Finance Quiz

What is compound interest

• a type of mathematical equation used to calculate the trajectory of an asset or loan

• Compound interest is a way of predicting patterns involving exponential growth

• interest calculated on the initial principal and also on the accumulated interest of previous periods

Answer explanation

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods.

Sharpe Ratio = (Rx – Rf) / StdDev Rx
What does RX stand for?

• Expected portfolio return

• Risk-free rate

• T-bill rate

• Standard Deviation

Answer explanation

RX stands for Expected portfolio return in the Sharpe Ratio formula.

In an Excel worksheet, you have stock portfolio returns for the five years in cells A3 to A7 as follows: -13%, 11%, 18%, -3%, and 25%. Which of the following statement is NOT true?

• In A10, if you enter =STDEV(A3:A7) you will get the standard deviation of the series.

• if you enter =STDEV(A3:A6) you will get 13.91%.

• In A11, if you enter =AVERAGE(A3:A7) you will get the geometric average.

Answer explanation

The correct statement is that in A11, entering =AVERAGE(A3:A7) will not give the geometric average.

Excess returns can be calculated by subtracting the inflation rate from the risk-free rate of returns.

• True

• False

Value-at-risk (or VaR) measures the down side risk.

• True

• False

Answer explanation

Value-at-risk (VaR) quantifies the potential loss in value of a risky asset or portfolio over a specified time period. It focuses on the downside risk, making the statement true.