Question :
14. A summary measure of an investment’s projected performance based : 1370010
14. A summary measure of an investment’s projected performance based on the possible rates of return and the likelihood of those rates of return occurring is called:
A)inflation rate of return
B)relative risk rate of return
C)expected rate of return
D)risk-free rate of return
15. Sphinx Enterprises is contemplating investing in a copper mine. An investment of $750,000 would be made for one year with the following potential outcomes:
Rate of Return
Probability of Outcome
120%
.05
75%
.30
30%
.45
(100%)
.20
The expected rate of return for this investment is:
A)22.0%
B)15.5%
C)62.0%
D)8.3%
#16 and #17 are the same problem but #16 asks for the Expected Return while #16 asks for the Expected Rate of Return.
16. Bobby Bell has $500,000 and is considering investing in a project that would yield the following returns one year from today:
Return
Probability of Outcome
$200,000
.05
$60,000
.30
$20,000
.45
<$100,000>
.20
The expected return for this investment is:
A)$57,000
B)$45,000
C)$17,000
D)$32,000
17. Bobby Bell has $500,000 and is considering investing in a project that would yield the following returns one year from today:
Return
Probability of Outcome
$200,000
.05
$60,000
.30
$20,000
.45
<$100,000>
.20
The expected rate of return for this investment is:
A)11.4%
B) 9%
C) 3.4%
D) 6.4%
18. All of the following are primary risk factors that generate risk premiums except:
A)inflation risk
B)business risk
C)relative risk
D)liquidity risk
19. Interest calculated only on the amount borrowed is referred to as:
A)compound interest
B)risk-free interest
C)inflation interest
D)simple interest
20. In compound interest calculations, as the frequency of compounding increases, the:
A)total amount of interest decreases
B)annual interest rate increases
C)total amount of interest increases
D)the interest rate decreases
21. Which of the following is NOT true about compound interest
A) As the number of compoundings increases the annual effective interest rate increases
B) As the number of compoundings increases the incremental amount of interest
increases
C) As the number of compoundings increases the total amount of interest increases
D) As the number of compoundings increases the interest rate remains the same
22. Art Burtscher has a choice of investing $10,000 at either 5% simple interest or 5%
compound interest that is compounded annually. What will be the difference between
the total amount of interest earned after two years?
A) No difference
B) $25
C) $50
D) $100
23. The future value of a $7,000 investment at the end of 4 years with an interest rate of 6% compounded annually is:
A)$8,680.00
B)$8,837.50
C)$5,544.70
D)$8,867.60
