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

If a share of stock provided a 14.0 percent nominal rate of return over the previous year while the real rate of return was 6.0 percent, then the inflation rate was:

The primary difference between Canadian Treasury bills and Canadian Treasury bonds is that the bills:

Calculate the nominal return, real return, and risk premium for the following common stock investment: Purchase price \ 60.00 per share Dividend \ 3.50 per year Sales price \ 73.00 per share Treasury bill yield 8.5\% Inflation rate 7.5\%

Risk factors that are expected to affect only a specific firm are referred to as:

Which of the following statements seems most appropriate when the TSX 300 increases by 2 percent?

The covariance of two stocks was calculated at -.01733.If the standard deviation of the first stock is .106 and .164 for the second, determine the correlation.

Discuss the concept of a "negative risk asset."

Real rates of return are typically less than nominal rates of return due to:

Which of the following risks would be classified as a unique risk for an auto manufacturer?

Average returns on high-risk assets are higher than those on low-risk assets.

Which of the following risks is most important to a well-diversified investor in common stocks?

Common stock is held for two years, during which time it receives an annual dividend of $10.The stock was sold for $100 and generated an average annual return of 16 percent.What price was paid for the stock?

Which of the following concerns is likely to be most important to portfolio investors seeking diversification?

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 economics 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 at 7% and 11% returns for Stock A and B respectively.In a bust economy, Stock A will have a return of -20% and Stock B -5%.Given the above information, calculate the portfolio standard deviation.

What percentage return is achieved by an investor who purchases a stock for $30, receives a $1.50 dividend, and sells the share one year later for $28.50?

Although several stock indexes are available to inform U.S.investors of market changes, the Dow Jones Industrial Average:

If a stock is purchased for $12.50 per share and held one year, during which time a $1.50 dividend is paid and the price drops to $10.75, the percentage return is:

A stock investor owns a diversified portfolio of 15 stocks.What will be the likely effect on portfolio standard deviation from adding one more stock?

A maturity premium is offered on long-term Treasury bonds due to:

The incremental risk to a portfolio from adding another stock: