The first homework
(t) 1 The rate of exchange between certain future dollars and certain current dollars is known as
the pure rate of interest.
(t) 2 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.
(f) 3 The holding period return (HPR) is equal to the holding period yield (HPY) stated as a
percentage.
(f) 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.
(f) 5 The expected return is the average of all possible returns.
(f) 6 Two measures of the risk premium are the standard deviation and the variance.
(f) 7 The variance of expected returns is equal to the square root of the expected returns.
(f) 8 The coefficient of variation is the expected return divided by the standard deviation of the
expected return.
(f) 9 Nominal rates are averages of all possible real rates.
(f) 10 The risk premium is a function of the volatility of operating earnings, sales volatility and
inflation.
(t)11 An individual who selects the investment that offers greater certainty when everything else
is the same is known as a risk averse investor.
