Multiple choice questions on funds and interests

1.  You have $10,000 to invest. You do not want to take any risk, so you will put the funds in a savings account at the local bank. Of the following choices, which one will produce the largest sum at the end of 22 years?

a.         An account that compounds interest annually.

b.        An account that compounds interest daily.

c.         An account that compounds interest quarterly.

d.        An account that compounds interest monthly.

2.   Which of the following statements is true about time value of money?

a.         The future value of a single sum will be greater if funds earn 5% instead of 10%.

b.        The future value of a single sum will be unaffected by the rate of return at which funds grow.

c.         The future value of a single sum will be greater if funds earn 12% instead of 6%.

d.        The future value of a single sum will be unaffected by the length of time funds are invested.

3.  Siebling Manufacturing Company's common stock has a beta of .8. If the expected risk free return is 7% and the market offers a premium of 8% over the risk free rate, what is the expected return on Siebling's common stock?

a.         7.8%

b.        13.4%

c.         14.4%

d.        8.7%

4.  If there is a 20% chance we will get a 16% return, a 30% chance of getting a 14% return, a 40% chance of getting a 12% return, and a 10% chance of getting an 8% return, what is the expected rate of return?

a.         12%

b.        13%

c.         14%

d.        15%

5.  If you hold a portfolio made up of the following stocks: Investment Value Beta Stock A $2,000 1.5 Stock B $5,000 1.2 Stock C $3,000 0.8 What is the beta of the portfolio?

a.         1.17

b.        1.14

c.         1.32

d.        Can't be determined from information given.