Exam 11: Introduction to Risk, Return, and the Opportunity Cost of Capital

If one portfolio's variance exceeds that of another portfolio, its standard deviation will also be greater than that of the other portfolio.

When the annual rate of return on Canadian Treasury bills is historically high, investors expect the risk premium on the stock market to be:

Which of the following companies might you expect to be exposed to less macro risk?

When high growth is expected in the economy, an investor should receive higher returns from:

What nominal return was received by an investor when inflation averaged 8.0 percent and the real rate of return was a negative 2.5 percent?

The appropriate opportunity cost of capital is the return that investors give up on alternative investments with:

A firm is said to be countercyclical if its returns:

Which of the following statements is incorrect concerning stock indexes?

What is the variance of a three-stock portfolio that produced returns of 20 percent, 25 percent and 30 percent?

What are the components of total return and total risk?

Although the TSX 300 contains a small proportion of Canadian publicly traded stocks, it represents:

Market interest rates have risen substantially in the five years since an investor purchased Treasury bonds that were offering a 7 percent return.If the investor sells now she is likely to receive:

Real rates of return will be positive as long as:

What is the variance of return of a three-stock portfolio (with unequal weights 25%, 50% and 25%) that produced returns of 20%, 25% and 30%, respectively?

Which of the following statements is true for a stock that sells now for $60, pays an annual dividend of $3.00, and experienced a 30 percent return on investment over the past year? Its price one year ago was:

Perhaps the best way to reduce macro risk in a stock portfolio is to invest in stocks that:

An investor is considering purchasing two stocks for a portfolio.Stock A will comprise of 40% of the portfolio and Stock B 60%.It is expected that three economic states may occur, with a 40% probability of a boom economy, 50% probability of an average economy and a 10% probability of a bust economy.If a boom economy transpires, stock A will yield an 11% return and stock B 15%.An average economy will see a 7% and 11% returns for stocks A and B respectively.In a bust economy, stock A will have return of -20% and stock B -5%.Given the above information, calculate the portfolio expected return.

Calculate the inflation rate, given a nominal rate of 10.2% and a real rate of 8.05%.

What real rate of return is earned by a one-year investor in a bond that was purchased for $1,000, has an 8 percent coupon, and was sold for $960 when the inflation rate was 6 percent?

Justify the historic ranking of returns for the following three categories of investment, listed from highest to lowest return: Common stocks, long-term Treasury bonds, and Treasury bills.