Question

1. If the Federal Reserve takes actions to raise interest rates in the economy, this will most likely affect which of these risks facing businesses in the United States?

Interest rate risk

Financial risk

Tax risk

Business risk

2. What must the probabilities of the different states of nature sum to?

0.0

1.0

100.0

-1.0

3. How is the expected return computed?

By multiplying the probability of each state of nature with its return and add them together

By multiplying the probability of each state of nature with its return, add them together, and divide by n, the number of states of nature

By adding the returns from each state of nature and divide by the number of states of nature

By finding the scenario with the highest probably of occurrence and use the corresponding return as the expected return estimate

4. Which of these processes incorporates many different combinations of variables while running the analysis several thousands of times when creating a forecast?

Expected returns

Scenario analysis

States of nature

Simulation

5. Which of the following are true?

Statement 1: Common stocks are a guaranteed investment for generating high returns next year.

Statement 2. Treasury bond returns will always exceed the inflation rate.

Statement 1 only

Statement 2 only

Both statements 1 and 2

Neither statement 1 or 2

Answer 1

1.

2.
1.0

3.
By multiplying the probability of each state of nature with its return and add them together

4.
Simulation

5.
Neither statement 1 or 2