Question 1

You purchase a one-year security with an expected real pretax return of 5%. You forecast a 7% rate of inflation and are in the 28% tax bracket. Your after-tax nominal return would be

Accepted Answer

A)   2.6%.
B)   5.4%.
C)   4.3%.
D)   8.9%.E) B) and D)
F) B) and C)

Question 2

When investors are concerned with returns, stock prices will be priced such that nominal returns will include

Accepted Answer

A)   the expected rate of inflation
B)   the historical rate of inflation
C)   individual income tax rates
D)   the current rate of inflationE) A) and B)
F) A) and C)

Question 3

If the CPI in 1970 was 140 and in 1992 it is 332, the average annual compound growth rate was

Accepted Answer

A)   4%.
B)   2.8%.
C)   6.5%.
D)   3%.E) A) and B)
F) A) and C)

Question 4

The Consumer Price Index is calculated monthly by

Accepted Answer

A)   Bureau of Labor Statistics.
B)   FDIC.
C)   Federal Reserve System.
D)   Treasury Department.E) None of the above
F) B) and D)

Question 5

If in 1992 the CPI were 200, this would indicate that prices have doubled since the current base period of

Accepted Answer

A)   1956-58.
B)   1982-84.
C)   1988-89.
D)   1974-75.E) C) and D)
F) A) and D)

Question 6

Under the 1992 tax law, federal income taxes are levied on the investment returns that are

Accepted Answer

A)   real after-tax
B)   nominal
C)   CPI adjusted
D)   nominal after-taxE) A) and B)
F) C) and D)

Question 7

The average annual growth rate for the Consumer Price Index is calculated by finding the

Accepted Answer

A)   standard deviation.
B)   geometric mean.
C)   arithmetic mean.
D)   median.E) A) and B)
F) C) and D)

Question 8

The present market basket used in the CPI consists of approximately

Accepted Answer

A)   180 goods and services.
B)   5000 goods and services.
C)   100 services.
D)   40 goods and services.E) A) and D)
F) None of the above

Question 9

When actual inflation exceeds expected inflation,

Accepted Answer

A)   short-term borrowers benefit more than long-term borrowers.
B)   long-term lenders benefit more than short-term lenders.
C)   long-term borrowers benefit more than short-term borrowers.
D)   there is no effect on borrowers or lenders.E) None of the above
F) All of the above

Question 10

You purchase a one-year security with an expected real pretax return of 6%. You forecast a 4% rate of inflation and are in the 35% tax bracket. Your real after-tax return would be

Accepted Answer

A)   6.1%.
B)   1.4%.
C)   2.6%.
D)   7.0%.E) A) and C)
F) C) and D)

Question 11

An indexed bond

Accepted Answer

A)   will pay the same nominal interest each year.
B)   reduces the interest each year that the CPI rises.
C)   increases purchasing power risk for the purchaser.
D)   will pay the same real interest each year.E) B) and D)
F) All of the above

Question 12

The CPI market basket is developed based on interviews of

Accepted Answer

A)   retired persons.
B)   rural and urban families of four.
C)   young, married couples.
D)   urban households.E) A) and B)
F) A) and C)

Question 13

If an investor forecasts a future inflation rate of 5% and requires a 3% real return, he will require a nominal return of

Accepted Answer

A)   2%.
B)   15%.
C)   8%.
D)   16.7%.E) A) and C)
F) B) and C)

Question 14

Cost of living indexes

Accepted Answer

A)   automatically adjust for changes in product quality.
B)   are based on a fixed package of goods and services.
C)   do not include housing costs.
D)   recognize that consumers will substitute lower for higher priced items.E) A) and D)
F) B) and D)

Question 15

Over 1926-1990

Accepted Answer

A)   neither treasury bills nor common stocks have had a positive real return.
B)   the real return on treasury bills averaged 5%.
C)   common stocks have had a larger real return than treasury bills.
D)   the real return on common stock averaged 3.5%.E) All of the above
F) C) and D)

Question 16

An investor’s portfolio earned a 10% average compound annual return over the last six years.  The average compound annual inflation rate over this period was 3%.  Her portfolio was worth $20,000 at the beginning of the period six years ago.  How much is the portfolio worth now, expressed in beginning-of-period dollars?

Accepted Answer

A)   $30,014
B)   $31,821
C)   $35,432
D)   $29,674E) All of the above
F) A) and D)

Question 17

From 1926-1990, the real average annual return on treasury bills averaged approximately

Accepted Answer

A)   4%.
B)   2.5%.
C)   -3%.
D)   .5%.E) A) and C)
F) B) and D)

Question 18

Assuming inflation, present accounting methods tend to

Accepted Answer

A)   adjust EPS for the inflation.
B)   overstate the material expense.
C)   forecast future costs of inventory.
D)   overstate real EPS.E) A) and B)
F) All of the above

Question 19

Assume the CPI in 1980 was 100 and it was 200 in 1992. The average annual compound inflation rate was

Accepted Answer

A)   6%.
B)   8.3%.
C)   9%.
D)   5.2%.E) A) and B)
F) None of the above

Question 20

During the 1970's, disintermediation occurred when

Accepted Answer

A)   banks had nominal ceilings, others didn't.
B)   nominal rates were low and consumers saved heavily.
C)   savings and loans paid the highest real rates.
D)   mortgage loan money was very available.E) A) and D)
F) B) and D)

Exam 6: Inflation

From 1926-1990, the real average annual return on treasury bills averaged approximately

Correct Answer
verified

If in 1992 the CPI were 200, this would indicate that prices have doubled since the current base period of

Correct Answer
verified

Correct Answer
verified

Assume the CPI in 1980 was 100 and it was 200 in 1992. The average annual compound inflation rate was

Correct Answer
verified

During the 1970's, disintermediation occurred when

Correct Answer
verified

If an investor forecasts a future inflation rate of 5% and requires a 3% real return, he will require a nominal return of

Correct Answer
verified

The Consumer Price Index is calculated monthly by

Correct Answer
verified

The present market basket used in the CPI consists of approximately

Correct Answer
verified

When actual inflation exceeds expected inflation,

Correct Answer
verified

The average annual growth rate for the Consumer Price Index is calculated by finding the

Correct Answer
verified

Assuming inflation, present accounting methods tend to

Correct Answer
verified

When investors are concerned with returns, stock prices will be priced such that nominal returns will include

Correct Answer
verified

You purchase a one-year security with an expected real pretax return of 6%. You forecast a 4% rate of inflation and are in the 35% tax bracket. Your real after-tax return would be

Correct Answer
verified

Over 1926-1990

Correct Answer
verified

If the CPI in 1970 was 140 and in 1992 it is 332, the average annual compound growth rate was

Correct Answer
verified

You purchase a one-year security with an expected real pretax return of 5%. You forecast a 7% rate of inflation and are in the 28% tax bracket. Your after-tax nominal return would be

Correct Answer
verified

The CPI market basket is developed based on interviews of

Correct Answer
verified

Cost of living indexes

Correct Answer
verified

Under the 1992 tax law, federal income taxes are levied on the investment returns that are

Correct Answer
verified

An indexed bond

Correct Answer
verified

Exam 6: Inflation

From 1926-1990, the real average annual return on treasury bills averaged approximately

Correct AnswerverifiedShow Answer

If in 1992 the CPI were 200, this would indicate that prices have doubled since the current base period of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume the CPI in 1980 was 100 and it was 200 in 1992. The average annual compound inflation rate was

Correct AnswerverifiedShow Answer

During the 1970's, disintermediation occurred when

Correct AnswerverifiedShow Answer

If an investor forecasts a future inflation rate of 5% and requires a 3% real return, he will require a nominal return of

Correct AnswerverifiedShow Answer

The Consumer Price Index is calculated monthly by

Correct AnswerverifiedShow Answer

The present market basket used in the CPI consists of approximately

Correct AnswerverifiedShow Answer

When actual inflation exceeds expected inflation,

Correct AnswerverifiedShow Answer

The average annual growth rate for the Consumer Price Index is calculated by finding the

Correct AnswerverifiedShow Answer

Assuming inflation, present accounting methods tend to

Correct AnswerverifiedShow Answer

When investors are concerned with returns, stock prices will be priced such that nominal returns will include

Correct AnswerverifiedShow Answer

You purchase a one-year security with an expected real pretax return of 6%. You forecast a 4% rate of inflation and are in the 35% tax bracket. Your real after-tax return would be

Correct AnswerverifiedShow Answer

Over 1926-1990

Correct AnswerverifiedShow Answer

If the CPI in 1970 was 140 and in 1992 it is 332, the average annual compound growth rate was

Correct AnswerverifiedShow Answer

You purchase a one-year security with an expected real pretax return of 5%. You forecast a 7% rate of inflation and are in the 28% tax bracket. Your after-tax nominal return would be

Correct AnswerverifiedShow Answer

The CPI market basket is developed based on interviews of

Correct AnswerverifiedShow Answer

Cost of living indexes

Correct AnswerverifiedShow Answer

Under the 1992 tax law, federal income taxes are levied on the investment returns that are

Correct AnswerverifiedShow Answer

An indexed bond

Correct AnswerverifiedShow Answer

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