If you require a real growth in the purchasing power of your investment of 8%, and you expect the rate of inflation over the next year to be 3%, what is the lowest nominal return that you would be satisfied with?

If you require a real growth in the purchasing power of your investment of 8%, and you expect the rate of inflation over the next year to be 3%, what is the lowest nominal return that you would be satisfied with? 

A) 3.00%
B) 8.00%
C) 11.00%
D) 11.24%

Answer: D

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FIN 332

• A coupon bond which pays interest of $50 annually, has a par value of $1,000, matures in 5 years, and is selling today at an $84.52 discount from par value. The current yield on this bond is __________.
• An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is the current yield on this bond?
• The yield to maturity of an 8-year zero coupon bond, with a par value of $1,000 and a market price of $623.20, is ______.
• Consider the expectations theory of the term structure of interest rates. If the yield curve is downward sloping, this indicates that investors expect interest rates to __________ in the future.
• The bonds of Elbow Grease Dishwashing Company have received a rating of "D" by Moody's. The "D" rating indicates __________.
• Under the pure expectations hypothesis, an upward sloping yield curve would indicate ________
• Consider a 7-year bond with a 9% coupon and a present yield to maturity of 12%. If interest rates remain constant, one year from now the price of this bond will be __________.
• Analysis of bond returns over a multiyear horizon, based on forecasts of the bond's yield to maturity and reinvestment rate of coupons is called ___.
• A zero-coupon bond has a yield to maturity of 5% and a par value of $1,000. If the bond matures in 16 years, it should sell for a price of __________ today based on annual compound.
• A bond with a 10% coupon, 10 years to maturity and a market price of 95 % of par has a yield to maturity of __________, assuming annual compound.
• A coupon bond which pays interest annually, has a par value of $1,000, matures in 5 years and has a yield to maturity of 12%. If the coupon rate is 9%, the present value of the bond today should be __________.
• A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years but is callable in 10 years at a price of $1,100, and has a value today of $1055.84. The yield to call on this bond is __________.
• A coupon bond which pays interest of $40 annually, has a par value of $1,000, matures in 5 years, and is selling today at a $159.71 discount from par value. The actual yield to maturity on this bond is __________.
• The average annual return of holding the bond until it is callable is called ___.
• A debenture is __________.
• A mortgage bond is ________.
• The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of .8 to offer a rate of return of 12 percent, then you should __________.
• You invest $600 in security A with a beta of 1.5 and $400 in security B with a beta of .90. The beta of this formed portfolio is __________.
• Security X has an actual return of 13% and a beta of 1.15. The risk-free rate is 5% and the market expected rate of return is 15%. According to the capital asset pricing model, security X is __________.
• According to the capital asset pricing model, __________.
• According to the capital asset pricing model, a well-diversified portfolio's rate of return is a function of __________.
• In a well diversified portfolio, __________ risk is negligible.
• The market portfolio has a beta of __________.
• In the context of the capital asset pricing model, the systematic measure of risk is __________.
• Consider the CAPM. The expected return on the market is 18%. The expected return on a stock with a beta of 1.2 is 20%. What is the risk-free rate?

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