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Assignment Unit11
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Submitted Apr 20 at 11:04am
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Question 1
0 / 1 pts
You bought a stock at $100/share. Six­month later, you got a dividend distribution of $5 per share. Then you sold the stock at $100/share.
What is your annual effective yield?
Less than 10.00% Between 10.00% and 10.10% Between 10.11% and 10.20% Correct Answer
Between 10.21% and 10.30% More than 10.30% Answer: Percentage gain = 5/100 = 5% , AEY = [(1+5%)^(1/0.5)]­1=[(1+5%)^2] ­1 = 10.25%
Unanswered
Question 2
0 / 1 pts
Tim bought a stock for $100 at the beginning of 1998, and sold it for $120 four years later (at the beginning of 2002). What is the annual
effective yield on this capital gain?
Correct Answer
Less than 5.00% Between 5.00% and 5.10% Between 5.11% and 5.20% Between 5.21% and 5.30% More than 5.30% Answer: Annual Effective Yield= (1+Total Proportional Gain)^(1/n)­1 =(1+(120­100)/100)^(1/4)­1=4.96%
Unanswered
Question 3
0 / 1 pts
This group has 2 questions. The information will be repeated for each relevant question. You bought WALDENCO stock four years ago for $25/share and today it sells for $45/share. What is the average annual effective yield for
capital gain?
Below 14.00% Between 14.00% to 15.00% Correct Answer
Between 15.01% to 16.00% Between 16.01% to 17.00% More than 17.00% Answer: 1. Total proportional yield = 45/25 ­1 = 80%. Annual yield = (1+80%)^(1/4) ­1 = 15.83%
Unanswered
Question 4
0 / 1 pts
You bought WALDENCO stock four years ago for $25/share and today it sells for $45/share. What is the average annual effective yield for
capital gain? WALDENCO stock has also paid dividends of 3% annually. What is WALDENCO's total average annual yield (dividends plus
capital gains)?
Below 14.00% Between 14.00% to 15.00% Between 15.01% to 16.00% Between 16.01% to 17.00% Correct Answer
More than 17.00% Answer: Total AEY=15.83%+3%=18.83%
Unanswered
Question 5
0 / 1 pts
This group has 3 questions. The information will be repeated for each relevant question. The Black family purchased a stock at the price of $45/share. Six months later, they received the dividend distribution of $1 per share, and
immediately sold the stock at the price of $50/share. What is the annual effective yield on capital gains from this stock?
Less than 20.00% Between 20.00% and 21.00% Between 21.01% and 22.00% Between 22.01% and 23.00% Correct Answer
More than 23.00% Answer: Annual Effective Yield= (1+Total Proportional Gain)^(1/n)­1 =(1+(50­45)/45)^(1/0.5))­1=23.46%
Unanswered
Question 6
0 / 1 pts
The Black family purchased a stock at the price of $45/share. Six months later, they received the dividend distribution of $1 per share, and
immediately sold the stock at the price of $50/share. What is the annual effective yield on income dividends from this stock?
Less than 4.00% Correct Answer
Between 4.00% and 5.00% Between 5.01% and 6.00% Between 6.01% and 7.00% More than 7.00% Answer: Annual effective yield = (1+Percentage Gain)^(1/n)­1 =(1+1/45)^(1/0.5)­1=4.49%
Unanswered
Question 7
0 / 1 pts
The Black family purchased a stock at the price of $45/share. Six months later, they received the dividend distribution of $1 per share, and
immediately sold the stock at the price of $50/share. What is the total annual yield from this stock (capital gains and income dividends)?
Less than 25.00% Between 25.00% and 26.00% Between 26.01% and 27.00% Correct Answer
Between 27.01% and 28.00% More than 28.00% Answer: Total AEY=AEY on capital gain + AEY on income investment=23.46%+4.49%=27.95%
Unanswered
Question 8
0 / 1 pts
Louis bought Treasury bills for $14,600, and he cashed it in six months later for $15,000. What is the annual effective yield?
Less than 5.00% Between 5.00% and 5.10% Between 5.11% and 5.20% Between 5.21% and 5.30% Correct Answer
More than 5.30% Answer: : Annual effective yield=[1+(15,000­14,600)/14,600]^(1/0.5)­1 = (1+0.027397)^2­1=5.55%. Note: 6 months is
0.5 year.
Unanswered
Question 9
0 / 1 pts
Joe's marginal tax rate is 33%. Calculate Joe's after tax annual yield from an investment paying a before tax annual yield of 10%.
Correct Answer
Below 7.50% Between 7.50% to 8.00% Between 8.01% to 8.50% Between 8.51% to 9.00% More than 9.00% Answer: After­tax yield=10%*(1­33%)=6.7%
Unanswered
Question 10
You buy Treasury bills for $9800 and three months later you cash it in for $10,000. What is the annual effective yield?
Less than 7.00% Between 7.00% and 8.00% Correct Answer
Between 8.01% and 9.00% Between 9.01% and 10.00% More than 10.00% 0 / 1 pts
Answer: Annual effective yield=[1+(10,000­9,800)/9,800]^(1/0.25)­1 = 8.42%. Note: 3 months is 0.25 year.
Unanswered
Question 11
0 / 1 pts
Suppose the annual effective yield (AEY) is 15%. The marginal tax rate is 25 percent. What is the after­tax effective yield?
Below 10.00% Between 10.00% to 11.00% Correct Answer
Between 11.01% to 12.00% Between 12.01% to 13.00% More than 13.00% Answer: After­tax yield= 15% *(1­25%)=11.25%
Unanswered
Question 12
0 / 1 pts
This group has 3 questions. The information will be repeated for each relevant question. There are two investments: a stock and a municipal bond. Returns from stocks are taxable while returns from municipal bonds are tax­free.
The annual effective yield (AEY) for the stock is 10% and the AEY for the municipal bond is 8%. The marginal tax rate for Tim is 30%, and
that for Sam is 18%. For Tim, what is the after­tax annual yield of the stock?
Below 6.50% Correct Answer
Between 6.50% to 7.50% Between 7.51% to 8.50% Between 8.51% to 9.50% More than 9.50% Answer: After­tax yield=10%*(1­30%) =7%
Unanswered
Question 13
0 / 1 pts
There are two investments: a stock and a municipal bond. Returns from stocks are taxable while returns from municipal bonds are tax­free.
The annual effective yield (AEY) for the stock is 10% and the AEY for the municipal bond is 8%. The marginal tax rate for Tim is 30%, and
that for Sam is 18%. For Sam, what is the after­tax annual yield of the stock?
Below 7.50% Between 7.50% to 8.00% Correct Answer
Between 8.01% to 8.50% Between 8.51% to 9.00% More than 9.00% Answer: After­tax yield=10%*(1­18%)=8.2%
Unanswered
Question 14
0 / 1 pts
There are two investments: a stock and a municipal bond. Returns from stocks are taxable while returns from municipal bonds are tax­free.
The annual effective yield (AEY) for the stock is 10% and the AEY for the municipal bond is 8%. The marginal tax rate for Tim is 30%, and
that for Sam is 18%. When tax is taken into consideration, the _________ is better for Tim, and the __________ is better for Sam.
Correct Answer
municipal bond, stock stock, municipal bond stock, stock municipal bond, municipal bond Answer: For Tim: the after­tax annual yield for the stock (7%) the AEY of municipal bond of 8%
Unanswered
Question 15
Investment involves risks. Why would investors be willing to take those risks?
Because they are risk­tolerant. Correct Answer
Because that is the only way to preserve the purchasing power of money. Because they all want to get rich quick. Because they all don't know what they are getting into. 0 / 1 pts
Unanswered
Question 16
0 / 1 pts
Default risk is the risk that
Correct Answer
you may lose all or a major part of your original investment. you may not be able to cash­in your investment for all your money at the time you want to cash­in. you may face a reduction in the value of a security resulting from a rise in market interest rate. your investment return may not be able to keep up with inflation. you need to reinvest your investment returns but are not able to invest on the same terms you had before. Unanswered
Question 17
Liquidity risk is the risk that
you may lose all or a major part of your original investment. Correct Answer
you may not be able to cash­in your investment for all your money at the time you want to cash­in. you may face a reduction in the value of a security resulting from a rise in market interest rate. your investment return may not be able to keep up with inflation. you need to reinvest your investment returns but are not able to invest on the same terms you had before. 0 / 1 pts
Unanswered
Question 18
0 / 1 pts
Reinvestment risk is the risk that
you may lose all or a major part of your original investment. you may not be able to cash­in your investment for all your money at the time you want to cash­in. you may face a reduction in the value of a security resulting from a rise in market interest rate. your investment return may not be able to keep up with inflation. Correct Answer
you need to reinvest your investment returns but are not able to invest on the same terms you had before. Unanswered
Question 19
0 / 1 pts
Bond A has a SP rating of AAA. Bond B has a SP rating of B. Bond C has a SP rating of CCC. Which of the following statements is true?
Bond A has the highest risk, followed by Bond B. Bond C has the lowest risk. Bond A has the highest risk, followed by Bond C. Bond B has the lowest risk. Correct Answer
Bond A has the lowest risk, followed by Bond B. Bond C has the highest risk. Bond A has the lowest risk, followed by Bond C. Bond B has the lowest risk. Unanswered
Question 20
0 / 1 pts
What is the relationship between average return and the risk of an investment?
There is no relationship between the two. Correct Answer
The higher the risk, the higher the expected return of an investment. The lower the risk, the higher the expected return of an investment. Unanswered
Question 21
0 / 1 pts
What is the relationship between risk tolerance level and the willingness to invest in stocks?
The more risk averse you are the less willing you are to invest in stocks. The more risk averse you are the more willing you are to invest in stocks. The less risk averse you are the more willing you are to invest in stocks. The less risk averse you are the less willing you are to invest in stocks. Correct Answer
Both a and c. Both b and d. Unanswered
Question 22
0 / 1 pts
Currently, Social Security reserve is invested in no­risk financial instruments. Some have proposed to invest part of the Social Security
reserve in the stock market. If such proposal passes, Social Security is likely to get
a higher rate of return every year compared to the current situation a possible negative rate of return in any given year a higher average rate of return in the long run compared to the current situation all of the above are true Correct Answer
only b and c are true Unanswered
Question 23
0 / 1 pts
John is facing a bet on which he has a 50% chance of winning $100 and a 50% chance of getting nothing. He is willing to pay a maximum
of $50 for this bet. In economic definition John is considered
risk averse Correct Answer
risk neutral risk loving Unanswered
Question 24
According to the Survey of Consumer Finance,
most people in the U.S. are willing to take substantial risks in order to get substantial returns on investments. Correct Answer
0 / 1 pts
most people in the U.S. are willing to take either average or above average risks to get average or above­average
returns.
most people in the U.S. are not willing to take any risk at all. nobody in the U.S. is so risk averse that he/she is not willing to take any risk at all. Unanswered
Question 25
0 / 1 pts
The basic way(s) to invest money is(are)
buy non­financial assets such as land and art lend your money and earn interest buy part ownership in a company Correct Answer
all of the above Unanswered
Question 26
Buying a bond is a form of
buying non­financial assets Correct Answer
lending your money buying part ownership in a company 0 / 1 pts
any of the above Unanswered
Question 27
0 / 1 pts
Buying a stock is a form of
buying non­financial assets lending your money Correct Answer
buying part ownership in a company any of the above Unanswered
Question 28
0 / 1 pts
Income stocks are stocks where returns mostly come from
Correct Answer
income dividends capital gain Unanswered
Question 29
Historical data show that on average, rate of return on large company stocks is _______ small company stocks.
0 / 1 pts
higher than Correct Answer
lower than as high as Unanswered
Question 30
0 / 1 pts
The purpose of asset allocation is to diversify between different types of investments to minimize risks involved in investments.
Correct Answer
True False Quiz Score: 0 out of 30