Question 1

An initial investment of $41,800 fifty years ago is worth $1,533,913 today.What is the geometric average return on this investment?

Accepted Answer

A)   7.47 percent
B)   8.02 percent
C)   9.23 percent
D)   10.47 percent
E)   11.08 percentF) A) and D)
G) A) and C)

Question 2

You purchased a stock for $50.00 a share and resold it one year later.Your total return for the year was 11.5 percent and the dividend yield was 2.8 percent.At what price did you resell the stock?

Accepted Answer

A)   $42.78
B)   $50.62
C)   $51.93
D)   $52.08
E)   $54.35F) A) and D)
G) C) and D) B

Question 3

You have owned a stock for seven years.The geometric average return on this investment for those seven years is positive even though the annual rates of return have varied significantly.Given this,you know the arithmetic average return for the period is:

Accepted Answer

A)   positive but less than the geometric average return.
B)   less than the geometric return and could be negative, zero, or positive.
C)   equal to the geometric average return.
D)   either equal to or greater than the geometric average return.
E)   greater than the geometric average return.F) B) and D)
G) B) and C)

Question 4

Over the past four years,the common stock of Jess Electronics Co.produced annual returns of 7.2,5.8,11.2,and 13.6 percent,respectively.Treasury bills produced returns of 3.4,3.3,4.1,and 4.0 percent,respectively over the same period.What is the standard deviation of the risk premium on Jess Electronics Co.stock for this time period?

Accepted Answer

A)   2.23 percent
B)   2.86 percent
C)   3.22 percent
D)   4.46 percent
E)   4.61 percentF) None of the above
G) B) and E)

Question 5

You own a stock that has produced an arithmetic average return of 8.6 percent over the past five years.The annual returns for the first four years were 16,11,-19,and 3 percent,respectively.What was the rate of return on the stock in year five?

Accepted Answer

A)   -5.00 percent
B)   2.75 percent
C)   6.25 percent
D)   28.00 percent
E)   32.00 percentF) None of the above
G) B) and E)

Question 6

Bill has been adding funds to his investment account each year for the past 3 years.He started with an initial investment of $1,000.After earning a 10 percent return the first year,he added $3,000 to his portfolio.In this year his investments lost 5 percent.Undeterred,Bill added $2,000 the next year and earned a 2 percent return.Last year,discouraged by the recent results,he only added $500 to his portfolio,but in this final year his investments earned 8 percent.What was Bill's dollar-weighted average return for his investments?

Accepted Answer

A)   1.5 percent
B)   2.0 percent
C)   2.5 percent
D)   3.0 percent
E)   3.5 percentF) B) and E)
G) B) and C) D

Question 7

The average risk premium on long-term corporate bonds for the period 1926-2015 was:

Accepted Answer

A)   2.4 percent.
B)   2.9 percent.
C)   3.3 percent.
D)   3.7 percent.
E)   3.9 percent.F) B) and C)
G) A) and D)

Question 8

For the period 1926-2015,long-term government bonds had an average return that ________ the average return on long-term corporate bonds while having a standard deviation that ________ the standard deviation of the long-term corporate bonds.

Accepted Answer

A)   exceeded; was less than
B)   exceeded; equaled
C)   exceeded; exceeded
D)   was less than; exceeded
E)   was less than; was less thanF) C) and D)
G) A) and D)

Question 9

A stock sold for $25 at the beginning of the year.The end of year stock price was $25.70.What is the amount of the annual dividend if the total return for the year was 7.7 percent?

Accepted Answer

A)   $1.23
B)   $1.38
C)   $1.60
D)   $1.81
E)   $2.31F) A) and B)
G) None of the above

Question 10

Which one of the following had the smallest standard deviation of returns for the period 1926-2015?

Accepted Answer

A)   large-company stocks
B)   small-company stocks
C)   long-term government bonds
D)   intermediate-term government bonds
E)   long-term corporate bondsF) A) and D)
G) None of the above

Question 11

An asset had annual returns of 17,-35,-18,24,and 6 percent,respectively,over the past five years.What is the arithmetic average return?

Accepted Answer

A)   -1.2 percent
B)   0.8 percent
C)   1.2 percent
D)   1.6 percent
E)   2.3 percentF) A) and D)
G) A) and E)

Question 12

When we refer to the rate of return on an investment,we are generally referring to the:

Accepted Answer

A)   capital gains yield.
B)   effective annual rate of return.
C)   total percentage return.
D)   dividend yield.
E)   annualized dividend yield.F) B) and E)
G) A) and B)

Question 13

The rate of return earned on a U.S.Treasury bill is frequently used as a proxy for the:

Accepted Answer

A)   risk premium.
B)   deflated rate of return.
C)   risk-free rate.
D)   expected rate of return.
E)   market rate of return.F) C) and E)
G) B) and E)

Question 14

An asset had annual returns of 13,10,-14,3,and 36 percent,respectively,for the past five years.What is the standard deviation of these returns?

Accepted Answer

A)   8.96 percent
B)   16.05 percent
C)   17.92 percent
D)   18.09 percent
E)   20.03 percentF) D) and E)
G) A) and B)

Question 15

Christine owns a stock that dropped in price from $43.80 to 39.49 over the past year.The dividend yield on that stock is 1.8 percent.What is her total return on this investment for the year?

Accepted Answer

A)   -11.31 percent
B)   -10.49 percent
C)   -9.91 percent
D)   -9.59 percent
E)   -8.04 percentF) B) and C)
G) B) and D) E

Question 16

A frequency distribution,which is completely defined by its average (mean) and variance or standard deviation,is referred to as a(n) :

Accepted Answer

A)   normal distribution.
B)   variance distribution.
C)   expected rate of return.
D)   average geometric return.
E)   average arithmetic return.F) B) and D)
G) A) and B)

Question 17

The risk premium is defined as the rate of return on:

Accepted Answer

A)   a risky asset minus the risk-free rate.
B)   the overall market.
C)   a U.S. Treasury bill.
D)   a risky asset minus the inflation rate.
E)   a riskless investment.F) All of the above
G) C) and D)

Question 18

The standard deviation is a measure of:

Accepted Answer

A)   volatility.
B)   total return.
C)   capital gains.
D)   changes in dividend yields.
E)   changes in the capital gains rate.F) A) and E)
G) B) and D)

Question 19

If you multiply the number of shares outstanding for a stock by the price per share,you are computing the firm's:

Accepted Answer

A)   equity ratio.
B)   total book value.
C)   market share.
D)   market capitalization.
E)   time value.F) B) and D)
G) None of the above

Question 20

Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before reselling it.What is the value of "m" when computing the annualized return on this investment?

Accepted Answer

A)   0.25
B)   0.33
C)   0.40
D)   3.00
E)   4.00F) C) and E)
G) B) and D)

Exam 1: A Brief History of Risk and Return

An initial investment of $41,800 fifty years ago is worth $1,533,913 today.What is the geometric average return on this investment?

Correct Answer
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You purchased a stock for $50.00 a share and resold it one year later.Your total return for the year was 11.5 percent and the dividend yield was 2.8 percent.At what price did you resell the stock?

Correct Answer
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B

You have owned a stock for seven years.The geometric average return on this investment for those seven years is positive even though the annual rates of return have varied significantly.Given this,you know the arithmetic average return for the period is:

Correct Answer
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Correct Answer
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You own a stock that has produced an arithmetic average return of 8.6 percent over the past five years.The annual returns for the first four years were 16,11,-19,and 3 percent,respectively.What was the rate of return on the stock in year five?

Correct Answer
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Correct Answer
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D

The average risk premium on long-term corporate bonds for the period 1926-2015 was:

Correct Answer
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For the period 1926-2015,long-term government bonds had an average return that the average return on long-term corporate bonds while having a standard deviation that the standard deviation of the long-term corporate bonds.

Correct Answer
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A stock sold for $25 at the beginning of the year.The end of year stock price was $25.70.What is the amount of the annual dividend if the total return for the year was 7.7 percent?

Correct Answer
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Which one of the following had the smallest standard deviation of returns for the period 1926-2015?

Correct Answer
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An asset had annual returns of 17,-35,-18,24,and 6 percent,respectively,over the past five years.What is the arithmetic average return?

Correct Answer
verified

When we refer to the rate of return on an investment,we are generally referring to the:

Correct Answer
verified

The rate of return earned on a U.S.Treasury bill is frequently used as a proxy for the:

Correct Answer
verified

An asset had annual returns of 13,10,-14,3,and 36 percent,respectively,for the past five years.What is the standard deviation of these returns?

Correct Answer
verified

Christine owns a stock that dropped in price from $43.80 to 39.49 over the past year.The dividend yield on that stock is 1.8 percent.What is her total return on this investment for the year?

Correct Answer
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E

A frequency distribution,which is completely defined by its average (mean) and variance or standard deviation,is referred to as a(n) :

Correct Answer
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The risk premium is defined as the rate of return on:

Correct Answer
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The standard deviation is a measure of:

Correct Answer
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If you multiply the number of shares outstanding for a stock by the price per share,you are computing the firm's:

Correct Answer
verified

Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before reselling it.What is the value of "m" when computing the annualized return on this investment?

Correct Answer
verified

Exam 1: A Brief History of Risk and Return

An initial investment of $41,800 fifty years ago is worth $1,533,913 today.What is the geometric average return on this investment?

Correct AnswerverifiedShow Answer

You purchased a stock for $50.00 a share and resold it one year later.Your total return for the year was 11.5 percent and the dividend yield was 2.8 percent.At what price did you resell the stock?

Correct AnswerverifiedB

You have owned a stock for seven years.The geometric average return on this investment for those seven years is positive even though the annual rates of return have varied significantly.Given this,you know the arithmetic average return for the period is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You own a stock that has produced an arithmetic average return of 8.6 percent over the past five years.The annual returns for the first four years were 16,11,-19,and 3 percent,respectively.What was the rate of return on the stock in year five?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

The average risk premium on long-term corporate bonds for the period 1926-2015 was:

Correct AnswerverifiedShow Answer

For the period 1926-2015,long-term government bonds had an average return that ________ the average return on long-term corporate bonds while having a standard deviation that ________ the standard deviation of the long-term corporate bonds.

Correct AnswerverifiedShow Answer

A stock sold for $25 at the beginning of the year.The end of year stock price was $25.70.What is the amount of the annual dividend if the total return for the year was 7.7 percent?

Correct AnswerverifiedShow Answer

Which one of the following had the smallest standard deviation of returns for the period 1926-2015?

Correct AnswerverifiedShow Answer

An asset had annual returns of 17,-35,-18,24,and 6 percent,respectively,over the past five years.What is the arithmetic average return?

Correct AnswerverifiedShow Answer

When we refer to the rate of return on an investment,we are generally referring to the:

Correct AnswerverifiedShow Answer

The rate of return earned on a U.S.Treasury bill is frequently used as a proxy for the:

Correct AnswerverifiedShow Answer

An asset had annual returns of 13,10,-14,3,and 36 percent,respectively,for the past five years.What is the standard deviation of these returns?

Correct AnswerverifiedShow Answer

Christine owns a stock that dropped in price from $43.80 to 39.49 over the past year.The dividend yield on that stock is 1.8 percent.What is her total return on this investment for the year?

Correct AnswerverifiedE

A frequency distribution,which is completely defined by its average (mean) and variance or standard deviation,is referred to as a(n) :

Correct AnswerverifiedShow Answer

The risk premium is defined as the rate of return on:

Correct AnswerverifiedShow Answer

The standard deviation is a measure of:

Correct AnswerverifiedShow Answer

If you multiply the number of shares outstanding for a stock by the price per share,you are computing the firm's:

Correct AnswerverifiedShow Answer

Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before reselling it.What is the value of "m" when computing the annualized return on this investment?

Correct AnswerverifiedShow Answer

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Correct Answer
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B

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D

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For the period 1926-2015,long-term government bonds had an average return that the average return on long-term corporate bonds while having a standard deviation that the standard deviation of the long-term corporate bonds.

Correct Answer
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Correct Answer
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E

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Correct Answer
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