Question 1

Capital gains are included in the return on an investment:

Accepted Answer

A)  when either the investment is sold or the investment has been owned for at least one year. 
B)  only if the investment is sold and the capital gain is realized. 
C)  whenever dividends are paid. 
D)  whether or not the investment is sold. 
E)  only if the investment incurs a loss in value or is sold. 
A)  when either the investment is sold or the investment has been owned for at least one year. 
B)  only if the investment is sold and the capital gain is realized. 
C)  whenever dividends are paid. 
D)  whether or not the investment is sold. 
E)  only if the investment incurs a loss in value or is sold.

Question 2

An asset has an average annual historical return of 11.6 percent and a standard deviation of 17.8 percent.What range of returns would you expect to see 95 percent of the time?

Accepted Answer

A)  -41.8 to + 65.0 percent 
B)  -34.4 to + 53.6 percent 
C)  -24.0 to + 47.2 percent 
D)  -6.2 to + 29.4 percent 
E)  -5.4 to + 41.0 percent 
A)  -41.8 to + 65.0 percent 
B)  -34.4 to + 53.6 percent 
C)  -24.0 to + 47.2 percent 
D)  -6.2 to + 29.4 percent 
E)  -5.4 to + 41.0 percent

Question 3

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)  $3,400 
A)  $1,008 
B)  $1,860 
C)  $2,712 
D)  $3,211 
E)  $3,400

Question 4

Which one of the following statements is correct?

Accepted Answer

A)  The standard deviation of the returns on Treasury bills is zero. 
B)  Large-company stocks are historically riskier than small-company stocks. 
C)  The standard deviation is a means of measuring the volatility of returns on an investment. 
D)  A risky asset will always have a higher annual rate of return than a riskless asset. 
E)  There is an indirect relationship between risk and return. 
A)  The standard deviation of the returns on Treasury bills is zero. 
B)  Large-company stocks are historically riskier than small-company stocks. 
C)  The standard deviation is a means of measuring the volatility of returns on an investment. 
D)  A risky asset will always have a higher annual rate of return than a riskless asset. 
E)  There is an indirect relationship between risk and return.

Question 5

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. 
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.

Question 6

Which one of the following had the highest average return for the period 1926-2016?

Accepted Answer

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

Question 7

The geometric mean return on large-company stocks for the 1926-2015 period:

Accepted Answer

A)  is approximately equal to the arithmetic mean return plus one-half of the standard deviation. 
B)  exceeds the arithmetic mean return. 
C)  is approximately equal to the arithmetic mean return minus one-half of the standard deviation. 
D)  is approximately equal to the arithmetic mean return plus one-half of the variance. 
E)  is less than the arithmetic mean return. 
A)  is approximately equal to the arithmetic mean return plus one-half of the standard deviation. 
B)  exceeds the arithmetic mean return. 
C)  is approximately equal to the arithmetic mean return minus one-half of the standard deviation. 
D)  is approximately equal to the arithmetic mean return plus one-half of the variance. 
E)  is less than the arithmetic mean return.

Question 8

A stock produced annual returns of 8.5,-18,15,17,and 12 percent over the past five years,respectively.What is the geometric average return?

Accepted Answer

A)  5.78 percent 
B)  6.04 percent 
C)  6.34 percent 
D)  7.21 percent 
E)  8.20 percent 
A)  5.78 percent 
B)  6.04 percent 
C)  6.34 percent 
D)  7.21 percent 
E)  8.20 percent

Question 9

One year ago,you purchased 300 shares of Southern Cotton at $32.60 a share.During the past year,you received a total of $280 in dividends.Today,you sold your shares for $35.80 a share.What is your total return on this investment?

Accepted Answer

A)  8.79 percent 
B)  9.64 percent 
C)  10.16 percent 
D)  11.64 percent 
E)  12.68 percent 
A)  8.79 percent 
B)  9.64 percent 
C)  10.16 percent 
D)  11.64 percent 
E)  12.68 percent

Question 10

You have been researching a company and have estimated that the firm's stock will sell for $44 a share one year from now.You also estimate the stock will have a dividend yield of 2.18 percent.How much are you willing to pay per share today to purchase this stock if you desire a total return of 15 percent on your investment?

Accepted Answer

A)  $37.55 
B)  $38.00 
C)  $38.24 
D)  $39.00 
E)  $40.20 
A)  $37.55 
B)  $38.00 
C)  $38.24 
D)  $39.00 
E)  $40.20

Question 11

Which category(ies)of investments had an annual rate of return that exceeded 100 percent for at least one year during the period 1926-2016?

Accepted Answer

A)  only large-company stocks 
B)  both large-company and small-company stocks 
C)  only small-company stocks 
D)  corporate bonds, large-company stocks, and small-company stocks 
E)  No category earned an annual return in excess of 100 percent for any given year during the period 
A)  only large-company stocks 
B)  both large-company and small-company stocks 
C)  only small-company stocks 
D)  corporate bonds, large-company stocks, and small-company stocks 
E)  No category earned an annual return in excess of 100 percent for any given year during the period

Question 12

The geometric return on a stock over the past 10 years was 7.9 percent.The arithmetic return over the same period was 8.8 percent.What is the best estimate of the average return on this stock over the next 5 years?

Accepted Answer

A)  8.40 percent 
B)  9.05 percent 
C)  9.08 percent 
D)  9.13 percent 
E)  9.47 percent 
A)  8.40 percent 
B)  9.05 percent 
C)  9.08 percent 
D)  9.13 percent 
E)  9.47 percent

Question 13

An asset had returns of 7.7,5.4,3.6,-4.2,and -1.3 percent,respectively,over the past five years.What is the variance of these returns?

Accepted Answer

A)  0.00173 
B)  0.00184 
C)  0.00216 
D)  0.00240 
E)  0.00259 
A)  0.00173 
B)  0.00184 
C)  0.00216 
D)  0.00240 
E)  0.00259

Question 14

Jack owned a stock for five months and earned an annualized rate of return of 6 percent.What was the holding period return?

Accepted Answer

A)  2.37 percent 
B)  2.42 percent 
C)  2.46 percent 
D)  2.64 percent 
E)  2.72 percent 
A)  2.37 percent 
B)  2.42 percent 
C)  2.46 percent 
D)  2.64 percent 
E)  2.72 percent

Question 15

Based on the period 1926-2016,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. 
A)  0.0 percent. 
B)  1.2 percent. 
C)  2.0 percent. 
D)  2.4 percent. 
E)  2.7 percent.

Question 16

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)  $26,766 
A)  $23,989 
B)  $24,472 
C)  $26,409 
D)  $26,514 
E)  $26,766

Question 17

When the total return on an investment is expressed on a per-year basis it is called the:

Accepted Answer

A)  capital gains yield. 
B)  dividend yield. 
C)  holding period return. 
D)  effective annual return. 
E)  initial return. 
A)  capital gains yield. 
B)  dividend yield. 
C)  holding period return. 
D)  effective annual return. 
E)  initial return.

Question 18

Based on the period of 1926-2015,the risk premium for small-company stocks averaged:

Accepted Answer

A)  12.3 percent. 
B)  13.9 percent. 
C)  15.0 percent. 
D)  16.8 percent. 
E)  17.4 percent. 
A)  12.3 percent. 
B)  13.9 percent. 
C)  15.0 percent. 
D)  16.8 percent. 
E)  17.4 percent.

Question 19

Big Town Markets common stock returned 13.8,14.2,9.7,5.3,and 12.2 percent,respectively,over the past five years.What is the arithmetic average return?

Accepted Answer

A)  10.99 percent 
B)  11.04 percent 
C)  11.56 percent 
D)  12.20 percent 
E)  13.80 percent 
A)  10.99 percent 
B)  11.04 percent 
C)  11.56 percent 
D)  12.20 percent 
E)  13.80 percent

Question 20

A stock has an average historical return of 11.3 percent and a standard deviation of 20.2 percent.Which range of returns would you expect to see approximately two-thirds of the time?

Accepted Answer

A)  -23.8 to + 53.0 percent 
B)  +4.6 to + 33.8 percent 
C)  +5.8 to + 31.6 percent 
D)  -3.9 to + 32.5 percent 
E)  -8.9 to + 31.5 percent 
A)  -23.8 to + 53.0 percent 
B)  +4.6 to + 33.8 percent 
C)  +5.8 to + 31.6 percent 
D)  -3.9 to + 32.5 percent 
E)  -8.9 to + 31.5 percent

Capital gains are included in the return on an investment:

An asset has an average annual historical return of 11.6 percent and a standard deviation of 17.8 percent.What range of returns would you expect to see 95 percent of the time?

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?

Which one of the following statements is correct?

The risk-free rate is:

Which one of the following had the highest average return for the period 1926-2016?

The geometric mean return on large-company stocks for the 1926-2015 period:

A stock produced annual returns of 8.5,-18,15,17,and 12 percent over the past five years,respectively.What is the geometric average return?

One year ago,you purchased 300 shares of Southern Cotton at $32.60 a share.During the past year,you received a total of $280 in dividends.Today,you sold your shares for $35.80 a share.What is your total return on this investment?

Which category(ies)of investments had an annual rate of return that exceeded 100 percent for at least one year during the period 1926-2016?

The geometric return on a stock over the past 10 years was 7.9 percent.The arithmetic return over the same period was 8.8 percent.What is the best estimate of the average return on this stock over the next 5 years?

An asset had returns of 7.7,5.4,3.6,-4.2,and -1.3 percent,respectively,over the past five years.What is the variance of these returns?

Jack owned a stock for five months and earned an annualized rate of return of 6 percent.What was the holding period return?

Based on the period 1926-2016,the risk premium for U.S.Treasury bills was:

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?

When the total return on an investment is expressed on a per-year basis it is called the:

Based on the period of 1926-2015,the risk premium for small-company stocks averaged:

Big Town Markets common stock returned 13.8,14.2,9.7,5.3,and 12.2 percent,respectively,over the past five years.What is the arithmetic average return?

A stock has an average historical return of 11.3 percent and a standard deviation of 20.2 percent.Which range of returns would you expect to see approximately two-thirds of the time?

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 1: A Brief History of Risk and Return

Capital gains are included in the return on an investment:

An asset has an average annual historical return of 11.6 percent and a standard deviation of 17.8 percent.What range of returns would you expect to see 95 percent of the time?

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?

Which one of the following statements is correct?

The risk-free rate is:

Which one of the following had the highest average return for the period 1926-2016?

The geometric mean return on large-company stocks for the 1926-2015 period:

A stock produced annual returns of 8.5,-18,15,17,and 12 percent over the past five years,respectively.What is the geometric average return?

One year ago,you purchased 300 shares of Southern Cotton at $32.60 a share.During the past year,you received a total of $280 in dividends.Today,you sold your shares for $35.80 a share.What is your total return on this investment?

Which category(ies)of investments had an annual rate of return that exceeded 100 percent for at least one year during the period 1926-2016?

The geometric return on a stock over the past 10 years was 7.9 percent.The arithmetic return over the same period was 8.8 percent.What is the best estimate of the average return on this stock over the next 5 years?

An asset had returns of 7.7,5.4,3.6,-4.2,and -1.3 percent,respectively,over the past five years.What is the variance of these returns?

Jack owned a stock for five months and earned an annualized rate of return of 6 percent.What was the holding period return?

Based on the period 1926-2016,the risk premium for U.S.Treasury bills was:

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?

When the total return on an investment is expressed on a per-year basis it is called the:

Based on the period of 1926-2015,the risk premium for small-company stocks averaged:

Big Town Markets common stock returned 13.8,14.2,9.7,5.3,and 12.2 percent,respectively,over the past five years.What is the arithmetic average return?

A stock has an average historical return of 11.3 percent and a standard deviation of 20.2 percent.Which range of returns would you expect to see approximately two-thirds of the time?

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters