1.Investment assets differ in risk because of:
A. cash flow uncertainty
B. time value of money uncertainty
C. uncertainty regarding the rate of inflation
D. all of the above
2.A risk-averse investor will, all other things being equal, prefer investing in which of the
following asset classes?
A. equity
B. property
C. fixed interest
D. shares
3.4. Which of the following holding periods is an active investor more likely to invest in?
A. short term
B. medium to long term
C. long term only
D. none of the above
4.7. Under a normal distribution, what proportion of observations fall within two standard
deviations of the mean?
A. 50%
B. 68%
C. 75%
D. 95%
5.9. Which of the following best describes the changes in asset class composition that occur with
increased age, according to the investor life cycle theory of Seigal (1991)?
A. more wealth allocated to equity
B. more wealth allocated to fixed interest
C. less wealth allocated to property
D. less wealth allocated to cash
6.11. An investor purchased an asset for $32 000 at the beginning of the year. This investment is
worth $36 000 at the end of the year. What is the return for the year on the investment?
A. 12.5%
B. 14%
C. 16%
D. 18%
7.12. An investor purchased an asset for $1675. This investment is worth $1742 after three
months. What is the simple annualised return for the investment (simple annual return)?
A. 12%
B. 14%
C. 16%
D. 18%
8.13. An investor purchased an asset for $1675. This investment is worth $1742 after three
months. What is the effective annualised return for the investment?
A. 15%
B. 17%
C. 19%
D. 21%
9. 14. An investment was purchased for $2985. After seven months this investment was worth
$3245. What is the continuously compounded return on the investment over the seven-month
period?
A. 7.61%
B. 8.35%
C. 8.95%
D. 9.13%
10.Use the following information for questions 10-13 Year Return (%) Year 1 7% Year 2 17%
Year 3 –2.4% Year 4 2% The value of an investment at the end of each of four years is shown
above. What is the arithmetic cumulative return over the four years?
A. 23.6%
B. 17%
C. -2.14%
D. 2%
11.16. The value of an investment at the end of each of four years is shown above. What is the
arithmetic average return over the four years?
A. -5.75%
B. 4.00%
C. 4.25%
D. 5.90%
12.17. The value of an investment at the end of each of four years is shown above. What is the
geometric cumulative return over the four years?
A. 15.1%
B. 24.63%
C. 18.7%
D. 19.7%
13.18. The value of an investment at the end of each of four years is shown above. What is the
geometric average return over the four years?
A. 4.0%
B. 4.67%
C. 5.26%
D. 5.66%
14.The following information is used for questions 14-15 Asset Price at start of period ($) Price
atend of period ($) A $3.25 $4.25 B $4.12 $3.85 20. Given the prices for A and B at the start and
end of the period, if an investor holds 1000 shares in asset A and 5000 in asset B, what is her
value-weighted return on the portfolio (using the continuously compounded return)?
A. –3.12%
B. –2.23%
C. –1.12%
D. 2.56%
15.21. Given the prices for A and B at the start and end of the period, calculate the
price-weighted return on a portfolio consisting of assets A and B.
A. 7.22%
B. 7.85%
C. 8.02%
Option 4
16.Use the following information for questions 16-17 Asset Number of shares Initial price ($)
End price ($) A 2000 6.00 6.1 B 5000 3.00 2.25 C 3000 12.00 11.50 D 12 000 8.50 8.8518 An
investor purchased the investment above. What is the value-weighted return on the portfolio
(using the continuously compounded return)?
A. 1.7%
B. -0.9%
C. 2.3%
D. 2.5%
17.An investor purchased the investment above. If continuously compounded returns are used,
what is the equal-weighted return on the portfolio?
A. –12.6%
B. –10.5%
C. –6.8%
D. 2.3
18.Loredana has invested equal amounts in each of the shares of company A, company B and
company C, which she purchased one year ago at prices of $10, $2 and $1, respectively.
Loredana has recently sold her shares in company B for $2.50 and in company C for $1.15. If
Loredana wishes to earn a continuously compounded return of 20% for the year, on her equally
weighted portfolio, at what price will she need to sell her shares in company A?
A. $11.55
B. $12.26
C. $12.67
D. $13.34
19.26. The price at the start of the period for asset A is $5 and for asset B is $6. At the end of the
period, asset A has fallen to $4 and asset B has risen to $6.50. Calculate the continuously
compounded return on a price-weighted portfolio consisting of shares A and B.
A. –5.8%
B. –4.9%
C. –2.5%
D. 2.5%