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

What is the typical relationship between the standard deviation of an individual common stock and the standard deviation of a diversified portfolio of common stocks?

Sector funds invest in the broad market index.

In a year in which common stocks offered an average return of 18%,Treasury bonds offered 10% and Treasury bills offered 7%,the risk premium for common stocks was:

A common stock is held for 2 years,during which time it receives an annual dividend of $20.The stock was sold for $100 and generated an average annual return of 32%.What price was paid for the stock?

In addition to the number of stocks represented,a difference between the S&P 500 and the Dow is that the S&P 500:

Calculate the nominal and real returns for the following corporate bond investment: Purchased for $840 one year ago,4% coupon rate,sold for $894.The inflation rate was 5.0% during the year.Would you consider this an appropriate investment if Treasury bills had yielded 6.0% over the same period?

The primary difference between U.S.Treasury bills and U.S.Treasury bonds is that the bills:

For investment horizons greater than 20 years,long-term corporate bonds traditionally have outperformed common stocks.

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

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.

What is the percentage return on a stock that was purchased for $50.00,paid a $3.00 dividend after one year,and was then sold for $49.00?

The benefits of portfolio diversification are highest when the individual securities have returns that:

What is the difference between unique risk,which can be diversified away,and market risk,which cannot?

The expected return on an investment provides compensation to investors both for waiting and for worrying.

From a historical perspective (1900-2007),what would you expect to be the approximate return on a diversified portfolio of common stocks in a year that Treasury bills offered 7.5%?

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

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

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

How can you estimate the opportunity cost of capital for an "average-risk" project?

Investors who had bought at the stock market peak in March 2000 would have seen little but falling stock prices over the next two-and-a-half years.