Investment Analysis and Portfolio Management 9th Edition TestBank Chapter 3

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CHAPTER 3—SELECTING INVESTMENTS IN A GLOBAL MARKET

TRUE/FALSE Question: The U.S. equity and bond markets have grown in terms of their

relative size of the world equity and bond market. Answer:

Question: Diversification with foreign securities can help reduce portfolio risk. Answer:

Question: The total domestic return on German bonds is the return that would be

experienced by an U.S. investor who owned German bonds. Answer:

Question: If the exchange rate effect for Japanese bonds is negative, it means that the

domestic rate of return will be greater than the U.S. dollar return. Answer:

Question: A U.S. investor who ignores foreign markets reduces overall number of

investment choices. Answer:

Question: Treasury bills are long-term investments that make regular interest and principal

payments. Answer:

Question: A debenture is an option issued by a corporation that gives the holder the right to

acquire common stock from the issuing firm at a specified price within a designated period

of time. Answer:

Question: Income bonds are considered as safe as debentures because they pay higher rates

of interest. Answer:

Question: A Eurobond is an international bond denominated in a currency other than that

of the United States. Answer:

Question: Warrants are options often issued in connection with the sale of fixed income

securities. Answer:

Question: A call option is usually issued in conjunction with convertible bonds. Answer:

Question: Yields on money market funds are often lower than yields available to

individuals investing in CDs because of the fees involved. Answer:

Question: Municipal bond nominal yields are generally below comparable taxable bond

yields. Answer:

Question: REITS are investment companies that invest in high-quality money market

instruments such as Treasury bills, high-grade commercial paper, and large CDs. Answer:

Question: It is very important when diversifying that the correlation between rates of

return for various countries be high and very stable over time. Answer:

Question: The decrease in the standard deviation of returns after adding 40 to 50 securities

within a country is known as domestic diversification. Answer:

Question: Government agency securities are issued by local government entities as either

general obligation or revenue bonds. Answer:

Question: Subordinated bondholders have claim to the assets of the firm only after the firm

has satisfied the claims of all senior secured and debenture bondholders. Answer:

Question: An investor who purchases a put option:

Answer:

Question: If you are considering investing in German stocks as a means to reduce the risk

of your portfolio, the initial factor that you should examine is:

Answer:

Question: All of the following are considered fixed income investments except

Answer:

Question: Capital market instruments include all of the following except

Answer:

Question: The original maturity of a United States Treasury note is

Answer:

Question: The original maturity of a United States Treasury bill is

Answer:

Question: The original maturity of a United States Treasury bond is

Answer:

Question: Which of the following is not an U.S. government agency?

Answer:

Question: The legal document setting forth the obligations of a bonds issuer is called

Answer:

Question: All of the following are considered fixed income securities except

Answer:

Question: The purchase and sale of commodities for current delivery and consumption is

known as dealing in the ____ market.

Answer:

Question: An investor who purchases a call option:

Answer:

Question: If this year is consistent with historical trends you would expect the return for

small capitalization stocks to be

Answer:

Question: The correlation between U.S. equities and U.S. government bonds is

Answer:

Question: The best way to directly acquire the shares of a foreign company is through

Answer:

Question: Which of the following would be considered a low liquidity investment?

Answer:

Question: An agreement that provides for the future delivery or receipt of an asset at a

specified date for a specified price is a

Answer:

Question: Which of the following is not a type of investment company?

Answer:

Question: Antiques, art, coins, stamps, jewelry, etc., are not included in the investment

portfolios of financial institutions because

Answer:

Question: Rank the following four investments in increasing order of historical risk.

Answer:

Question: An ETF (exchange traded fund):

Answer:

Question: A statistic that measures how two variables tend to move together is the

Answer:

Question: Which of the following statements concerning historical investment risk and

return is false?

Answer:

Question: Which of the following are reasons that U.S. investors should consider foreign

markets when constructing global portfolios?

Answer:

Question: A mutual fund:

Answer:

Question: For a U.S. based investor, a weaker dollar means that overall dollar based

returns on overseas security investment will be higher because

Answer:

Question: In order to diversify risk an investor must have investments that have

correlations with other investments in the portfolio that are

Answer:

Question: Correlations between bond markets in different countries have been changing

over time because

Answer:

Question: Senior secured bonds are

Answer:

Question: Convertible bonds are bonds

Answer:

Question: A Eurobond is an international bond

Answer:

Question: Foreign equities can be acquired by purchasing all of the following except

Answer:

Question: Which of the following is not a characteristic of a warrant?

Answer:

Question: Certificates of ownership issued by a U.S. bank that represent indirect

ownership of a certain number of shares of a specific foreign firm on deposit in a bank in

the firms home country are known as:

Answer:

Question: All of the following are ways to invest in real estate except

Answer:

Question: Which of the following statements regarding real estate investments is false?

Answer:

Question: A bond provision that specifies payments the issuer must make to redeem a

given percentage of the outstanding issue prior to maturity is known as

Answer:

USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

The annual rate of inflation is 2%. NARREND Question: Refer to Exhibit 3-1. What is the

real return on long-term corporate bonds?

Answer:

Question: Refer to Exhibit 3-1. What is the real return on T-bills?

Answer:

Question: Refer to Exhibit 3-1. What is the real return on small capitalization stocks?

Answer:

Question: Refer to Exhibit 3-1. What is the real return on large capitalization stocks?

Answer:

USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

The annual rate of inflation is 2.5% NARREND Question: Refer to Exhibit 3-2. What is

the large company stock nominal return?

Answer:

Question: Refer to Exhibit 3-2. What is the T-bill nominal return?

Answer:

Question: Refer to Exhibit 3-2. What is the long term Treasury bond nominal return?

Answer:

Question: Refer to Exhibit 3-2. What is the small capitalization stock nominal return?

Answer:

Question: A return series has an arithmetic mean of 12.8% and standard deviation of 7.8%.

Assuming the returns are normally distributed, what is the range of returns that an investor

would expect to receive 90% of the time?

Answer:

Question: A return series has an arithmetic mean of 12.8% and standard deviation of 7.8%.

Assuming the returns are normally distributed, what is the range of returns that an investor

would expect to receive 95% of the time?

Answer:

Question: A return series has an arithmetic mean of 10.5% and standard deviation of 13%.

Assuming the returns are normally distributed, what is the range of returns that an investor

would expect to receive 95% of the time?

Answer:

Question: A return series has an arithmetic mean of 10.5% and standard deviation of 13%.

Assuming the returns are normally distributed, what is the range of returns that an investor

would expect to receive 90% of the time?

Answer:

Question: You are trying to decide between a par value corporate bond carrying a coupon

rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of

4.75%. Assuming all other factors are the same and you are in the 28% tax bracket, which

bond should you choose and why?

Answer:

Question: What range of returns would an investor expect to achieve 99% of the time on

an investment with an expected return of 11% and a standard deviation of 16%?

Answer:

Question: If the nominal return on an investment of common stocks was 11% and inflation

was 2.5% annually, what was the real return on common stock?

Answer:

Question: If the real return for corporate bonds was 4% and the inflation rate was 2%, what

is the nominal return for corporate bonds?

Answer: