Research On Investment KSE 100 Index Pakistan

Chapter 01 - The Investment Setting
Chapter 01
The Investment Setting

True / False Questions

1. In an efficient and informed capital market environment, those investments with the
greatest return tend to have the greatest risk.
True False

. !are paintings and "ase"all cards ma# "e considered as forms of investment.
True False

$. %utual funds are a form of direct e&uit# claims.
True False

'. (arrants are a form of direct e&uit# claims.
True False

). *ension funds are a form of indirect e&uit# claims.
True False

+. ,n investor can totall# eliminate time-consuming investment management activities "#
participating in a mutual fund or limited partnership.
True False

-. The riskiness of an investment is measured "# the dispersion of possi"le outcomes.
True False

1-1
.. /nlike the risk-free rate, the level of the risk premium varies "# investment.
True False

0. The I""otson stud# showed that high-risk investments generate high returns.
True False

10. 1iversification is the process of determining the risk premium.
True False

11. The Ta2 ,ct of 00$ offers greater potential for wealth accumulation.
True False

1. The age and economic circumstances of an investor are important varia"les in determining
an appropriate level of risk.
True False

1$. It is generall# thought that #oung, upwardl# mo"ile people should take less risk than
elderl# people living on a fi2ed income.
True False

1'. Commodit# futures are a form of financial asset.
True False

1). 1iamonds represent a form of real assets, "ut cattle do not.
True False

1-
1+. To achieve ma2imum diversification "enefits, an investor should invest in pro3ects which
are highl# correlated.
True False

1-. In general, inflation results in a loss of purchasing power to the investor.
True False

1.. The onl# compensation anticipated from an investment is for inflation protection.
True False

10. Investment is the commitment of current funds in anticipation of receiving a larger flow of
funds in the future.
True False

0. Common stock represents a direct e&uit# claim.
True False

1. Silver is an e2ample of a financial asset.
True False

. , share in a mone# market fund is an indirect e&uit# claim.
True False

$. In the financial world, risk is defined as varia"ilit# of returns.
True False

1-$
'. !isk is not correlated with return in the capital markets.
True False

). Investors desiring to assume low risks would pro"a"l# invest in short-term securities.
True False

+. ,n aggressive portfolio might include real assets.
True False

-. 1ividends and long-term capital gains are now ta2ed at the same ma2imum rate.
True False

.. 4i&uidit# refers to how little the sales price of an asset has decreased from its cost.
True False

0. !eal assets tend to "e more li&uid than financial assets.
True False

$0. Those who engage in short-term market tactics are considered traders.
True False

$1. %ost financial assets provide a high degree of li&uidit#.
True False

$. !eal estate ma# "e favored "# investors in high ta2 "rackets.
True False

1-'
$$. , pu"lic utilit# is likel# to appeal to an income-oriented, conservative investor.
True False

$'. , lack of immediate li&uidit# cannot "e 3ustified even if there is an opportunit# for large
gains.
True False

$). Common stock is a good e2ample of an investment that lacks li&uidit#.
True False

$+. !eal estate is a good e2ample of an investment that lacks li&uidit#.
True False

$-. Common stock investments that do not pa# dividends are likel# to provide relativel# low
total returns.
True False

$.. Finding high income 5#ield6 and growth in the same investment is a relativel# standard
practice.
True False

$0. !etirement &uestions should "e asked )-10 #ears "efore retirement.
True False

'0. The Stocks, Bonds, Bills and Inflation Yearbook is an annual reference "ook that pu"lishes
return data on a variet# of securities. The data shows that the large compan# categor# had a
negative return in onl# one decade, and that was the 10$0s.
True False

1-)
'1. (hen comparing returns "# decade, the I""otson stud# shows that small compan# stocks
outperformed large compan# stocks in ever# decade since the 100s.
True False

'. Those who attempt to engage in short-term market tactics are termed traders.
True False

'$. !esearch has shown that it is not that difficult to "eat the market on a risk-ad3usted "asis.
True False

''. 4i&uidit# can "e measured "# the a"ilit# of the investor to convert an investment into cash
within a relativel# long period of time, at its fair "ook value.
True False

'). !eal assets, "ecause of increasing replacement value and scarcit#, tend to perform "etter
than financial assets during periods of high inflation.
True False

'+. 7ne of the pro"lems that investors face in determining re&uired rates of return is
forecasting errors involving interest rates and inflation.
True False

'-. 8ver# investment re&uires a total return comprised of a real rate of return, compensation
for inflationar# e2pectations, and a risk premium.
True False

'.. 9eta measures a securit#:s return relative to the market.
True False

1-+
'0. *rior to the Ta2pa#er !elief ,ct of 100-, long-term capital gains were ta2ed at ordinar#
income ta2 rates.
True False

)0. The Ta2 ,ct of 001 lowered the capital gains ta2 rate.
True False

)1. The Ta2 !elief ,ct of 00$ has made stocks that pa# high dividends more attractive than
the# previousl# were.
True False

). In managing a personal portfolio, an investor should consider opportunit# costs.
True False

Multiple Choice Questions

)$. The commitment of current funds in anticipation of receiving a larger future flow of funds
is called;
,. a financial asset.
9. a real asset.
C. an investment.
1. gam"ling.
8. <one of the a"ove

)'. ,5n6 ===== is a legall# documented claim on an asset, while a5n6 ===== is an actual,
tangi"le asset which ma# "e seen, felt, held, or collected.
,. !eal asset> financial asset
9. Financial asset> real asset
C. Indirect e&uit# claim> direct e&uit# claim
1. 1irect e&uit# claim> indirect e&uit# claim

1--
)). (hen ranking securit# returns, the data shows that the annuali?ed returns are as follows
5ranked from highest return to lowest return6;
,. 4arge stocks, small stocks, long-term corporate "onds, long-term government "onds,
treasur# "ills.
9. Small stocks, large stocks, long-term corporate "onds, long-term government "onds,
treasur# "ills.
C. Small stocks, large stocks, treasur# "ills, long-term government "onds, long-term corporate
"onds.
1. Treasur# "ills, long-term government "onds, long-term corporate "onds, large stocks,
small stocks.
8. 4arge stocks, small stocks, long-term government "onds, long-term corporate "onds,
treasur# "ills.

)+. (hen ranking the riskiness of securities using the standard deviation, the highest risk
securit# to the lowest risk securit# is as follows;
,. Small stocks, large stocks, long-term government "onds, /.S. treasur# "ills.
9. 4ong-term government "onds, small stocks, large stocks, /.S. treasur# "ills.
C. 4arge stocks, small stocks, long-term government "onds, /.S. treasur# "ills.
1. Small stocks, long-term government "onds, large stocks, /.S. treasur# "ills.
8. /.S. treasur# "ills, long-term government "onds, large stocks, small stocks.

)-. (hich of the following statements is the most accurate concerning securit# returns over
the eight decades since the 100s@
,. !eturns on large common stocks were ver# sta"le.
9. !eturns on long-term corporate "onds were ver# sta"le.
C. !eturns on long-term government "onds were ver# sta"le.
1. !eturns on treasur# "ills were ver# consistent from period to period.
8. ,ll securities e2hi"ited ver# unsta"le returns over the eight decades in &uestion.

).. , direct e&uit# claim arises through investment in;
,. "onds and other de"t instruments.
9. common stocks, warrants, and options.
C. preferred stock and commodit# futures.
1. mutual funds.

1-.
)0. Investment in a mutual fund results in;
,. an indirect e&uit# claim.
9. a direct e&uit# claim.
C. a creditor claim.

+0. (hat factors must "e considered in choosing "etween investment alternatives@
,. !isk and li&uidit#
9. Interest or dividends versus capital gains
C. Time frame for managing funds and evaluating performance and ta2 effects
1. Safet# of principal
8. ,ll of the a"ove

+1. The a"ilit# of the investor to convert an investment into cash in a short period of time is
called;
,. short-term orientation.
9. low investment risk.
C. li&uidit#.
1. capital appreciation.

+. (ealth# investors ma# prefer the favora"le ta2 treatment of investments such as;
,. corporate "onds.
9. municipal "onds.
C. common stock.
1. preferred stock.

+$. (hat is the rate of return on a share of common stock that increased in value from A'0 to
A)0@
,. )B
9. 10B
C. 0B
1. )B

1-0
+'. (hat would "e the rate of return for a stock that increased in value from A+0 per share to
A+$ per share and paid a A$ dividend@
,. 1B
9. 11B
C. 10B
1. 1.)B
8. )B

+). ,n investment in common stock carries a higher return than a "ank certificate of deposit.
The difference in returns is called;
,. the risk-free rate.
9. the real rate of return.
C. the risk premium.
1. the "eta.

++. (hat are the components in determining the real rate of return@
,. The risk premium
9. The inflation factor
C. The re&uired rate of return
1. 9oth a6 and "6 a"ove

+-. (hat is the risk-free rate in an environment where the real rate is $B and inflation is
running at $B@ /se either method found in chapter one.
,. 1'.)B or 3ust 1'B
9. 10.1B or 3ust 10B
C. +.00B or 3ust +B
1. 0.00B or 3ust 0B
8. 0B

1-10
+.. (hich of the following investments would theoreticall# alwa#s carr# the highest risk
premium@
,. /.S. treasur# "ill
9. Common stock
C. *referred stock
1. Corporate "ond
8. ,n# one of the a"ove

+0. ====, "ecause of increasing replacement value and scarcit#, perform5s6 "est in periods of
high inflation.
,. !eal assets
9. Common stock
C. *referred stock
1. Financial assets
8. %ore than one of the a"ove

-0. The two components that make up the risk-free rate are;
,. real rate of return and capital gains.
9. risk-free assets and capital gains.
C. real rate of return and the inflation factor.
1. real assets and the inflation factor.
8. capital gains and the inflation factor.

-1. (hich of the following is not one of the considerations in setting investment o"3ectives@
,. !isk versus safet# of principal
9. %a2imi?e wealth versus minimi?e e2penses
C. Current income versus capital appreciation
1. Short-term versus long-term orientation
8. Ta2es

1-11
-. 7ne of the reasons a short-term trader has difficult# in "eating the market is "ecause of;
,. risk.
9. lack of information.
C. large institutional investors.
1. commissions.

-$. The holding period to &ualif# for long-term capital gains is;
,. at least + months.
9. at least 0 months.
C. at least 1. months.
1. at least #ears.
8. more than one #ear.

-'. Common stock dividends are now ta2ed at a ma2imum rate of;
,. 10B.
9. 1)B.
C. 0B.
1. $0B.
8. $...B.

-). Stocks and "onds are preferred during periods of;
,. higher inflation.
9. lower inflation.
C. rising stock prices.
1. higher risk premiums.

-+. , stock that pa#s low or no cash dividends is;
,. e9a#.
9. 1uke *ower.
C. ,TCT.
1. ,ll of the a"ove

1-1
--. 1eposits in an I!, are;
,. allowed to grow ta2 free until withdrawal.
9. deducted from current income ta2 due.
C. deducted from current income to reduce income ta2 due.
1. , and C

-.. ,n investment re&uires a total return that comprises;
,. a real rate of return and compensation for inflation.
9. a real rate of return, compensation for inflation, and a risk premium.
C. compensation for inflation and a risk premium.
1. a real rate of return, compensation for inflation, a risk premium, and compensation for time
and effort devoted to researching alternative investments.

-0. ,n investor in 1uke 8nerg# can e2pect;
,. low dividends.
9. high dividends.
C. low inflation.
1. fast stock price growth.

.0. 9ecause most investors are risk averse,
,. the riskier the investment, the more the investor will pa# for it.
9. the riskier the investment, the less compensation the investor re&uires.
C. onl# financial institutions invest in risk# assets.
1. the# will re&uire a higher rate of return for a riskier investment.

.1. The two t#pes of investments that provide the highest and lowest #ields in the I""otson
stud# of Stocks, Bonds, Bills and Inflation are;
,. large compan# stocks and /.S. treasur# "ills.
9. large compan# stocks and long-term government "onds.
C. small compan# stocks and /.S. treasur# "ills.
1. small compan# stocks and preferred stock.
8. /.S. treasur# "ills and small compan# stocks.

1-1$
.. (hich of the following is not a form of a financial asset@
,. Commercial paper
9. Commodit# futures
C. (arrants
1. *ersonal residence
8. %one# market fund

.$. Distoricall#, the real rate of return in the /.S. econom# has "een;
,. 1-B.
9. -$B.
C. $-'B.
1. '-)B.
8. )-+B.

.'. (hich of the following is not a form of real asset@
,. !are paintings
9. 9ase"all cards
C. 1iamonds
1. !eal estate

.). /nder the 8conomic Erowth and Ta2 !econciliation ,ct of 001, when will estate ta2es
"e eliminated@
,. 00.
9. 000
C. 010
1. 010
8. The estate ta2 will not "e eliminated.

1-1'

Essay Questions

.+. a6 The stock of Trudeau Corporation went from A- to A'0 last #ear. The firm also paid
A1 in dividends during the #ear. Compute the rate of return.
"6 In the following #ear, the dividend was raised to A1.'0. Dowever, a declining market
toward the end of the #ear caused the stock to fall to A' per share from A'0. Compute the
rate of return 5gain or loss6 to the stockholder in the following #ear.

.-. 5a6 The stock of Furniture /nlimited went from A00 to A00 last #ear. The firm also paid .0
cents in dividends. Compute the rate of return.
5"6 1uring the ne2t #ear, the dividend paid was A1.+0 per share and the stock closed at A0$
per share, down from A00 per share at the "eginning of the #ear. Compute the annual gain or
loss for the second #ear holding period.

... ,ssume the real rate of return in the econom# is '.)B, the e2pected rate of inflation is
$.)B, and the risk premium is +.-)B. Compute the risk-free rate and re&uired rate of return.

1-1)
.0. ,ssume the real rate of return for the econom# is $.-)B and the e2pected rate of inflation
is +.-)B. (hat is the risk-free rate@ If the risk premium is +B, calculate the re&uired rate of
return.

00. ,ssume the real return in the econom# is ).0B. It is anticipated that the consumer price
inde2 will go from $'0 to $+$... Shares of common stock for the market in general are
assumed to have a re&uired rate of return one-fourth higher than the risk-free rate. Compute
the re&uired return on common stock.

1-1+
Chapter 01 The Investment Setting ,nswer Fe#

True / False Questions

1. In an efficient and informed capital market environment, those investments with the
greatest return tend to have the greatest risk.
TRUE
, rule of thum" is; in an efficient market, the higher the risk, the higher the return.

AACSB: Reflective Thinking
Blooms: Understand
Difficlt!: " #edim
$earning %b&ective: '()'" Discss the ke! considerations in setting investment ob&ectives*
To+ic: The Setting of Investment %b&ectives

. !are paintings and "ase"all cards ma# "e considered as forms of investment.
TRUE
Since these items are rare and onl# a finite num"er are made, the# have value to someone.
These items ma# then "e considered an investment.

Blooms: Remember
Difficlt!: ( ,as!
$earning %b&ective: '()'( Understand the difference bet-een financial and real assets*
To+ic: The Investment Setting

$. %utual funds are a form of direct e&uit# claims.
F!SE
!efer to Ta"le 1-1. Ta"le 1-1 lists the various forms of direct e&uit# claims.

Blooms: Understand
Difficlt!: ( ,as!
To+ic: %vervie- of Investment Alternatives

1-1-
'. (arrants are a form of direct e&uit# claims.
TRUE

Blooms: Remember
Difficlt!: ( ,as!
To+ic: .orms of Investment

1-1.
). *ension funds are a form of indirect e&uit# claims.
TRUE

Blooms: Remember
Difficlt!: ( ,as!

+. ,n investor can totall# eliminate time-consuming investment management activities "#
participating in a mutual fund or limited partnership.
F!SE
8ven though mutual funds and limited partnerships are professionall# managed, the investor
must monitor and evaluate their activities. ,ll investments take some time to monitor, some
more than others.

Blooms: Remember
Difficlt!: ( ,as!
To+ic: The Setting of Investment Alternatives

-. The riskiness of an investment is measured "# the dispersion of possi"le outcomes.
TRUE
Investment portfolios should "e structured so that whether the econom# is up or down, at least
one of the investments prospers in the state of the econom# at that time. ,n e2ample; gold is
up when the econom# is down and stocks are up when the econom# is good. Therefore, a
portfolio that holds "oth will pro"a"l# do well, or at least "reak even when either an up or
down econom# occurs.

Blooms: Understand
Difficlt!: " #edim
To+ic: The Setting of Investment Alternatives

1-10
.. /nlike the risk-free rate, the level of the risk premium varies "# investment.
TRUE
The risk premium varies according to the investment. (hen investing in a federall#-insured
instrument like a C1 or T-9ill, the risk premium approaches ?ero. In a stock investment,
"ecause nothing is insured or guaranteed, the risk premium ma# "e as high as +B--B.

Blooms: Remember
Difficlt!: ( ,as!
$earning %b&ective: '()'/ ,0+lain the three factors that make + the re1ired rate of retrn for an investor*
To+ic: Actal Consideration of Re1ired Retrns

0. The I""otson stud# showed that high-risk investments generate high returns.
TRUE
!efer to Figure 1-$, 1-'. !eferring to Figures 1-$ and 1-', one sees that high-risk investments
have historicall# generated high returns. There is an investment rule of thum" that sa#s; the
higher the risk, the higher the return should "e. These figures illustrate this rule of thum".

Blooms: Understand
Difficlt!: " #edim

10. 1iversification is the process of determining the risk premium.
F!SE
1iversification in a portfolio is holding various t#pes of investments that perform in different
wa#s during different economic conditions. For e2ample, gold is desired "# investors and
performs well in a down econom#, while stocks are desired "# investors in an up econom#
"ecause the# perform well in this environment. Dolding "oth will hedge the risk of loss no
matter whether the econom# is up or down.

Blooms: Understand
Difficlt!: " #edim

1-0
11. The Ta2 ,ct of 00$ offers greater potential for wealth accumulation.
TRUE
The Ta2 ,ct of 00$ ta2es "oth dividends and capital gains at the same rate. *rior to this act,
dividends were ta2ed at ordinar# income rates. Since the act, the investor is ta2ed at a lower
rate for dividends. This is an opportunit# for potentiall# greater wealth accumulation.

Blooms: Anal!2e
Difficlt!: 3 4ard
$earning %b&ective: '()'3 A++reciate the +otential change in investment strateg! cased b! the ta0 la- revisions*
To+ic: Ta0 .actors

1. The age and economic circumstances of an investor are important varia"les in determining
an appropriate level of risk.
TRUE
Goung investors who work and are upwardl# mo"ile are "etter a"le to a"sor" risk than older
investors on fi2ed incomes.

Blooms: Remember
Difficlt!: ( ,as!
To+ic: Risk and Safet! of 5rinci+al
To+ic: The Setting of Risk %b&ectives

1$. It is generall# thought that #oung, upwardl# mo"ile people should take less risk than
elderl# people living on a fi2ed income.
F!SE
It is 3ust the opposite. Goung, upwardl# mo"ile investors should take more risk, since the#
have a longer time to recover losses than older investors on fi2ed incomes.

Blooms: Remember
Difficlt!: ( ,as!
To+ic: Risk and Safet! of 5rinci+al

1-1
1'. Commodit# futures are a form of financial asset.
TRUE
!efer to Ta"le 1-1. Ta"le 1-1 clearl# lists commodit# futures as a form of financial
investment.

Blooms: Remember
Difficlt!: ( ,as!

1). 1iamonds represent a form of real assets, "ut cattle do not.
F!SE
!efer to Ta"le 1-1. Ta"le 1-1 clearl# indicates the categori?ation of these assets.

Blooms: Remember
Difficlt!: ( ,as!

1+. To achieve ma2imum diversification "enefits, an investor should invest in pro3ects which
are highl# correlated.
F!SE
1iversification is investing in assets with different time frame views and different risk
characteristics.

Blooms: Understand
Difficlt!: " #edim

1-
1-. In general, inflation results in a loss of purchasing power to the investor.
TRUE
Inflation erodes the value of mone#, resulting in a loss of purchasing power. Inflation is too
man# dollars chasing too few goods. ,s inflation rises, dollars "u# less, since the prices of
goods are rising.

Blooms: Remember
Difficlt!: ( ,as!

1.. The onl# compensation anticipated from an investment is for inflation protection.
F!SE
Three components make up the re&uired return for an investment 5the compensation
anticipated6; the real rate of return, the anticipated inflation factor, also called the inflation
premium, and the risk premium.

Blooms: Understand
Difficlt!: " #edim

10. Investment is the commitment of current funds in anticipation of receiving a larger flow of
funds in the future.
TRUE
This is the definition of an investment.

Blooms: Remember
Difficlt!: ( ,as!
To+ic: Introdction

1-$
0. Common stock represents a direct e&uit# claim.
TRUE
!efer to Ta"le 1-1. Ta"le 1-1 clearl# indicates that common stock is a direct e&uit# claim.

Blooms: Remember
Difficlt!: ( ,as!

1. Silver is an e2ample of a financial asset.
F!SE
!efer to Ta"le 1-1. Ta"le 1-1 clearl# indicates that silver is a real asset.

Blooms: Remember
Difficlt!: ( ,as!

. , share in a mone# market fund is an indirect e&uit# claim.
F!SE
!efer to Ta"le 1-1. Ta"le 1-1 clearl# indicates that mone# market funds are an indirect e&uit#
claim.

Blooms: Remember
Difficlt!: ( ,as!

1-'
$. In the financial world, risk is defined as varia"ilit# of returns.
TRUE
!isk is related to the uncertaint# or varia"ilit# associated with outcomes from the investment.

Blooms: Remember
Difficlt!: ( ,as!
$earning %b&ective: '()'6 Describe the relationshi+ of risk and retrn*

'. !isk is not correlated with return in the capital markets.
F!SE
!efer to Figure 1-$. Figure 1-$ shows the correlation "etween risk and returns. The higher the
risk, the higher the return.

Blooms: Remember
Difficlt!: ( ,as!

). Investors desiring to assume low risks would pro"a"l# invest in short-term securities.
TRUE
4ow-risk investors prefer to invest in short-term investment, in which the part# responsi"le
for pa#ment is usuall# the government, a ma3or "ank, or a corporation. Some short-term
government and "ank investments are also federall# guaranteed, which lessens the risk of the
investment. Short-term investments in corporations 5like corporate "onds6 are usuall#, "ut not
alwa#s, issued "# corporations who have nearl# impecca"le pa#ment histories.

Blooms: Remember
Difficlt!: ( ,as!

1-)
+. ,n aggressive portfolio might include real assets.
TRUE
%ore aggressive investors usuall# invest in longer-term investments, and often include real
assets like real estate, gold, silver, works of art, and other collecti"les.

Blooms: Remember
Difficlt!: ( ,as!

-. 1ividends and long-term capital gains are now ta2ed at the same ma2imum rate.
TRUE
The Ta2 !elief ,ct of 00$ re&uired that "oth are ta2ed at the ma2imum rate of 1)B.

Blooms: Remember
Difficlt!: ( ,as!

.. 4i&uidit# refers to how little the sales price of an asset has decreased from its cost.
F!SE
4i&uidit# is measured "# the a"ilit# of the investor to convert an investment into cash within a
relativel# short time, at its fair market value, or with a minimum capital loss on the
transaction.

Blooms: Remember
Difficlt!: ( ,as!

1-+
0. !eal assets tend to "e more li&uid than financial assets.
F!SE
!eal estate ma# take weeks, months, or even #ears to li&uidate.

Blooms: Remember
Difficlt!: ( ,as!

$0. Those who engage in short-term market tactics are considered traders.
TRUE
Traders are those who engage in short-term market tactics.

Blooms: Remember
Difficlt!: ( ,as!

$1. %ost financial assets provide a high degree of li&uidit#.
TRUE
4i&uidit# is the ease with which an investor can convert an asset into cash in a relativel# short
period of time. ,s a rule, financial assets can "e converted into cash within da#s, or at most,
weeks.

Blooms: Remember
Difficlt!: ( ,as!

1--
$. !eal estate ma# "e favored "# investors in high ta2 "rackets.
TRUE
!eal estate, with its depreciation and high write-offs, is often favored "# these investors, who
are willing to sacrifice an amount of li&uidit# and pa# higher transaction costs for the longer-
term ta2 "enefits of real estate investments.

Blooms: Understand
Difficlt!: " #edim

$$. , pu"lic utilit# is likel# to appeal to an income-oriented, conservative investor.
TRUE
Conservative investors are usuall# income-oriented and are attracted "# the slow capital
growth "ut high dividend-pa#ing investments like pu"lic utilities.

Blooms: Remember
Difficlt!: ( ,as!
To+ic: Crrent Income verss Ca+ital A++reciation

$'. , lack of immediate li&uidit# cannot "e 3ustified even if there is an opportunit# for large
gains.
F!SE
The lack of li&uidit# can "e 3ustified "# the unusual opportunities presented "# high gains in
investments like real estate and collecti"les, and the potential ta2 "enefits of high write-offs
and depreciation, despite the higher transaction costs of these investments.

Blooms: Remember
Difficlt!: ( ,as!

1-.
$). Common stock is a good e2ample of an investment that lacks li&uidit#.
F!SE
Stocks and "onds can usuall# "e sold within seconds or hours> therefore the# are highl# li&uid
investments, as are most financial investments.

Blooms: Remember
Difficlt!: ( ,as!

$+. !eal estate is a good e2ample of an investment that lacks li&uidit#.
TRUE
!eal estate is a perfect e2ample of an investment lacking li&uidit#, since it ma# take weeks,
months, or #ears to sell or dispose of these assets.

Blooms: Remember
Difficlt!: ( ,as!

$-. Common stock investments that do not pa# dividends are likel# to provide relativel# low
total returns.
F!SE
Common stock investments that do not pa# dividends offer the opportunit# for higher stock
appreciation, which in itself usuall# provides the needed total returns re&uired "# investors in
these investments.

Blooms: Understand
Difficlt!: " #edim

1-0
$.. Finding high income 5#ield6 and growth in the same investment is a relativel# standard
practice.
F!SE
There is generall# a trade-off "etween high income and growth in the same investment. It is
rare to find "oth in the same investment.

Blooms: Remember
Difficlt!: ( ,as!

$0. !etirement &uestions should "e asked )-10 #ears "efore retirement.
F!SE
!etirement &uestions should "e asked '0-') #ears "efore retirement when there is sufficient
time to plan for #our retirement.

Blooms: Remember
Difficlt!: ( ,as!

'0. The Stocks, Bonds, Bills and Inflation Yearbook is an annual reference "ook that pu"lishes
return data on a variet# of securities. The data shows that the large compan# categor# had a
negative return in onl# one decade, and that was the 10$0s.
TRUE
!efer to Ta"le 1-. Ta"le 1- shows the performance of the large compan# categor#, along
with other categories of investments.

Blooms: Understand
Difficlt!: " #edim

1-$0
'1. (hen comparing returns "# decade, the I""otson stud# shows that small compan# stocks
TRUE
!efer to Ta"le 1-. Ta"le 1- from the I""otson stud# shows that small compan# stocks

Blooms: Remember
Difficlt!: ( ,as!

'. Those who attempt to engage in short-term market tactics are termed traders.
TRUE
This is the definition of traders.

Blooms: Remember
Difficlt!: ( ,as!

'$. !esearch has shown that it is not that difficult to "eat the market on a risk-ad3usted "asis.
F!SE
!esearch has shown that it is difficult to "eat the market on a risk-ad3usted "asis.

Blooms: Remember
Difficlt!: ( ,as!

1-$1
''. 4i&uidit# can "e measured "# the a"ilit# of the investor to convert an investment into cash
within a relativel# long period of time, at its fair "ook value.
F!SE
4i&uidit# is the a"ilit# of an investor to convert an investment into cash within a short period
of time.

Blooms: Remember
Difficlt!: ( ,as!

'). !eal assets, "ecause of increasing replacement value and scarcit#, tend to perform "etter
than financial assets during periods of high inflation.
TRUE
!eal assets are finite. <o more of the assets are "eing made. The# tend to increase in
replacement value also. For these reasons, the# tend to perform "etter during periods of high
inflation.

Blooms: Remember
Difficlt!: ( ,as!
To+ic: %vervie- of Investment Alternatives

'+. 7ne of the pro"lems that investors face in determining re&uired rates of return is
forecasting errors involving interest rates and inflation.
TRUE
Forecasting errors are more pronounced in short-term returns than in long-term returns.
Forecasting is alwa#s difficult "ecause the past is never a completel# accurate indicator of the
future. There is no cr#stal "all. Forecasting the future is alwa#s risk#, no matter what
information is at hand.

Blooms: Remember
Difficlt!: ( ,as!

1-$
'-. 8ver# investment re&uires a total return comprised of a real rate of return, compensation
for inflationar# e2pectations, and a risk premium.
TRUE
This statement gives the "asic definition of total return.

Blooms: Remember
Difficlt!: ( ,as!

'.. 9eta measures a securit#:s return relative to the market.
TRUE
This is the "asic definition of the term "eta.

Blooms: Remember
Difficlt!: ( ,as!

'0. *rior to the Ta2pa#er !elief ,ct of 100-, long-term capital gains were ta2ed at ordinar#
income ta2 rates.
F!SE
It was the Ta2pa#er !elief ,ct of 00$, not 100-, that changed the ta2 laws regarding long-
term capital gains.

Blooms: Remember
Difficlt!: ( ,as!

1-$$
)0. The Ta2 ,ct of 001 lowered the capital gains ta2 rate.
F!SE
The Ta2 !elief ,ct of 00$ lowered the capital gains rate to a ma2imum of 0B.

Blooms: Remember
Difficlt!: ( ,as!

)1. The Ta2 !elief ,ct of 00$ has made stocks that pa# high dividends more attractive than
the# previousl# were.
TRUE
The Ta2 !elief ,ct of 00$ ta2es dividends and capital gains at the same rate of 1)B. This
makes high dividend-pa#ing stocks more attractive "ecause the dividends are no longer ta2ed
at ordinar# income rates, "ut at the lower rate like capital gains.

Blooms: Remember
Difficlt!: ( ,as!

). In managing a personal portfolio, an investor should consider opportunit# costs.
TRUE
7pportunit# cost is the cost of a missed opportunit#. In investing, an investor must choose
"etween investing in a particular vehicle or having the use of the mone# for something else. If
mone# is tied up in a losing investment, the investor loses the opportunit# of using the mone#
for something more productive.

Blooms: Remember
Difficlt!: ( ,as!

1-$'

Multiple Choice Questions

)$. The commitment of current funds in anticipation of receiving a larger future flow of funds
is called;
,. a financial asset.
9. a real asset.
C" an investment.
1. gam"ling.
This is the "asic definition of an investment.

Blooms: Remember
Difficlt!: ( ,as!
To+ic: %vervie-

)'. ,5n6 ===== is a legall# documented claim on an asset, while a5n6 ===== is an actual,
tangi"le asset which ma# "e seen, felt, held, or collected.
,. !eal asset> financial asset
#" Financial asset> real asset
C. Indirect e&uit# claim> direct e&uit# claim
1. 1irect e&uit# claim> indirect e&uit# claim
These are the "asic definitions of a financial asset and a real asset.

Blooms: Remember
Difficlt!: ( ,as!
To+ic: %vervie-

1-$)
)). (hen ranking securit# returns, the data shows that the annuali?ed returns are as follows
5ranked from highest return to lowest return6;
,. 4arge stocks, small stocks, long-term corporate "onds, long-term government "onds,
treasur# "ills.
#" Small stocks, large stocks, long-term corporate "onds, long-term government "onds,
treasur# "ills.
C. Small stocks, large stocks, treasur# "ills, long-term government "onds, long-term corporate
"onds.
1. Treasur# "ills, long-term government "onds, long-term corporate "onds, large stocks,
small stocks.
8. 4arge stocks, small stocks, long-term government "onds, long-term corporate "onds,
treasur# "ills.
!efer to Figure 1-'. The I""otson ,ssociates Inc. stud# shown in Figure 1-' indicates the
total annual returns for various classes of assets. It indicates that, ranked from highest to
lowest, the order is; small compan# stocks, large compan# stocks, long-term corporate "onds,
long-term government "onds, and treasur# "ills.

Blooms: Remember
Difficlt!: ( ,as!

)+. (hen ranking the riskiness of securities using the standard deviation, the highest risk
securit# to the lowest risk securit# is as follows;
" Small stocks, large stocks, long-term government "onds, /.S. treasur# "ills.
9. 4ong-term government "onds, small stocks, large stocks, /.S. treasur# "ills.
C. 4arge stocks, small stocks, long-term government "onds, /.S. treasur# "ills.
1. Small stocks, long-term government "onds, large stocks, /.S. treasur# "ills.
8. /.S. treasur# "ills, long-term government "onds, large stocks, small stocks.
!efer to Figure 1-'. !isk is measured "# the standard deviation of the returns from each
investment over an eight decade period. Figure 1-' shows the standard deviations of the
indicated securities. The chart confirms the rule of thum" that high returns are associated with
higher risk.

Blooms: Remember
Difficlt!: ( ,as!
To+ic: Basic Series: Smmar! of Annal Total Retrns from (7"8)"''7

1-$+
)-. (hich of the following statements is the most accurate concerning securit# returns over
the eight decades since the 100s@
,. !eturns on large common stocks were ver# sta"le.
9. !eturns on long-term corporate "onds were ver# sta"le.
C. !eturns on long-term government "onds were ver# sta"le.
1. !eturns on treasur# "ills were ver# consistent from period to period.
E" ,ll securities e2hi"ited ver# unsta"le returns over the eight decades in &uestion.
!efer to Ta"le 1-. Ta"le 1- from the Stocks, Bonds, Bills and Inflation "'(' Yearbook
clearl# indicates the erratic and unsta"le returns of the securities studied over the eight
decades since the 100s.

Blooms: Remember
Difficlt!: ( ,as!

).. , direct e&uit# claim arises through investment in;
,. "onds and other de"t instruments.
#" common stocks, warrants, and options.
C. preferred stock and commodit# futures.
1. mutual funds.
!efer to Ta"le 1-1. Common stocks, warrants, and options are defined as direct e&uit# claims,
as indicated in Ta"le 1-1.

Blooms: Remember
Difficlt!: ( ,as!
To+ic: %vervie-

1-$-
)0. Investment in a mutual fund results in;
" an indirect e&uit# claim.
9. a direct e&uit# claim.
C. a creditor claim.
!efer to Ta"le 1-1. %utual funds are classified as an indirect e&uit# claim, as indicated in
Ta"le 1-1.

Blooms: Remember
Difficlt!: ( ,as!
To+ic: %vervie-

+0. (hat factors must "e considered in choosing "etween investment alternatives@
,. !isk and li&uidit#
9. Interest or dividends versus capital gains
C. Time frame for managing funds and evaluating performance and ta2 effects
1. Safet# of principal
E" ,ll of the a"ove
The factors of concern in choosing "etween investment alternatives are; risk and safet# of
principal, current income versus capital appreciation, li&uidit#, short-term versus long-term
investor orientation, ta2 factors, ease of management of the portfolio, retirement and estate
planning considerations, and risk and return trade-offs.

Blooms: Understand
Difficlt!: " #edim

1-$.
+1. The a"ilit# of the investor to convert an investment into cash in a short period of time is
called;
,. short-term orientation.
9. low investment risk.
C" li&uidit#.
1. capital appreciation.
4i&uidit# is one of the ke# areas of setting investment o"3ectives.

Blooms: Remember
Difficlt!: ( ,as!

+. (ealth# investors ma# prefer the favora"le ta2 treatment of investments such as;
,. corporate "onds.
#" municipal "onds.
C. common stock.
1. preferred stock.
(ealth# investors in high ta2 "rackets ma# prefer the favora"le treatment of municipal "onds
"ecause the interest is not ta2a"le.

Blooms: Remember
Difficlt!: ( ,as!

1-$0
+$. (hat is the rate of return on a share of common stock that increased in value from A'0 to
A)0@
,. )B
9. 10B
C. 0B
$" )B
!ate of !eturn H I58nding value - 9eginning value6 J IncomeKL9eginning value

AACSB: Anal!tic
Blooms: A++l!
Difficlt!: 3 4ard
To+ic: #easres of Risk and Retrn

+'. (hat would "e the rate of return for a stock that increased in value from A+0 per share to
A+$ per share and paid a A$ dividend@
,. 1B
9. 11B
C" 10B
1. 1.)B
8. )B
!ate of !eturn H I58nding value - 9eginning value6 J IncomeKL9eginning value

AACSB: Anal!tic
Blooms: A++l!
Difficlt!: 3 4ard

1-'0
+). ,n investment in common stock carries a higher return than a "ank certificate of deposit.
The difference in returns is called;
,. the risk-free rate.
9. the real rate of return.
C" the risk premium.
1. the "eta.
!isk and return tradeoffs are one of the ke# areas of setting investment o"3ectives.

Blooms: Remember
Difficlt!: ( ,as!

++. (hat are the components in determining the real rate of return@
,. The risk premium
9. The inflation factor
C. The re&uired rate of return
1. 9oth a6 and "6 a"ove
E" <one of the a"ove
The real rate of return is the return investors re&uire for allowing others to use their mone# for
a given period of time.

Blooms: Remember
Difficlt!: ( ,as!

1-'1
+-. (hat is the risk-free rate in an environment where the real rate is $B and inflation is
running at $B@ /se either method found in chapter one.
,. 1'.)B or 3ust 1'B
9. 10.1B or 3ust 10B
C" +.00B or 3ust +B
1. 0.00B or 3ust 0B
8. 0B
!efer to Formula 1-$. !isk Free !ate H 51 J !eal rate6 51 J 82pected rate of inflation6 - 1
51 J .0$651 J .0$6 - 1 H 1.0+00 - 1 H 0.0+00 H +.00B
!isk Free !ate H !eal rate J 82pected rate of inflation
$B J $B H +B. This is an appro2imation of the e2act answer.

AACSB: Anal!tic
Blooms: A++l!
Difficlt!: 3 4ard

+.. (hich of the following investments would theoreticall# alwa#s carr# the highest risk
premium@
,. /.S. treasur# "ill
#" Common stock
C. *referred stock
1. Corporate "ond
8. ,n# one of the a"ove
!efer to Figure 1-$, 1-'. In Figure 1-$, the graph indicates that common stock carries the
highest risk. In Figure 1-', the graph of standard distri"ution shows that common stock 5from
"oth a large and small compan#6 carries the highest risk. 8mpirical studies have verified the
accurac# of the information in Figure 1-$. Figure 1-' shows the data over eight decades done
"# I""otson and ,ssociates in their data studies.

Blooms: Remember
Difficlt!: ( ,as!

1-'
+0. ====, "ecause of increasing replacement value and scarcit#, perform5s6 "est in periods of
high inflation.
" !eal assets
9. Common stock
C. *referred stock
1. Financial assets
8. %ore than one of the a"ove
!eal assets, "ecause of their tangi"le nature, generall# increasing value, and scarcit#, tend to
hold or increase in value in high inflationar# times.

Blooms: Remember
Difficlt!: ( ,as!

-0. The two components that make up the risk-free rate are;
,. real rate of return and capital gains.
9. risk-free assets and capital gains.
C" real rate of return and the inflation factor.
1. real assets and the inflation factor.
8. capital gains and the inflation factor.
!efer to Formula 1-$. Com"ining the real rate of return and inflationar# considerations gives
us the re&uired rate of return on an investment "efore e2plicitl# considering risk. It is for this
reason that it is called the risk-free re&uired rate of return or simpl# the risk-free rate.

Blooms: Remember
Difficlt!: ( ,as!

1-'$
-1. (hich of the following is not one of the considerations in setting investment o"3ectives@
,. !isk versus safet# of principal
#" %a2imi?e wealth versus minimi?e e2penses
C. Current income versus capital appreciation
1. Short-term versus long-term orientation
8. Ta2es
The ke# areas of setting investment o"3ectives are found on pages ' through 0 of the te2t"ook.
This listing does not include ma2imi?ing wealth versus minimi?ing e2penses.

Blooms: Remember
Difficlt!: ( ,as!

-. 7ne of the reasons a short-term trader has difficult# in "eating the market is "ecause of;
,. risk.
9. lack of information.
C. large institutional investors.
$" commissions.
Short-term traders trade fre&uentl# and pa# commissions on these trades. 9ecause of this
fre&uenc#, it is difficult to "eat the market on a risk-ad3usted "asis, as research has shown.

Blooms: Remember
Difficlt!: ( ,as!

1-''
-$. The holding period to &ualif# for long-term capital gains is;
,. at least + months.
9. at least 0 months.
C. at least 1. months.
1. at least #ears.
E" more than one #ear.
The Ta2 !elief ,ct of 00$ set the ta2 rate on dividends and long-term capital at 1) B while
retaining the holding period of more than one #ear.

Blooms: Remember
Difficlt!: ( ,as!

-'. Common stock dividends are now ta2ed at a ma2imum rate of;
,. 10B.
#" 1)B.
C. 0B.
1. $0B.
8. $...B.
The Ta2 !elief ,ct of 00$ set the ta2 rate on common stock dividends at 1)B.

Blooms: Remember
Difficlt!: ( ,as!

1-')
-). Stocks and "onds are preferred during periods of;
,. higher inflation.
#" lower inflation.
C. rising stock prices.
1. higher risk premiums.
In periods of low to moderate inflation, over the last 1) #ears, research has shown that
investors prefer stocks and "onds.

Blooms: Remember
Difficlt!: ( ,as!

-+. , stock that pa#s low or no cash dividends is;
" e9a#.
9. 1uke *ower.
C. ,TCT.
1. ,ll of the a"ove
Stocks such as e9a# offer high capital gains potential and low or no cash dividends.

Blooms: Remember
Difficlt!: ( ,as!

1-'+
--. 1eposits in an I!, are;
,. allowed to grow ta2 free until withdrawal.
9. deducted from current income ta2 due.
C. deducted from current income to reduce income ta2 due.
$" , and C
I!,s en3o# special treatment "# the government to encourage individuals to save for
retirement.

Blooms: Remember
Difficlt!: ( ,as!

-.. ,n investment re&uires a total return that comprises;
,. a real rate of return and compensation for inflation.
#" a real rate of return, compensation for inflation, and a risk premium.
C. compensation for inflation and a risk premium.
1. a real rate of return, compensation for inflation, a risk premium, and compensation for time
and effort devoted to researching alternative investments.
The total return is also called the re&uired rate of return and is composed of the real rate of
return, the anticipated inflation factor 5compensation for inflation6, and the risk premium.

Blooms: Understand
Difficlt!: " #edim

1-'-
-0. ,n investor in 1uke 8nerg# can e2pect;
,. low dividends.
#" high dividends.
C. low inflation.
1. fast stock price growth.
Companies like 1uke 8nerg# pa# high dividends and have relativel# slow stock price
appreciation.

Blooms: Remember
Difficlt!: ( ,as!

.0. 9ecause most investors are risk averse,
,. the riskier the investment, the more the investor will pa# for it.
9. the riskier the investment, the less compensation the investor re&uires.
C. onl# financial institutions invest in risk# assets.
$" the# will re&uire a higher rate of return for a riskier investment.
The higher the risk, the higher the return e2pected from the investment "# the investor.

Blooms: Remember
Difficlt!: ( ,as!

1-'.
.1. The two t#pes of investments that provide the highest and lowest #ields in the I""otson
stud# of Stocks, Bonds, Bills and Inflation are;
,. large compan# stocks and /.S. treasur# "ills.
9. large compan# stocks and long-term government "onds.
C" small compan# stocks and /.S. treasur# "ills.
1. small compan# stocks and preferred stock.
8. /.S. treasur# "ills and small compan# stocks.
!efer to Figure 1-'. The I""otson stud# covered eight decades. The stud# data was used to
produce Figure 1-', showing the summar# statistics of total annual returns for the various
investments.

Blooms: Remember
Difficlt!: ( ,as!

.. (hich of the following is not a form of a financial asset@
,. Commercial paper
C. (arrants
$" *ersonal residence
8. %one# market fund
!efer to Ta"le 1-1. Ta"le 1-1 lists the categories of financial and real investments. , personal
residence is a real investment.

Blooms: Remember
Difficlt!: ( ,as!

1-'0
.$. Distoricall#, the real rate of return in the /.S. econom# has "een;
,. 1-B.
#" -$B.
C. $-'B.
1. '-)B.
8. )-+B.
Distoricall#, the real rate of return has "een B-$B. 1uring the 10.0s and earl# 1000s it was
'B-+B, "ut in the last ten #ears it has returned to the historical level of B-$B.

Blooms: Remember
Difficlt!: ( ,as!

.'. (hich of the following is not a form of real asset@
,. !are paintings
9. 9ase"all cards
C. 1iamonds
1. !eal estate
E" Commodit# futures
!efer to Ta"le 1-1. Ta"le 1-1 lists and gives an overview of financial and real investments.
Commodit# futures are a financial investment.

Blooms: Remember
Difficlt!: ( ,as!

1-)0
.). /nder the 8conomic Erowth and Ta2 !econciliation ,ct of 001, when will estate ta2es
"e eliminated@
,. 00.
9. 000
C" 010
1. 010
8. The estate ta2 will not "e eliminated.
!efer to The !eal (orld of Investing "o2, 8state *lanning; The 7nl# Two Sure Things are
1eath and Ta2esMM %a#"e@. The 8conomic Erowth and Ta2 !econciliation ,ct of 001
eliminated all estate ta2es for a person who died in 010. Dowever, it is null and void on
Nanuar# 1, 011, unless Congress votes to e2tend it.

Blooms: Remember
Difficlt!: ( ,as!

1-)1

Essay Questions

.+. a6 The stock of Trudeau Corporation went from A- to A'0 last #ear. The firm also paid
A1 in dividends during the #ear. Compute the rate of return.
"6 In the following #ear, the dividend was raised to A1.'0. Dowever, a declining market
toward the end of the #ear caused the stock to fall to A' per share from A'0. Compute the
rate of return 5gain or loss6 to the stockholder in the following #ear.
5a6 )1..)B
5"6 5$+.)0B6 loss
Feed"ack; 5a6

5"6

AACSB: Anal!tic Thinking
Blooms: A++l!
Difficlt!: 3 4ard

1-)
.-. 5a6 The stock of Furniture /nlimited went from A00 to A00 last #ear. The firm also paid .0
cents in dividends. Compute the rate of return.
5"6 1uring the ne2t #ear, the dividend paid was A1.+0 per share and the stock closed at A0$
per share, down from A00 per share at the "eginning of the #ear. Compute the annual gain or
loss for the second #ear holding period.
5a6 10.0B
5"6 5'.'B6 loss
Feed"ack; 5a6

5"6

Blooms: A++l!
Difficlt!: 3 4ard

1-)$
... ,ssume the real rate of return in the econom# is '.)B, the e2pected rate of inflation is
$.)B, and the risk premium is +.-)B. Compute the risk-free rate and re&uired rate of return.
!isk free rate H .0-0 or -.0B
or
!f H .1)1. or 1).1.B
or
!e&uired !ate of !eturn H 1'.)0B
Feed"ack; !efer to Formula 1-1, 1-, 1-$. /se Formulae 1-1, 1-, and 1-$ to calculate the rate
of return and the risk-free return.
!isk free rate !f H 51 J .0')651 J .0$)6 - 1
H 1.0-0 - 1
H .0-0 or -.0B
or
!f H '.)B J $.)B
H -.-)B
!e&uired !ate of !eturn H 51.0')651.0$)651.0+-)6 - 1
H 1.1)1. - 1
H .1)1. or 1).1.B
or
!e&uired !ate of !eturn H '.)B J $.)B J +.-)B
H 1'.)0B

Blooms: A++l!
Difficlt!: 3 4ard

1-)'
.0. ,ssume the real rate of return for the econom# is $.-)B and the e2pected rate of inflation
is +.-)B. (hat is the risk-free rate@ If the risk premium is +B, calculate the re&uired rate of
return.
!isk free rate H .10-) or 10.-)B
or
!f H .1-$0. or 1-.$0.B
or
!e&uired !ate of !eturn H 1+.)B
Feed"ack; !efer to Formula 1-1, 1-, 1-$. /se Formulae 1-1, 1-, and 1-$ to calculate the rate
of return and the risk-free return.
!isk free rate !f H 51 J .0$-)651 J .0+-)6 - 1
H 1.10-) - 1
H .10-) or 10.-)B
or
!f H $.-)B J +.-)B
H 10.)B
!e&uired !ate of !eturn H 51.0$-)651.0+-)651.0+6 - 1
H 1.1-$0. - 1
H .1-$0. or 1-.$0.B
or
!e&uired !ate of !eturn H $.-)B J +.-)B J +.0B
H 1+.)B

Blooms: A++l!
Difficlt!: 3 4ard

1-))
00. ,ssume the real return in the econom# is ).0B. It is anticipated that the consumer price
inde2 will go from $'0 to $+$... Shares of common stock for the market in general are
assumed to have a re&uired rate of return one-fourth higher than the risk-free rate. Compute
the re&uired return on common stock.
.1).$ or 1)..$B
Feed"ack; !efer to Formula 1-1, 1-, 1-$. The increase in the consumer price inde2 is a
measure of inflation. !ate of Inflation H 58nding consumer price inde2 - 9eginning price
inde26L"eginning price inde2. /se the calculated inflation rate of -B and the other given
information, and then use formulae 1-1, 1-, and 1-$ to arrive at the correct answers.

H $..L$'0
H .0- or -.0B
!isk free rate !f H 51 J .0)651 J .0-6 - 1
H 1.1$) - 1
H .1$) or 1.$)B
or
!f H ).0B J -.0B
H 1.0B
!isk *remium H 51.)65!isk free rate6 - 5!isk free rate6
H 51.)651.$)6 - 1.$)B
H 1).'$-)B - 1.$)B
H .0$0.-) or $.1B
!e&uired !ate of !eturn H 51.0)651.0-651.0$16 - 1
on common stock
H 1.1).$ - 1
H .1).$ or 1)..$B

Blooms: A++l!
Difficlt!: 3 4ard

1-)+

Research On Investment KSE 100 Index Pakistan

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Research On Investment KSE 100 Index Pakistan

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Chapter 01 - The Investment Setting

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