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Questions and Answers
What is the sum of a real risk-free rate and premiums that compensate investors for bearing distinct types of risk known as?
What is the sum of a real risk-free rate and premiums that compensate investors for bearing distinct types of risk known as?
- Effective interest rate
- Market interest rate
- Nominal interest rate (correct)
- Expected interest rate
Which of the following best describes the relationship between interest rates and required rates of return?
Which of the following best describes the relationship between interest rates and required rates of return?
- Interest rates are only relevant for equity instruments
- Interest rates are always lower than required rates of return
- Interest rates can be interpreted as required rates of return (correct)
- Interest rates have no relationship with required rates of return
What is the importance of the cash flow additivity principle in finance?
What is the importance of the cash flow additivity principle in finance?
- It is relevant only for calculating option values
- It has no significant importance in finance
- It only applies to fixed-income instruments
- It is important for the no-arbitrage condition and calculating implied forward interest rates (correct)
What is the formula for calculating continuously compounded returns?
What is the formula for calculating continuously compounded returns?
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How would you calculate the time-weighted rate of return for a portfolio?
How would you calculate the time-weighted rate of return for a portfolio?
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What does the present value (PV) represent in finance?
What does the present value (PV) represent in finance?
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