Exam 5: Risk, Return, and the Historical Record

You have been given this probability distribution for the holding-period return for a stock: Stock of the Economy Probability HPR Boom 0.40 22\% Normal growth 0.35 11\% Recession 0.25 -9\% What is the expected variance for the stock?

If the annual real rate of interest is 2.5%, and the expected inflation rate is 3.7%, the nominal rate of interest would be approximately

________ is a risk measure that indicates vulnerability to extreme negative returns.

You have been given this probability distribution for the holding-period return for Cheese, Inc. stock: Stock of the Economy Probability HPR Boom 0.20 24\% Normal growth 0.45 15\% Recession 0.35 8\% Assuming that the expected return on Cheese's stock is 14.35%, what is the standard deviation of these returns?

Toyota stock has the following probability distribution of expected prices one year from now: State Probability Price 1 25\% \ 50 2 40\% \ 60 3 35\% \ 70 If you buy Toyota today for $55 and it will pay a dividend during the year of $4 per share, what is your expected holding-period return on Toyota?

You purchased a share of CSCO stock for $20. One year later, you received $2 as a dividend and sold the share for $31. What was your holding-period return?

Historical records regarding return on stocks, Treasury bonds, and Treasury bills between 1926 and 2015 show That

When assessing tail risk by looking at the 5% worst-case scenario, the VaR is the

When comparing investments with different horizons, the ____________ provides the more accurate comparison.

If a portfolio had a return of 11%, the risk-free asset return was 6%, and the standard deviation of the portfolio's excess returns was 25%, the risk premium would be

The holding-period return (HPR) for a stock is equal to

If the annual real rate of interest is 3.5%, and the expected inflation rate is 2.5%, the nominal rate of interest would be approximately

You purchased a share of stock for $68. One year later, you received $3.00 as a dividend and sold the share for $74.50. What was your holding-period return?

When assessing tail risk by looking at the 5% worst-case scenario, the most realistic view of downside exposure would be

Which of the following statement(s) is(are) true?

You have been given this probability distribution for the holding-period return for KMP stock: Stock of the Economy Probability HPR Boom 0.30 18\% Normal growth 0.50 12\% Recession 0.20 -5\% What is the expected variance for KMP stock?

A year ago, you invested $1,000 in a savings account that pays an annual interest rate of 6%. What is your approximate annual real rate of return if the rate of inflation was 2% over the year?

You purchased a share of stock for $65. One year later, you received $2.37 as a dividend and sold the share for $63. What was your holding-period return?

Which of the following statement(s) is(are) true? I) The real rate of interest is determined by the supply and demand for funds. II. The real rate of interest is determined by the expected rate of inflation. III. The real rate of interest can be affected by actions of the Fed. IV. The real rate of interest is equal to the nominal interest rate plus the expected rate of inflation.

________ is a risk measure that indicates vulnerability to extreme negative returns.