Question 1

The geometric mean return on large-company stocks for the 1926-2015 period:

Accepted Answer

A)   is approximately equal to the arithmetic mean return plus one-half of the standard deviation.
B)   exceeds the arithmetic mean return.
C)   is approximately equal to the arithmetic mean return minus one-half of the standard deviation.
D)   is approximately equal to the arithmetic mean return plus one-half of the variance.
E)   is less than the arithmetic mean return.F) A) and E)
G) B) and E)

Question 2

Jack owned a stock for five months and earned an annualized rate of return of 6 percent.What was the holding period return?

Accepted Answer

A)   2.37 percent
B)   2.42 percent
C)   2.46 percent
D)   2.64 percent
E)   2.72 percentF) C) and E)
G) B) and E)

Question 3

Joanne invested $15,000 six years ago.Her arithmetic average return on this investment is 8.72 percent,and her geometric average return is 8.50 percent.What is Joanne's portfolio worth today?

Accepted Answer

A)   $23,989
B)   $24,472
C)   $26,409
D)   $26,514
E)   $26,766F) B) and E)
G) A) and B)

Question 4

Big Town Markets common stock returned 13.8,14.2,9.7,5.3,and 12.2 percent,respectively,over the past five years.What is the arithmetic average return?

Accepted Answer

A)   10.99 percent
B)   11.04 percent
C)   11.56 percent
D)   12.20 percent
E)   13.80 percentF) B) and E)
G) C) and D)

Question 5

Based on the period 1926-2016,the risk premium for U.S.Treasury bills was:

Accepted Answer

A)   0.0 percent.
B)   1.2 percent.
C)   2.0 percent.
D)   2.4 percent.
E)   2.7 percent.F) D) and E)
G) B) and C)

Question 6

When the total return on an investment is expressed on a per-year basis it is called the:

Accepted Answer

A)   capital gains yield.
B)   dividend yield.
C)   holding period return.
D)   effective annual return.
E)   initial return.F) D) and E)
G) B) and D)

Question 7

Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share.After six months,he resold the stock for $71.30 a share.What was his total dollar return?

Accepted Answer

A)   $1,008
B)   $1,860
C)   $2,712
D)   $3,211
E)   $3,400F) A) and E)
G) A) and D)

Question 8

Which category(ies) of investments had an annual rate of return that exceeded 100 percent for at least one year during the period 1926-2016?

Accepted Answer

A)   only large-company stocks
B)   both large-company and small-company stocks
C)   only small-company stocks
D)   corporate bonds, large-company stocks, and small-company stocks
E)   No category earned an annual return in excess of 100 percent for any given year during the periodF) B) and C)
G) A) and E)

Question 9

A stock produced annual returns of 8.5,-18,15,17,and 12 percent over the past five years,respectively.What is the geometric average return?

Accepted Answer

A)   5.78 percent
B)   6.04 percent
C)   6.34 percent
D)   7.21 percent
E)   8.20 percentF) A) and C)
G) C) and E)

Question 10

The geometric return on a stock over the past 10 years was 7.9 percent.The arithmetic return over the same period was 8.8 percent.What is the best estimate of the average return on this stock over the next 5 years?

Accepted Answer

A)   8.40 percent
B)   9.05 percent
C)   9.08 percent
D)   9.13 percent
E)   9.47 percentF) All of the above
G) A) and B)

Question 11

Capital gains are included in the return on an investment:

Accepted Answer

A)   when either the investment is sold or the investment has been owned for at least one year.
B)   only if the investment is sold and the capital gain is realized.
C)   whenever dividends are paid.
D)   whether or not the investment is sold.
E)   only if the investment incurs a loss in value or is sold.F) D) and E)
G) A) and E)

Question 12

Based on the period of 1926-2015,the risk premium for small-company stocks averaged:

Accepted Answer

A)   12.3 percent.
B)   13.9 percent.
C)   15.0 percent.
D)   16.8 percent.
E)   17.4 percent.F) None of the above
G) C) and E)

Question 13

An asset has an average annual historical return of 11.6 percent and a standard deviation of 17.8 percent.What range of returns would you expect to see 95 percent of the time?

Accepted Answer

A)   -41.8 to + 65.0 percent
B)   -34.4 to + 53.6 percent
C)   -24.0 to + 47.2 percent
D)   -6.2 to + 29.4 percent
E)   -5.4 to + 41.0 percentF) A) and B)
G) D) and E)

Question 14

An asset had returns of 7.7,5.4,3.6,-4.2,and -1.3 percent,respectively,over the past five years.What is the variance of these returns?

Accepted Answer

A)   0.00173
B)   0.00184
C)   0.00216
D)   0.00240
E)   0.00259F) None of the above
G) B) and E)

Question 15

You have been researching a company and have estimated that the firm's stock will sell for $44 a share one year from now.You also estimate the stock will have a dividend yield of 2.18 percent.How much are you willing to pay per share today to purchase this stock if you desire a total return of 15 percent on your investment?

Accepted Answer

A)   $37.55
B)   $38.00
C)   $38.24
D)   $39.00
E)   $40.20F) B) and D)
G) B) and C)

Question 16

A stock has an average historical return of 11.3 percent and a standard deviation of 20.2 percent.Which range of returns would you expect to see approximately two-thirds of the time?

Accepted Answer

A)   -23.8 to + 53.0 percent
B)   +4.6 to + 33.8 percent
C)   +5.8 to + 31.6 percent
D)   -3.9 to + 32.5 percent
E)   -8.9 to + 31.5 percentF) A) and D)
G) C) and D)

Question 17

The risk-free rate is:

Accepted Answer

A)   another term for the dividend yield.
B)   defined as the increase in the value of a share of stock over time.
C)   the rate of return earned on an investment in a firm that you personally own.
D)   defined as the total of the capital gains yield plus the dividend yield.
E)   the rate of return on a riskless investment.F) All of the above
G) None of the above

Question 18

One year ago,you purchased 300 shares of Southern Cotton at $32.60 a share.During the past year,you received a total of $280 in dividends.Today,you sold your shares for $35.80 a share.What is your total return on this investment?

Accepted Answer

A)   8.79 percent
B)   9.64 percent
C)   10.16 percent
D)   11.64 percent
E)   12.68 percentF) A) and B)
G) A) and C)

Question 19

Which one of the following had the highest average return for the period 1926-2016?

Accepted Answer

A)   large-company stocks
B)   U.S. Treasury bills
C)   long-term government bonds
D)   small-company stocks
E)   long-term corporate bondsF) None of the above
G) D) and E)

Question 20

Which one of the following statements is correct?

Accepted Answer

A)   The standard deviation of the returns on Treasury bills is zero.
B)   Large-company stocks are historically riskier than small-company stocks.
C)   The standard deviation is a means of measuring the volatility of returns on an investment.
D)   A risky asset will always have a higher annual rate of return than a riskless asset.
E)   There is an indirect relationship between risk and return.F) A) and B)
G) C) and E)

Exam 1: A Brief History of Risk and Return

Based on the period of 1926-2015,the risk premium for small-company stocks averaged:

Correct Answer
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Capital gains are included in the return on an investment:

Correct Answer
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When the total return on an investment is expressed on a per-year basis it is called the:

Correct Answer
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Based on the period 1926-2016,the risk premium for U.S.Treasury bills was:

Correct Answer
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Joanne invested $15,000 six years ago.Her arithmetic average return on this investment is 8.72 percent,and her geometric average return is 8.50 percent.What is Joanne's portfolio worth today?

Correct Answer
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Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share.After six months,he resold the stock for $71.30 a share.What was his total dollar return?

Correct Answer
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Jack owned a stock for five months and earned an annualized rate of return of 6 percent.What was the holding period return?

Correct Answer
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Big Town Markets common stock returned 13.8,14.2,9.7,5.3,and 12.2 percent,respectively,over the past five years.What is the arithmetic average return?

Correct Answer
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Which one of the following had the highest average return for the period 1926-2016?

Correct Answer
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The geometric mean return on large-company stocks for the 1926-2015 period:

Correct Answer
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An asset has an average annual historical return of 11.6 percent and a standard deviation of 17.8 percent.What range of returns would you expect to see 95 percent of the time?

Correct Answer
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A stock has an average historical return of 11.3 percent and a standard deviation of 20.2 percent.Which range of returns would you expect to see approximately two-thirds of the time?

Correct Answer
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Which one of the following statements is correct?

Correct Answer
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Correct Answer
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One year ago,you purchased 300 shares of Southern Cotton at $32.60 a share.During the past year,you received a total of $280 in dividends.Today,you sold your shares for $35.80 a share.What is your total return on this investment?

Correct Answer
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An asset had returns of 7.7,5.4,3.6,-4.2,and -1.3 percent,respectively,over the past five years.What is the variance of these returns?

Correct Answer
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The risk-free rate is:

Correct Answer
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Which category(ies) of investments had an annual rate of return that exceeded 100 percent for at least one year during the period 1926-2016?

Correct Answer
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A stock produced annual returns of 8.5,-18,15,17,and 12 percent over the past five years,respectively.What is the geometric average return?

Correct Answer
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The geometric return on a stock over the past 10 years was 7.9 percent.The arithmetic return over the same period was 8.8 percent.What is the best estimate of the average return on this stock over the next 5 years?

Correct Answer
verified

Exam 1: A Brief History of Risk and Return

Based on the period of 1926-2015,the risk premium for small-company stocks averaged:

Correct AnswerverifiedShow Answer

Capital gains are included in the return on an investment:

Correct AnswerverifiedShow Answer

When the total return on an investment is expressed on a per-year basis it is called the:

Correct AnswerverifiedShow Answer

Based on the period 1926-2016,the risk premium for U.S.Treasury bills was:

Correct AnswerverifiedShow Answer

Joanne invested $15,000 six years ago.Her arithmetic average return on this investment is 8.72 percent,and her geometric average return is 8.50 percent.What is Joanne's portfolio worth today?

Correct AnswerverifiedShow Answer

Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share.After six months,he resold the stock for $71.30 a share.What was his total dollar return?

Correct AnswerverifiedShow Answer

Jack owned a stock for five months and earned an annualized rate of return of 6 percent.What was the holding period return?

Correct AnswerverifiedShow Answer

Big Town Markets common stock returned 13.8,14.2,9.7,5.3,and 12.2 percent,respectively,over the past five years.What is the arithmetic average return?

Correct AnswerverifiedShow Answer

Which one of the following had the highest average return for the period 1926-2016?

Correct AnswerverifiedShow Answer

The geometric mean return on large-company stocks for the 1926-2015 period:

Correct AnswerverifiedShow Answer

An asset has an average annual historical return of 11.6 percent and a standard deviation of 17.8 percent.What range of returns would you expect to see 95 percent of the time?

Correct AnswerverifiedShow Answer

A stock has an average historical return of 11.3 percent and a standard deviation of 20.2 percent.Which range of returns would you expect to see approximately two-thirds of the time?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

One year ago,you purchased 300 shares of Southern Cotton at $32.60 a share.During the past year,you received a total of $280 in dividends.Today,you sold your shares for $35.80 a share.What is your total return on this investment?

Correct AnswerverifiedShow Answer

An asset had returns of 7.7,5.4,3.6,-4.2,and -1.3 percent,respectively,over the past five years.What is the variance of these returns?

Correct AnswerverifiedShow Answer

The risk-free rate is:

Correct AnswerverifiedShow Answer

Which category(ies) of investments had an annual rate of return that exceeded 100 percent for at least one year during the period 1926-2016?

Correct AnswerverifiedShow Answer

A stock produced annual returns of 8.5,-18,15,17,and 12 percent over the past five years,respectively.What is the geometric average return?

Correct AnswerverifiedShow Answer

The geometric return on a stock over the past 10 years was 7.9 percent.The arithmetic return over the same period was 8.8 percent.What is the best estimate of the average return on this stock over the next 5 years?

Correct AnswerverifiedShow Answer

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