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The following is a frequency polygon of monthly exchange rate changes in the US dollar/Japanese yen spot exchange rate from January 2010 to December 2013. A positive change represents yen appreciation (the yen buys more dollars), and a negative change represents yen depreciation (the yen buys fewer dollars).
Based on the chart, yen appreciation:
Aoccurred more than 50% of the time.
Bwas less frequent than yen depreciation.
Cin the 0.0 to 2.0 interval occurred 20% of the time.
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The annual returns for three portfolios are shown in the following table. Portfolios P and R were created in 2009, Portfolio Q in 2010.
The median annual return from portfolio creation to 2013 for:
APortfolio P is 4.5%.
BPortfolio Q is 4.0%.
CPortfolio R is higher than its arithmetic mean annual return.
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Goodeal, Inc., is considering the purchase of a new material handling system for a cost of $15 million. This system is expected to generate a positive cash flow of $1.8 million per year in perpetuity. What is the IRR of the proposed investment if the appropriate hurdle rate is 10.5%?
A8.3%.
B10.5%.
C12.0%.
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Which of the following statements least accurately describes the IRR and NPV methods?
AThe discount rate that gives an investment an NPV of zero is the investment’s IRR.
BIf the NPV and IRR methods give conflicting decisions for mutually exclusiveprojects, the IRR decision should be used to select the project
CThe NPV method assumes that a project’s cash flows will be reinvested at the IRR.
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Which of the following statements least accurately describes the IRR and NPV methods?
AA project’s IRR can be positive even if the NPV is negative.
BA project with an IRR equal to the cost of capital will have an NPV of zero.
CA project’s NPV may be positive even if the IRR is less than the cost of capital.
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Which of the following statements least likely represents a characteristic of the time-weighted rate of return? It is:
Anot affected by the timing of cash flows.
Bused to measure the compound rate of growth of $1 over a statedmeasurement period.
Cdefined as the internal rate of return on an investment portfolio, taking into account all inflows and outflows.
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Assume an investor purchases a share of stock for $50 at time t = 0, and another share at $65 at time t = 1, and at the end of Year 1 and Year 2, the stock paid a $2 dividend. Also, at the end of Year 2, the investor sold both shares for $70 each. The money-weighted rate of return on the investment is:
A15.45%.
B16.73%.
C18.02%.
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Assume an investor purchases a share of stock for $50 at time t = 0, and another share at $65 at time t = 1, and at the end of Year 1 and Year 2, the stock paid a $2 dividend. Also, at the end of Year 2, the investor sold both shares for $70 each. The time-weighted rate of return on the investment is:
A18.27%.
B20.13%.
C21.83%.
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An analyst estimates that a share price has an 80% probability of increasing if economic growth exceeds 3%, a 40% probability of increasing if economic growth is positive but less than 3%, and a 10% probability of increasing if economic growth is negative. If economic growth has a 25% probability of exceeding 3% and a 25% probability of being negative, what is the probability that the share price increases?
A22.5%.
B42.5%.
C62.5%.
