Exam 1: An Overview of the Investment Process

Use the Information Below for the Following Problem(S) Assume you bought 100 shares of NewTech common stock on January 15, 2003 at $50.00 per share and sold it on January 15, 2004 for $40.00 per share. -Refer to Exhibit 1.1.What was your holding period yield?

If over the past 20 years the annual returns on the S&P 500 market index averaged 12% with a standard deviation of 18%,what was the coefficient of variation?

The geometric mean of a series of returns is always larger than the arithmetic mean and the difference increases with the volatility of the series.

Use the Information Below for the Following Problem(S) You have concluded that next year the following relationships are possible: Esanamic Status Prabability Rate of Return Weak Economy .15 -5\% Static Ecanomy .60 5\% Strane Ecanamy 25 15\% -Refer to Exhibit 1.4.Compute the standard deviation of the rate of return for the one year period.

The rate of exchange between future consumption and current consumption is

What will happen to the security market line (SML)if the following events occur,other things constant: (1)inflation expectations increase,and (2)investors become more risk averse?

Use the Information Below for the Following Problem(S) Consider the following information Nominal annual return on U.S. government T-bills for year 2009 = 3.5% Nominal annual return on U.S. government long-term bonds for year 2009 = 4.75% Nominal annual return on U.S. large-cap stocks for year 2009= 8.75% Consumer price index January 1, 2009 = 165 Consumer price index December 31, 2009 = 169 -Refer to Exhibit 1.7.Calculate the annual real rate of return for U.S.T-bills.

The increase in yield spreads in late 2008 and early 2009 indicated that

The total risk for a security can be measured by its

Which of the following is least likely to move a firm's position to the right on the Security Market Line (SML)?

The arithmetic mean is a superior measure of the long-term performance because it indicates the compound annual rate of return based on the ending value of the investment versus its beginning value.

Use the Information Below for the Following Problem(S) Assume that during the past year the consumer price index increased by 1.5 percent and the securities listed below returned the following nominal rates of return. U.S. Govermment T-bills U. S. Lonf-term bonfs 2.75\% 4.75\% -Refer to Exhibit 1.5.What are the real rates of return for each of these securities?