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

How much is an investor's tolerance for risk worth over a long horizon? Calculate the difference in accumulation in real terms for an investor who initially invests $25,000 and ignores it for 20 years in either a long-term Treasury bond portfolio or a portfolio of diversified common stocks. Assume the historic real returns of 2.1% annually for bonds and 9.3% for common stocks.

Averaging the deviations from the mean for a portfolio of securities will:

What is the standard deviation of a portfolio's returns if the mean return is 15%, the variance of returns is 184, and there are three stocks in the portfolio?

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?

Most of the beneficial effects of diversification will have been received by the time a portfolio of common stocks contains approximately _____ stocks.

How is it possible for real rates of return to increase during times when the rate of inflation increases?

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

The variance of an investment's returns is a measure of the:

A project's expected return is 15%, which represents a 35% return in a booming economy and a 5% return in a stagnant economy. What is the probability of a booming economy occurring if these are the only two economic states?

What is the approximate variance of returns if over the past 3 years an investment returned 8%, -12%, and 15%?

Which statement is correct concerning macro risk exposure?

What is the approximate standard deviation of returns for a one-year project that is equally likely to return 100% as it is to provide a 100% loss?

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

The variance of a stock's returns can be calculated as the:

The expected return on an investment includes compensation for both the time value of money and the risks assumed.

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

The Dow Jones Industrial Average is:

Stock market indexes are found in several countries outside the United States.

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

Cyclical stocks tend to perform well when other stocks are performing well also.