QUESTION 1

Indicate whether the following statements are true or false: Depreciation is the gain in value of a fixed asset such as equipment, machinery, motor vehicles, etc., through age.

True

False

Indicate whether the following statements are true or false: Standard deviation (or ) measures the risk of an asset.

True

False

Indicate whether the following statements are true or false: Equity refers to the money that is invested in the business by credit providers.

True

False

Indicate whether the following statements are true or false: Should the business be liquidated or cease to operate, the equity investors have first claim on company assets.

True

False

Indicate whether the following statements are true or false: Ordinary shares carry a varying dividend.

True

False

Indicate whether the following statements are true or false: The portion of profit thats not payed out as dividends are known as lost profit.

True

False

Indicate whether the following statements are true or false: Secured debt should have a higher required rate of return than unsecured debt.

True

False

Which of the following statements about return is least accurate?

Return is compensation for taking on a certain degree of risk.

Return is made up of the dividends earned by owning a share

Return consists of dividends paid to share holders as well as capital gains on a share.

The return can be negative.

Which of the following is true about a rational investor?

A rational investor will maximize return at all cost.

A rational investor will aim to minimize risk for a given level of return.

A rational investor will aim to maximize risk for a given level of return.

A rational investor will aim to minimize return for a given level of risk.

Which ONE of the following statements about the coefficient of variation is the most accurate?

It measures the risk of an asset per unit of return.

It measures the risk of an asset relative to the total return of an asset.

It is also known as the standard deviation of an assets return.

None of the above are correct.

African Limited has an expected return of 18% and a coefficient of variation (CV) of 0,08. The standard deviation () is equal to

1.44%

14.40%

17.92%

none of the above

Asset A has a variance of 3,37 whereas Asset B has a variance of 24. Asset A has an expected return of 12,75% whilst Asset Bs return is expected to be 15% higher than that of Asset A. Which asset will you choose to invest in?

Asset B because Asset A has a higher risk attached to it.

Asset B because Asset A has a lower risk attached to it.

Asset B because it has a higher variance than Asset A.

None of the above

As an investor, the more risk I take, the

larger my expected return should be.

less money I will make.

smaller my expected return should be.

none of the above.

You are given the choice to invest in one of two shares. Share A is a high risk share and the expected return on the share is 15%. Share B is a low risk share and the expected return on the share is also 15%. In which share should you rather invest?

Share A

Share B

It would be beneficial to have both shares in your portfolio

I would not invest in any one of these two shares

You buy one share of ABC limited today at R10.50 per share. ABC limited did not pay any dividends. One year later you sell the share at R16.22. What is your return on the ABC limited share?

54.76%

-35.27%

54.76

none of the above