Test Bank for Investment Analysis and Portfolio Management 12e 12th Edition by Frank K. Reilly, Keith C. Brown, Sanford J. Leeds. This document includes Multiple Choice and True False Questions for all Chapters. Answers are given at the end of every chapters. Table of contents are given below
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It did not have the math problem solution. it only had the answers. I might have to do a refund.
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Test Bank for Investment Analysis and Portfolio Management, 12th Edition by Reilly,
Brown
Chapter 01 12e Reilly
Answers Included ✅
Indicate whether the statement is true or false.
1. The two most common calculations investors use to measure return performance are arithmetic mean and
geometric mean.
a. True
b. False
2. 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
3. Nominal rates are averages of all possible real rates.
a. True
b. False
4. 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
5. The coefficient of variation is the expected return divided by the standard deviation of the expected return.
a. True
b. False
6. 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
7. The rate of exchange between certain future dollars and certain current dollars is known as the pure rate of
interest.
a. True
b. False
8. The variance of expected returns is equal to the square root of the expected returns.
a. True
b. False
9. 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
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Chapter 01 12e Reilly
10. The risk premium is a function of the volatility of operating earnings, sales volatility, and inflation.
a. True
b. False
11. Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of
interest.
a. True
b. False
12. 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
13. The expected return is the arithmetic average of all possible returns.
a. True
b. False
14. Two measures of the risk premium are the standard deviation and the variance.
a. True
b. False
15. The holding period return (HPR) is equal to the holding period yield (HPY) stated as a percentage.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
16. Suppose you bought a GM corporate bond on January 25, 2001, for $750 and sold it on January 25, 2004, for
$650.00.
What was your annual holding period return?
a. 0.8667
b. −0.1333
c. 0.0333
d. 0.9534
e. −0.0466
17. Two factors that influence the nominal risk-free rate are
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.
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Chapter 01 12e Reilly
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.
19. The annual rates of return of Stock Z for the last four years are 0.10, 0.15, −0.05, and 0.20, respectively.
Compute the standard deviation of the annual rate of return for Stock Z.
a. 0.0070
b. 0.0088
c. 0.0837
d. 0.1080
e. 0.1145
20. Assume you bought 100 shares of NewTech common stock on January 15, 2003, at $50.00 per share and sold
them on January 15, 2004, for $40.00 per share. What was your holding period yield?
a. −10%
b. −0.8
c. 25%
d. 0.8
e. −20%
21. Suppose you bought a GM corporate bond on January 25, 2001, for $750 and solid it on January 25, 2004, for
$650.00.
What was your annual holding period yield?
a. −0.0466
b. −0.1333
c. 0.0333
d. 0.3534
e. 0.8667
22. A decrease in the expected real growth in the economy, all other things constant, will cause the security market
line to
a. shift up.
b. shift down.
c. have a steeper slope.
d. have a flatter slope.
e. remain unchanged.
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Chapter 01 12e Reilly
23. Unsystematic risk refers to risk that is
a. undiversifiable.
b. diversifiable.
c. due to fundamental risk factors.
d. due to market risk.
e. unexplainable.
24. Assume that during the past year the consumer price index increased by 1.5% and the securities listed below
returned the following nominal rates of return.
U.S. Government T-bills 2.75%
U.S. Long-term bonds 4.75%
What are the real rates of return for each of these securities?
a. 4.29% and 6.32%
b. 1.23% and 4.29%
c. 3.20% and 6.32%
d. 1.23% and 3.20%
e. 3.75% and 5.75%
25. The variability of operating earnings is associated with
a. business risk.
b. liquidity risk.
c. exchange rate risk.
d. financial risk.
e. market risk.
26. Which of the following is least likely to move a firm’s position to the right on the Security Market Line (SML)?
a. an increase in the firm’s beta
b. adding more financial debt to the firm’s balance sheet relative to equity
c. changing the business strategy to include new product lines with more volatile expected cash flows
d. investors perceive the stock as being riskier
e. an increase in the risk-free required rate of return
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