Question

-Compound interest is interest paid not only on the initial investment but also on any interest accumulated in prior periods.

True or false

-Jake purchased 100 shares of ABC stock at $42.50 per share. After seven months, he sold all of his shares at a price of $39.75 a share. Jake received a total of $1.10 per share in dividends during the time he owned the shares. Jake's holding period return is

A. -3.9%.

B. -2.8%.

C. 4.2%.

D. 9.1%.

-The coefficient of variation is used to compare assets with varying rates of return.

True or false

-An ordinary annuity has cash flows that occur at the ________ of each time period and are ________ in amount.

A. beginning; constant

B. beginning; variable

C. end; constant

D. end; variable

-The risk of an asset can be measured statistically on an absolute basis by the coefficient of variation and on a relative basis by the standard deviation.

True or false

-The stated rate of interest is equal to the true rate of interest only when

A. the simple interest method is used.

B. interest is compounded continuously.

C. interest is computed semi-annually.

D. interest is computed monthly.

When the cost of an investment exceeds the present value of its benefits, the investor would be earning a rate of return

A. greater than the discount rate.

B. equal to the discount rate.

C. equal to the compounded rate.

D. less than the discount rate.

In investment theory, the rate of return that could be earned in an inflation-free, perfect world where all outcomes are known and certain is known as the

A. absolute return.

B. required rate of return.

C. real rate of return.

D. expected rate of return.

-The yield is the rate of return that causes a project to have a zero net present value.

true or false

Which one of the following statements is correct?

A. A capital loss is computed as the reduction in the value of an investment minus the income received from that investment.

B. The total return from an investment is equal to the capital gain minus the current income.

C. A capital gain is equal to the amount paid for an investment minus the proceeds received from the sale of that investment.

D. Current income is cash or near-cash that is periodically received as a result of owning an investment.

-The yield assumes you earn the yield rate of return on all income received during the holding period.

True or false

Investors who favor risk free and low risk investments may still be subject to purchasing power risk.

True or false

Most investors are risk-seeking.

True or false

The financial concept of time value of money is dependent upon the opportunity to earn interest over time.

True or false

Answer 1

(1)

Compound interest is paid not only on the initial investment but also on any interest accumulated in prior periods.

Th given statement is true. The interest which is paid only on the initial investment is known as simple interest.

Compound interest = Interest on initial investment + Interest on interest accumulated

(2)

Holding period return = (Sale price of asset - Purchase price of asset + Dividend received)/Purchase price

= (39.75 - 42.50 + 1.10)/42.50

= -1.65/42.50

= -3.9%

Hence, correct option is (A)

(3) The co-efficient of variation is used to compare assets with varying rates of return.

The given statement is false. The co-efficient of variation is measure of risk. It can be used for evaluating assets with same return or assets with varying returns.

(4) An ordinary annuity has cash flows that occur at the end of each time period and are constant in amount.

Hence, correct option is (C)

Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubt. Thanks.