Question 1

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 D)
G) A) and B)

Question 2

Which one of the following statements is correct concerning the dividend yield and the total return?

Accepted Answer

A)  The dividend yield can be zero while the total return must be a positive value.
B)  The total return can be negative but the dividend yield cannot be negative.
C)  The total return must be greater than the dividend yield.
D)  The total return plus the capital gains yield is equal to the dividend yield.
E)  The dividend yield exceeds the total return when a stock increases in value.F) A) and B)
G) A) and C)

Question 3

A frequency distribution,which is completely defined by its average (mean) and 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) C) and E)
G) A) and E)

Question 4

The arithmetic average return is the:

Accepted Answer

A)  summation of the returns for a number of years, t, divided by (t - 1) .
B)  compound total return for a period of years, t, divided by t.
C)  average compound return earned per year over a multi-year period.
D)  average squared return earned in a single year.
E)  return earned in an average year over a multi-year period.F) A) and E)
G) None of the above

Question 5

Which one of the following had the smallest standard deviation of returns for the period 1926-2012?

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) All of the above
G) C) and E)

Question 6

You own a stock that has produced an arithmetic average return of 7.8 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) A) and D)
G) A) and B)

Question 7

An annualized return:

Accepted Answer

A)  is less than a holding period return when the holding period is less than one year.
B)  is expressed as the summation of the capital gains yield and the dividend yield on an investment.
C)  is expressed as the capital gains yield that would have been realized if an investment had been held for a twelve-month period.
D)  is computed as (1 + holding period percentage return) m, where m is the number of holding periods in a year.
E)  is computed as (1 + holding period percentage return) m, where m is the number of months in the holding period.F) D) and E)
G) A) and E)

Question 8

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) B) and E)
G) None of the above

Question 9

Jim began his investing program with a $4,000 initial investment.The table below recaps his returns each year as well as the amounts he added to his investment account.What is his dollar-weighted average return?

Accepted Answer

A)  1.6 percent
B)  2.2 percent
C)  2.6 percent
D)  3.2 percent
E)  3.6 percentF) C) and E)
G) C) and D)

Question 10

Downtown Industries common stock had returns of 8.2,12.2,11.5,and 6.3 percent,respectively,over the past four years.What is the standard deviation of these returns?

Accepted Answer

A)  2.07 percent
B)  2.38 percent
C)  2.41 percent
D)  2.59 percent
E)  2.82 percentF) None of the above
G) A) and B)

Question 11

For the period 1926-2012,the annual return on large-company stocks:

Accepted Answer

A)  was negative following every three-year period of positive returns.
B)  was only negative for two or more consecutive years during the Great Depression.
C)  remained negative for at least two consecutive years anytime that it was negative.
D)  never exceeded a positive 30 percent nor lost more than 20 percent.
E)  was unpredictable based on the prior year's performance.F) A) and B)
G) C) and D)

Question 12

Which one of the following had the highest risk premium for the period 1926-2012?

Accepted Answer

A)  U.S. Treasury bills
B)  long-term government bonds
C)  large-company stocks
D)  small-company stocks
E)  intermediate-term government bondsF) B) and D)
G) A) and B)

Question 13

The geometric return on an investment is approximately equal to the arithmetic return:

Accepted Answer

A)  plus half the standard deviation.
B)  plus half the variance.
C)  minus half the standard deviation.
D)  minus half the variance.
E)  divided by two.F) A) and E)
G) None of the above

Question 14

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) A) and B)
G) A) and C)

Question 15

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) A) and D)
G) A) and B)

Question 16

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 B)
G) All of the above

Question 17

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) All of the above
G) B) and D)

Question 18

Over the past five years,Teen Clothing stock produced returns of 18.7,5.8,7.9,10.8,and 11.6 percent,respectively.For the same five years,the risk-free rate 5.2,3.4,2.8,3.4,and 3.9 percent,respectively.What is the arithmetic average risk premium on Teen Clothing stock for this time period?

Accepted Answer

A)  6.89 percent
B)  7.01 percent
C)  7.22 percent
D)  7.34 percent
E)  7.57 percentF) D) and E)
G) C) and E)

Question 19

Based on the period 1926-2012,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) A) and C)
G) None of the above

Question 20

A stock has an average arithmetic return of 10.55 percent and an average geometric return of 10.41 percent based on the annual returns for the last 15 years.What is projected average annual return on this stock for the next 10 years?

Accepted Answer

A)  10.17 percent
B)  10.21 percent
C)  10.38 percent
D)  10.46 percent
E)  10.79 percentF) All of the above
G) C) and D)

Exam 1: A Brief History of Risk and Return

For the period 1926-2012,the annual return on large-company stocks:

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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?

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Over the past five years,Teen Clothing stock produced returns of 18.7,5.8,7.9,10.8,and 11.6 percent,respectively.For the same five years,the risk-free rate 5.2,3.4,2.8,3.4,and 3.9 percent,respectively.What is the arithmetic average risk premium on Teen Clothing stock for this time period?

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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:

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An annualized return:

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Which one of the following had the highest risk premium for the period 1926-2012?

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The risk-free rate is:

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Which one of the following had the smallest standard deviation of returns for the period 1926-2012?

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Jim began his investing program with a $4,000 initial investment.The table below recaps his returns each year as well as the amounts he added to his investment account.What is his dollar-weighted average return?

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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?

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Downtown Industries common stock had returns of 8.2,12.2,11.5,and 6.3 percent,respectively,over the past four years.What is the standard deviation of these returns?

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

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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?

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Which one of the following statements is correct concerning the dividend yield and the total return?

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The arithmetic average return is the:

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The geometric return on an investment is approximately equal to the arithmetic return:

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

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You own a stock that has produced an arithmetic average return of 7.8 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?

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Based on the period 1926-2012,the risk premium for U.S.Treasury bills was:

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A stock has an average arithmetic return of 10.55 percent and an average geometric return of 10.41 percent based on the annual returns for the last 15 years.What is projected average annual return on this stock for the next 10 years?

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