1) The present value of an annuity increases as the
number of years increases.
2) The expected return depends on future dividends and future price appreciation.
3) An inventory turnover of 3.0 suggests that inventory is sold every four months.
4) The maintenance margin requirement sets the minimum an investor must remit to
purchase a stock.
5) An index fund seeks to duplicate the composition of an index such as the S&P 500.
6) By accepting more risk, the investor will increase the realized return.
7) Investment companies pay no taxes on their earnings.
8) Repurchases of shares may be viewed as an alternative to paying cash dividends.
9) The intrinsic value of a call option is the strike price minus the stock’s price.
10) If the return on two stocks is highly and positively
correlated (i.e., correlation coefficient = +1.0), combining these stocks will reduce the
risk associated with the portfolio.
11) The price of an option is generally less than the option’s intrinsic value.
12) The “efficient frontier” relates all the combinations of risk and return that represent
the same level of satisfaction.
13) If investors believe that a stock’s prices will
fluctuate but they are not certain as to the direction, these investors may buy a straddle.
14) Reinvestment rate risk results from higher stock prices in the future.
15) The federal funds rate is the rate federal government pays when it borrows funds.
16) The gross profit margin on sales tends to exceed the operating profit margins on
sales.