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Multiple Choice Quiz
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1
Kurtosis is a measure of ____________.
A)how fat the tails of a distribution are
B)the downside risk of a distribution
C)the normality of a distribution
D)the dividend yield of the distribution
E)A and C
2
When a distribution is positively skewed, ____________.
A)standard deviation overestimates risk
B)standard deviation correctly estimates risk
C)standard deviation underestimates risk
D)the tails are fatter than in a normal disribution
E)none of the above
3
A year ago, you invested $2,000 in a savings account that pays an annual interest rate of 6%. What is your approximate annual real rate of return if the rate of inflation was 3% over the year?
A)4%
B)10%
C)7%
D)3%
E)none of the above
4
You purchased a share of stock for $20. One year later you received $1 as dividend and sold the share for $29. What was your holding period return?
A)45%
B)5%
C)50%
D)40%
E)none of the above
5
A risk-free intermediate or long-term investment
A)is free of all types of risk.
B)does guarantee the future purchasing power of its cash flows.
C)does not guarantee the future purchasing power of its cash flows as it is insured by the U.S. Treasury.
D)A and B.
E)B and C.
6
In words, the real rate of interest is approximately equal to
A)the nominal rate times the inflation rate.
B)the inflation rate minus the nominal rate.
C)the nominal rate minus the inflation rate.
D)the inflation rate divided by the nominal rate.
E)the nominal rate plus the inflation rate.
7
An investor purchased a bond 45 days ago for $895. He received $12 in interest and sold the bond for $893. What is the holding period return on his investment?
A)1.52%
B)0.50%
C)1.12%
D)0.08%
E)0.01%
8
DFI, Inc. has the following probability distribution of holding period returns on its stock.
State of EconomyProbabilityHPR
Boom .25 25%
Normal Growth .45 15%
Recession .30 9%
The expected return on DFI's stock is
A)15.7%.
B)12.4%.
C)16.5%.
D)17.8%.
E)11.6%.
9
DFI, Inc. has the following probability distribution of holding period returns on its stock.
State of EconomyProbabilityHPR
Boom .25 25%
Normal Growth .45 15%
Recession .30 9%
The expected variance of these returns is
A)66.6.
B)35.3.
C)29.4.
D)40.5.
E)none of the above
10
An investment provides a 3% return semi-annually, its effective annual rate is
A)3%.
B)6%.
C)6.06%
D)6.09%
E)none of the above





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