Question 1

Capital gains yield is equal to:

Accepted Answer

A)  (Pt - Pt + 1)/Pt + 1 
B)  Dt + 1/Pt 
C)  (Pt + 1 - Pt)/Pt 
D)  (Pt - Pt + 1)/Pt 
E)  Pt/(Pt + 1 - Pt) 
A)  (Pt - Pt + 1)/Pt + 1 
B)  Dt + 1/Pt 
C)  (Pt + 1 - Pt)/Pt 
D)  (Pt - Pt + 1)/Pt 
E)  Pt/(Pt + 1 - Pt) C

Question 2

You find a stock with returns of 14.2%, - 10.1%, 8.7%, 29.7%, and 18.2%. The risk-free rate over this period was 6.4%, 6.8%, 5.2%, 4.4% and 5.3%. What was the standard deviation of the risk premium?

Accepted Answer

A)  10.59% 
B)  11.86% 
C)  13.16% 
D)  14.02% 
E)  15.41% 
A)  10.59% 
B)  11.86% 
C)  13.16% 
D)  14.02% 
E)  15.41% E

Question 3

Tom decides to begin investing some portion of his annual bonus, beginning this year with $5,000. In the first year he earns a 10% return and adds $3,500 to his investment. In the second his portfolio loses 5% but, sticking to his plan, he adds $500 to his portfolio. In this year his portfolio returns 2%. What is Tom's dollar-weighted average return on his investments?

Accepted Answer

A)  0.34% 
B)  1.02% 
C)  1.54% 
D)  2.23% 
E)  2.58% 
A)  0.34% 
B)  1.02% 
C)  1.54% 
D)  2.23% 
E)  2.58% B

Question 4

An asset had returns of 14%, 26%, - 13%, 8%, and 12% over the past five years. What was the standard deviation of the returns?

Accepted Answer

A)  11.34% 
B)  12.70% 
C)  14.21% 
D)  16.22% 
E)  18.74% 
A)  11.34% 
B)  12.70% 
C)  14.21% 
D)  16.22% 
E)  18.74%

Question 5

The risk premium for risky stocks is the stock return:

Accepted Answer

A)  Minus the risk-free rate. 
B)  Minus the large company stock return. 
C)  Minus the long-term corporate bond return. 
D)  Plus the risk-free rate. 
E)  Plus the large company stock return. 
A)  Minus the risk-free rate. 
B)  Minus the large company stock return. 
C)  Minus the long-term corporate bond return. 
D)  Plus the risk-free rate. 
E)  Plus the large company stock return.

Question 6

The dollar-weighted average return is measured by calculating the:

Accepted Answer

A)  geometric average return 
B)  internal rate of rate 
C)  annual compounded average return. 
D)  arithmetic average return. 
E)  percentage return. 
A)  geometric average return 
B)  internal rate of rate 
C)  annual compounded average return. 
D)  arithmetic average return. 
E)  percentage return.

Question 7

Historically, stocks have outperformed bonds. Given this, why do investors still purchase bonds?

Accepted Answer

Bonds provide a steady stream of income

Question 8

A portfolio had a value of $50,000 ten years ago. If the average annual arithmetic return was 10.2 percent, what is the ending value of the portfolio?

Accepted Answer

A)  $120,406 
B)  $126,532 
C)  $132,064 
D)  $138,846 
E)  Insufficient information. 
A)  $120,406 
B)  $126,532 
C)  $132,064 
D)  $138,846 
E)  Insufficient information.

Question 9

A stock had returns of 8 percent, - 6 percent, 18 percent and 27 percent over the past four years. What was the geometric return?

Accepted Answer

A)  10.31% 
B)  10.67% 
C)  11.06% 
D)  11.43% 
E)  11.75% 
A)  10.31% 
B)  10.67% 
C)  11.06% 
D)  11.43% 
E)  11.75%

Question 10

Which one of the following had the highest risk premium for the period 1926-2009?

Accepted Answer

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

Question 11

The risk premium is defined as the rate of return on

Accepted Answer

A)  A risky asset minus the inflation rate 
B)  The overall market 
C)  A Treasury bill 
D)  A risky asset minus the risk-free rate 
E)  A risk-less investment 
A)  A risky asset minus the inflation rate 
B)  The overall market 
C)  A Treasury bill 
D)  A risky asset minus the risk-free rate 
E)  A risk-less investment

Question 12

In Canada, the average historic return on ____________ has been slightly higher than the average historic inflation rate.

Accepted Answer

A)  Large company stocks 
B)  Treasury bills 
C)  Long-term government bonds 
D)  Long-term corporate bonds 
E)  Small company stocks 
A)  Large company stocks 
B)  Treasury bills 
C)  Long-term government bonds 
D)  Long-term corporate bonds 
E)  Small company stocks

Question 13

Returns that have been adjusted for inflation are called:

Accepted Answer

A)  Nominal returns 
B)  Holding period returns 
C)  Total dollar returns 
D)  Effective returns 
E)  Real returns 
A)  Nominal returns 
B)  Holding period returns 
C)  Total dollar returns 
D)  Effective returns 
E)  Real returns

Question 14

The variance measures the:

Accepted Answer

A)  Total difference between the actual returns and the average returns 
B)  Average difference between the actual squared returns and the risk-free returns 
C)  Average squared difference between the actual returns and the risk-free returns 
D)  Total difference between the average returns and the risk-free returns 
E)  Average squared difference between the actual and the average returns 
A)  Total difference between the actual returns and the average returns 
B)  Average difference between the actual squared returns and the risk-free returns 
C)  Average squared difference between the actual returns and the risk-free returns 
D)  Total difference between the average returns and the risk-free returns 
E)  Average squared difference between the actual and the average returns

Question 15

A major difference between dividends and capital gains is that:

Accepted Answer

A)  Capital gains are always positive. 
B)  Capital gains affect the total return while dividends do not. 
C)  Capital gains are in increase in stock price while dividends are cash payments to stockholders. 
D)  Dividends affect the total return while capital gains do not. 
E)  Capital gains are only accounted for on an annual basis while dividends are accounted for when paid. 
A)  Capital gains are always positive. 
B)  Capital gains affect the total return while dividends do not. 
C)  Capital gains are in increase in stock price while dividends are cash payments to stockholders. 
D)  Dividends affect the total return while capital gains do not. 
E)  Capital gains are only accounted for on an annual basis while dividends are accounted for when paid.

Question 16

An asset had returns of 14%, 26%, - 13%, 8%, and 12% over the past five years. What was the arithmetic average return of the asset?

Accepted Answer

A)  8.94% 
B)  9.40% 
C)  10.05% 
D)  10.63% 
E)  11.75% 
A)  8.94% 
B)  9.40% 
C)  10.05% 
D)  10.63% 
E)  11.75%

Question 17

Historically, T-bills as an asset class have had a ___________ level of risk and ___________ return compared to large-company stocks.

Accepted Answer

A)  High; high 
B)  High; low 
C)  Low; high 
D)  Low; low 
E)  Zero; zero 
A)  High; high 
B)  High; low 
C)  Low; high 
D)  Low; low 
E)  Zero; zero

Question 18

Rate of return is expressed on a ____________ basis.

Accepted Answer

A)  Percentage 
B)  Increase 
C)  Equity 
D)  Absolute 
E)  Gain 
A)  Percentage 
B)  Increase 
C)  Equity 
D)  Absolute 
E)  Gain

Question 19

Some investors would avoid investing in small capitalization stocks because:

Accepted Answer

A)  Of the historically low risk premium. 
B)  Of their volatility. 
C)  They do not provide an adequate return. 
D)  Their historic return is about the same as the historic rate of inflation. 
E)  Investors prefer assets that are non-financial. 
A)  Of the historically low risk premium. 
B)  Of their volatility. 
C)  They do not provide an adequate return. 
D)  Their historic return is about the same as the historic rate of inflation. 
E)  Investors prefer assets that are non-financial.

Question 20

The total dollar return on an equity investment is defined as:

Accepted Answer

A)  All cash flows and gains from an investment, excluding any losses. 
B)  All cash inflows such as dividends and capital gains or losses. 
C)  The increase in the price of an asset. 
D)  Capital gains received. 
E)  Only the capital gains received, not including capital gains not realized. 
A)  All cash flows and gains from an investment, excluding any losses. 
B)  All cash inflows such as dividends and capital gains or losses. 
C)  The increase in the price of an asset. 
D)  Capital gains received. 
E)  Only the capital gains received, not including capital gains not realized.

Capital gains yield is equal to:

You find a stock with returns of 14.2%, - 10.1%, 8.7%, 29.7%, and 18.2%. The risk-free rate over this period was 6.4%, 6.8%, 5.2%, 4.4% and 5.3%. What was the standard deviation of the risk premium?

An asset had returns of 14%, 26%, - 13%, 8%, and 12% over the past five years. What was the standard deviation of the returns?

The risk premium for risky stocks is the stock return:

The dollar-weighted average return is measured by calculating the:

Historically, stocks have outperformed bonds. Given this, why do investors still purchase bonds?

A portfolio had a value of $50,000 ten years ago. If the average annual arithmetic return was 10.2 percent, what is the ending value of the portfolio?

A stock had returns of 8 percent, - 6 percent, 18 percent and 27 percent over the past four years. What was the geometric return?

Which one of the following had the highest risk premium for the period 1926-2009?

The risk premium is defined as the rate of return on

In Canada, the average historic return on ____________ has been slightly higher than the average historic inflation rate.

Returns that have been adjusted for inflation are called:

The variance measures the:

A major difference between dividends and capital gains is that:

An asset had returns of 14%, 26%, - 13%, 8%, and 12% over the past five years. What was the arithmetic average return of the asset?

Historically, T-bills as an asset class have had a _ level of risk and _ return compared to large-company stocks.

Rate of return is expressed on a ____________ basis.

Some investors would avoid investing in small capitalization stocks because:

The total dollar return on an equity investment is defined as:

Diversification and Risky Asset Allocation

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behaviour and Market Efficiency

Behavioural Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return, Risk and Security Management

Performance Evaluation and Risk Management

Options

Option Valuation

Futures Contracts

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds and Mortgaged-Backed Securities

International Portfolio Investment

Filters

Exam 1: A Brief History of Risk and Return

Capital gains yield is equal to:

You find a stock with returns of 14.2%, - 10.1%, 8.7%, 29.7%, and 18.2%. The risk-free rate over this period was 6.4%, 6.8%, 5.2%, 4.4% and 5.3%. What was the standard deviation of the risk premium?

An asset had returns of 14%, 26%, - 13%, 8%, and 12% over the past five years. What was the standard deviation of the returns?

The risk premium for risky stocks is the stock return:

The dollar-weighted average return is measured by calculating the:

Historically, stocks have outperformed bonds. Given this, why do investors still purchase bonds?

A portfolio had a value of $50,000 ten years ago. If the average annual arithmetic return was 10.2 percent, what is the ending value of the portfolio?

A stock had returns of 8 percent, - 6 percent, 18 percent and 27 percent over the past four years. What was the geometric return?

Which one of the following had the highest risk premium for the period 1926-2009?

The risk premium is defined as the rate of return on

In Canada, the average historic return on ____________ has been slightly higher than the average historic inflation rate.

Returns that have been adjusted for inflation are called:

The variance measures the:

A major difference between dividends and capital gains is that:

An asset had returns of 14%, 26%, - 13%, 8%, and 12% over the past five years. What was the arithmetic average return of the asset?

Historically, T-bills as an asset class have had a ___________ level of risk and ___________ return compared to large-company stocks.

Rate of return is expressed on a ____________ basis.

Some investors would avoid investing in small capitalization stocks because:

The total dollar return on an equity investment is defined as:

Diversification and Risky Asset Allocation

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behaviour and Market Efficiency

Behavioural Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return, Risk and Security Management

Performance Evaluation and Risk Management

Options

Option Valuation

Futures Contracts

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds and Mortgaged-Backed Securities

International Portfolio Investment

Filters

Historically, T-bills as an asset class have had a _ level of risk and _ return compared to large-company stocks.