in lockstep with the
overall stock market
C.A stock with a beta lower than 1.0 tends to move with more volatility than the overall
stock market
D.All of the above are correct - correct answer b. A stock with a beta of 1.0 will tend to
move higher and lower in lockstep with the overall stock market
Kelly plans to put her graduation money into an account and leave it there for 2 years
while she goes to college. She receives $7,500 in graduation money that she puts it into
an account that earns 15.00% interest compounded annually. How much will be in
Kelly's account at the end of two years?
Select one:
A.$7,500.00
B.$9,918.75
C.$10,016.02
D.$11,574.76 - correct answer b. $9,918.75
The net present value of a new project is determined to be a positive $19, 724. The
calculation was based upon the following
:Initial investment (Outflow)................................. $543,000
Expected cash inflows per month............................$50,000 each month for 12
months.Salvage value of the project is zero.
Target rate of return (Weighted average cost of capital)........12% per annum.
Which of the following statements is correct:
