Question 1

Kelly decided to accept the risk and purchased a high growth stock.Her returns for the past five years are 48 percent,39 percent,-56 percent,61 percent,and -24 percent,respectively.What is the standard deviation of these returns?

Accepted Answer

A)  43.20 percent
B)  45.46 percent
C)  47.88 percent
D)  50.83 percent
E)  58.39 percentF) A) and B)
G) None of the above

Question 2

The average risk premium on long-term government bonds for the period 1926-2011 was equal to:

Accepted Answer

A)  zero.
B)  1 percent.
C)  the rate of return on the bonds plus the corporate bond rate.
D)  the rate of return on the bonds minus the T-bill rate.
E)  the rate of return on the bonds minus the inflation rate.F) A) and E)
G) C) and D)

Question 3

You purchased a zero coupon bond one year ago for $291.22.The market interest rate is now 8.75 percent.If the bond had 16 years to maturity when you originally purchased it,what was your total return for the past year if the face value of the bond is $1,000?

Accepted Answer

A)  -4.97 percent
B)  -2.18 percent
C)  1.34 percent
D)  2.65 percent
E)  2.90 percentF) A) and E)
G) B) and C)

Question 4

What was the average annual risk premium on small-company stocks for the period 1926-2011?

Accepted Answer

A)  5.3 percent
B)  6.2 percent
C)  8.5 percent
D)  12.9 percent
E)  15.3 percentF) B) and C)
G) A) and B)

Question 5

New Labs just announced that it has received a patent for a product that will eliminate all flu viruses.This news is totally unexpected and viewed as a major medical advancement.Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?

Accepted Answer

A)  The price of New Labs stock remains unchanged.
B)  The price of New Labs stock increases rapidly and then settles back to its pre-announcement level.
C)  The price of New Labs stock increases rapidly to a higher price and then remains at that price.
D)  All stocks quickly increase in value and then all but New Labs stock fall back to their original values.
E)  The value of all stocks suddenly increase and then level off at their higher values.F) A) and B)
G) B) and C) C

Question 6

Which one of the following best describes an arithmetic average return?

Accepted Answer

A)  Total return divided by N - 1, where N equals the number of individual returns
B)  Average compound return earned per year over a multiyear period
C)  Total compound return divided by the number of individual returns
D)  Return earned in an average year over a multiyear period
E)  Positive square root of the average compound returnF) C) and D)
G) None of the above D

Question 7

Windsor stock has produced returns of 22.6 percent,18.7 percent,11.3 percent,-19.8 percent,and 2.4 percent over the past five years,respectively.What is the variance of these returns?

Accepted Answer

A)  0.028453
B)  0.031947
C)  0.035682
D)  0.039515
E)  0.040016F) B) and D)
G) A) and B)

Question 8

A stock produced returns of 19 percent,27 percent,and -38 percent over three of the past four years,respectively.The arithmetic average for the past four years is 7 percent.What is the standard deviation of the stock's returns for the four-year period?

Accepted Answer

A)  11.63 percent
B)  15.94 percent
C)  19.70 percent
D)  26.25 percent
E)  30.21 percentF) B) and C)
G) D) and E)

Question 9

Over the period of 1926-2011,which one of the following investment classes had the highest volatility of returns?

Accepted Answer

A)  Large-company stocks
B)  U.S. Treasury bills
C)  Small-company stocks
D)  Long-term corporate bonds
E)  Long-term government bondsF) D) and E)
G) A) and D)

Question 10

The period 1926-2011 illustrates that U.S.Treasury bills:

Accepted Answer

A)  outperform inflation by approximately 1 percent every year.
B)  have a zero standard deviation.
C)  can either outperform or underperform inflation on an annual basis.
D)  produce a rate of return roughly equivalent to the rate of return on long-term government bonds.
E)  routinely have negative annual returns.F) B) and D)
G) A) and E)

Question 11

You've observed the following returns on Blast It Corporation's stock over the past five years: 11 percent,-28 percent,16 percent,18 percent,and - 3 percent,respectively.What was the variance of the returns over this period?

Accepted Answer

A)  0.03598
B)  0.03637
C)  0.03692
D)  0.03714
E)  0.03781F) A) and E)
G) A) and D)

Question 12

You expect the inflation rate to be 3.8 percent and the U.S.Treasury bill yield to be 3.9 percent for the next year.The risk premium on small-company stocks is 12.6 percent.What nominal rate of return do you expect to earn on small-company stocks next year?

Accepted Answer

A)  15.5 percent
B)  16.5 percent
C)  16.8 percent
D)  9.2 percent
E)  8.8 percentF) All of the above
G) B) and C)

Question 13

Over the past four years,a stock produced returns of 23 percent,-39 percent,4 percent,and 16 percent,respectively.Based on these four years,what range of returns would you expect to see 99 percent of the time?

Accepted Answer

A)  -82.39 percent to 84.39 percent
B)  -82.39 percent to 86.41 percent
C)  -82.39 percent to 88.56 percent
D)  -78.46 percent to 86.41 percent
E)  -78.46 percent to 84.39 percentF) C) and D)
G) A) and C)

Question 14

A bond has an average return of 6.3 percent and a standard deviation of 3.8 percent.What range of returns would you expect to see 68 percent of the time on this security?

Accepted Answer

A)  -1.30 percent to 13.9 percent
B)  -1.30 percent to 10.1 percent
C)  2.5 percent to 7.8 percent
D)  2.5 percent to 10.1 percent
E)  2.5 percent t0 13.9 percentF) A) and D)
G) B) and D)

Question 15

A stock has produced returns of 16.6 percent,3.4 percent,11.7 percent,and -9.2 percent over the past four years,respectively.What is the geometric average return?

Accepted Answer

A)  5.16 percent
B)  5.47 percent
C)  6.23 percent
D)  6.61 percent
E)  10.12 percentF) A) and D)
G) A) and E)

Question 16

For the period 1926-2011,which one of the following had the smallest risk premium?

Accepted Answer

A)  Large-company stocks
B)  Small-company stocks
C)  Long-term corporate bonds
D)  U.S. Treasury bills
E)  Long-term government bondsF) A) and B)
G) C) and D)

Question 17

Which one of the following had the lowest standard deviation of returns for the period of 1926-2011?

Accepted Answer

A)  U.S. Treasury bill
B)  Inflation
C)  Long-term corporate bonds
D)  Large-company stocks
E)  Long-term government bondsF) A) and B)
G) C) and D) A

Question 18

A stock produced returns of 16 percent,9 percent,and 21 percent over three of the past four years,respectively.The arithmetic average for the past four years is 10 percent.What is the standard deviation of the stock's returns for the four-year period?

Accepted Answer

A)  6.82 percent
B)  8.54 percent
C)  9.09 percent
D)  10.83 percent
E)  11.75 percentF) All of the above
G) A) and B)

Question 19

There are regulations that prohibit "insider trading," which is the use of nonpublic information about a security to earn abnormal profits from trading that security.Which form of market efficiency would make these laws unnecessary?
 Explain why.

Accepted Answer

If the markets were strong for...

Question 20

What is the probability associated with a return that lies in the upper tail when the mean plus two standard deviations is graphed?

Accepted Answer

A)  0.05 percent
B)  0.5 percent
C)  1.0 percent
D)  2.5 percent
E)  5.0 percentF) A) and D)
G) A) and E)

Exam 10: Some Lessons From Capital Market History

Kelly decided to accept the risk and purchased a high growth stock.Her returns for the past five years are 48 percent,39 percent,-56 percent,61 percent,and -24 percent,respectively.What is the standard deviation of these returns?

Correct AnswerverifiedShow Answer

The average risk premium on long-term government bonds for the period 1926-2011 was equal to:

Correct AnswerverifiedShow Answer

You purchased a zero coupon bond one year ago for $291.22.The market interest rate is now 8.75 percent.If the bond had 16 years to maturity when you originally purchased it,what was your total return for the past year if the face value of the bond is $1,000?

Correct AnswerverifiedShow Answer

What was the average annual risk premium on small-company stocks for the period 1926-2011?

Correct AnswerverifiedShow Answer

New Labs just announced that it has received a patent for a product that will eliminate all flu viruses.This news is totally unexpected and viewed as a major medical advancement.Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?

Correct AnswerverifiedC

Which one of the following best describes an arithmetic average return?

Correct AnswerverifiedD

Windsor stock has produced returns of 22.6 percent,18.7 percent,11.3 percent,-19.8 percent,and 2.4 percent over the past five years,respectively.What is the variance of these returns?

Correct AnswerverifiedShow Answer

A stock produced returns of 19 percent,27 percent,and -38 percent over three of the past four years,respectively.The arithmetic average for the past four years is 7 percent.What is the standard deviation of the stock's returns for the four-year period?

Correct AnswerverifiedShow Answer

Over the period of 1926-2011,which one of the following investment classes had the highest volatility of returns?

Correct AnswerverifiedShow Answer

The period 1926-2011 illustrates that U.S.Treasury bills:

Correct AnswerverifiedShow Answer

You've observed the following returns on Blast It Corporation's stock over the past five years: 11 percent,-28 percent,16 percent,18 percent,and - 3 percent,respectively.What was the variance of the returns over this period?

Correct AnswerverifiedShow Answer

You expect the inflation rate to be 3.8 percent and the U.S.Treasury bill yield to be 3.9 percent for the next year.The risk premium on small-company stocks is 12.6 percent.What nominal rate of return do you expect to earn on small-company stocks next year?

Correct AnswerverifiedShow Answer

Over the past four years,a stock produced returns of 23 percent,-39 percent,4 percent,and 16 percent,respectively.Based on these four years,what range of returns would you expect to see 99 percent of the time?

Correct AnswerverifiedShow Answer

A bond has an average return of 6.3 percent and a standard deviation of 3.8 percent.What range of returns would you expect to see 68 percent of the time on this security?

Correct AnswerverifiedShow Answer

A stock has produced returns of 16.6 percent,3.4 percent,11.7 percent,and -9.2 percent over the past four years,respectively.What is the geometric average return?

Correct AnswerverifiedShow Answer

For the period 1926-2011,which one of the following had the smallest risk premium?

Correct AnswerverifiedShow Answer

Which one of the following had the lowest standard deviation of returns for the period of 1926-2011?

Correct AnswerverifiedA

A stock produced returns of 16 percent,9 percent,and 21 percent over three of the past four years,respectively.The arithmetic average for the past four years is 10 percent.What is the standard deviation of the stock's returns for the four-year period?

Correct AnswerverifiedShow Answer

There are regulations that prohibit "insider trading," which is the use of nonpublic information about a security to earn abnormal profits from trading that security.Which form of market efficiency would make these laws unnecessary? Explain why.

Correct AnswerverifiedIf the markets were strong for...View AnswerShow Answer

What is the probability associated with a return that lies in the upper tail when the mean plus two standard deviations is graphed?

Correct AnswerverifiedShow Answer

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C

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D

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A

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If the markets were strong for...
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