Finance Test 2 Set One

Front 1

What are some examples of internal factors that affect the level of return of an investment?

Back 1

type of investment vehicle, the quality of management, its financing, and the issuer's customer base.

Front 2

What are some examples of external factors that affect the level of return of an investment?

Back 2

Federal Reserve actions, shortages, war, price controls, political events, Business environment, Economic environment
and the general level of price changes (inflation, and deflation.)

Front 3

Inflation tends to have a positive impact on which type of investments?

Back 3

real estate

Front 4

Inflation tends to have a negative impact on which type of investments?

Back 4

stocks and fixed income securities

Front 5

Rising interest rates, which normally accompany --------------- rates of inflation, can significantly affect returns.

Back 5

increasing

Front 6

What is a general rule of investing regarding components and underlying assumptions of time value of money?

Back 6

-The sooner you receive a return on a given investment, the better.
-A dollar received today is worth more than a dollar received in the future
-The sooner your money can begin earning interest, the faster it will grow

Front 7

an investment whose present value of benefits (discounted at the appropriate rate) equals or exceeds the present value of its costs

Back 7

satisfactory investment

Front 8

The rate of return an investor must earn on an investment to be fully compensated for its risk

Back 8

required return

Front 9

If the present value of benefits exceeds the cost, you would earn a rate of return greater than the --------------.

Back 9

discount rate

Front 10

is composed by the real interest rate plus inflation

Back 10

Nominal interest

Front 11

the rate of return that can be earned on a risk free investment; the sum of the real rate of return and the expected inflation premium

Back 11

risk free rate

Front 12

The most common “risk-free” investment is considered to be the

Back 12

3-month U.S. Treasury Bill

Front 13

a return premium that reflects the issue and issuer characteristics associated with a given investment vehicle

Back 13

risk premium

Front 14

the type of vehicle (stock, bond, etc), it's maturity (2 years, 5 years,) and its features (voting/nonvoting, callable/non callable.

Back 14

issue characteristics (part of risk premium)

Front 15

industry and company factors such as the line of business and financial condition of the issuer.

Back 15

issuer characteristics (part of risk premium)

Front 16

current income actually received by an investor during a given period.

Back 16

realized return

Front 17

What are the two components of investment return?

Back 17

current income and capital gains

Front 18

treated as current income for tax purposes but are not realized return until the bond is sold or matures.

Back 18

interest on taxable zero-coupon bonds.

Front 19

are realized only when the investment vehicle is actually actually sold at the end of the holding period.

Back 19

capital gains returns

Front 20

return that has been achieved but not yet realized (no sale has taken place)

Back 20

Paper Return

Front 21

the period of time over which an investor wishes to measure the return on an investment vehicle

Back 21

Holding Period