Learning about Return and Risk from the Historical Record: Quiz
Chapter 05
Learning about Return and Risk from the Historical Record
Multiple Choice Questions 1. Over the past year you earned a nominal rate of interest of 10 percent on your money. The inflation rate was 5 percent over the same period. The exact actual growth rate of your purchasing power was
A. 15.5%.
B. 10.0%.
C. 5.0%.
D. 4.8%.
E. 15.0% r = (1+R) / (1+i) - 1; 1.10% / 1.05% - 1 = 4.8%. Difficulty: Moderate 3. A year ago, you invested $1,000 in a savings account that pays an annual interest rate of 7%. What is your approximate annual real rate of return if the rate of inflation was 3% over the year?
A. 4%.
B. 10%.
C. 7%.
D. 3%.
E. none of the above.
7% - 3% = 4%.
Difficulty: Easy
7. You purchased a share of stock for $20. One year later you received $1 as dividend and sold the share for $29. What was your holding period return?
A. 45%
B. 50%
C. 5%
D. 40%
E. none of the above
($1 + $29 - $20)/$20 = 0.5000, or 50%. Difficulty: Moderate 9. Which of the following determine(s) the level of real interest rates?
I) the supply of savings by households and business firms
II) the demand for investment funds
III) the government's net supply and/or demand for funds
A. I only
B. II only
C. I and II only
D. I, II, and III
E. none of the above
The value of savings by households is the major supply of funds; the demand for investment funds is a portion of the total demand for funds; the government's position can be one of either net supplier, or net demander of funds. The above factors constitute the total supply and demand for funds, which determine real interest rates. Difficulty: Moderate 10. Which of the following statement(s) is (are) true?
I) The real rate of interest is determined by the supply and demand for funds.
II) The real rate of interest is determined by the expected rate of inflation.
III) The real rate of interest can be affected by actions of the Fed.
IV) The real rate of interest
Learning about Return and Risk from the Historical Record
Multiple Choice Questions 1. Over the past year you earned a nominal rate of interest of 10 percent on your money. The inflation rate was 5 percent over the same period. The exact actual growth rate of your purchasing power was
A. 15.5%.
B. 10.0%.
C. 5.0%.
D. 4.8%.
E. 15.0% r = (1+R) / (1+i) - 1; 1.10% / 1.05% - 1 = 4.8%. Difficulty: Moderate 3. A year ago, you invested $1,000 in a savings account that pays an annual interest rate of 7%. What is your approximate annual real rate of return if the rate of inflation was 3% over the year?
A. 4%.
B. 10%.
C. 7%.
D. 3%.
E. none of the above.
7% - 3% = 4%.
Difficulty: Easy
7. You purchased a share of stock for $20. One year later you received $1 as dividend and sold the share for $29. What was your holding period return?
A. 45%
B. 50%
C. 5%
D. 40%
E. none of the above
($1 + $29 - $20)/$20 = 0.5000, or 50%. Difficulty: Moderate 9. Which of the following determine(s) the level of real interest rates?
I) the supply of savings by households and business firms
II) the demand for investment funds
III) the government's net supply and/or demand for funds
A. I only
B. II only
C. I and II only
D. I, II, and III
E. none of the above
The value of savings by households is the major supply of funds; the demand for investment funds is a portion of the total demand for funds; the government's position can be one of either net supplier, or net demander of funds. The above factors constitute the total supply and demand for funds, which determine real interest rates. Difficulty: Moderate 10. Which of the following statement(s) is (are) true?
I) The real rate of interest is determined by the supply and demand for funds.
II) The real rate of interest is determined by the expected rate of inflation.
III) The real rate of interest can be affected by actions of the Fed.
IV) The real rate of interest