Question 1

A particular stock had year-end prices of $45, $43, $54, and $61 over the past four years, respectively. What was the arithmetic average return of the stock?

Accepted Answer

A)  7.90% 
B)  8.52% 
C)  10.04% 
D)  10.67% 
E)  11.37% 
A)  7.90% 
B)  8.52% 
C)  10.04% 
D)  10.67% 
E)  11.37%

Question 2

You own a stock that dropped in price from $86.50 to $79.12. The dividend yield was 1.8 percent. What was your total return?

Accepted Answer

A)  - 7.53% 
B)  - 6.73% 
C)  - 6.05% 
D)  - 5.48% 
E)  - 5.09% 
A)  - 7.53% 
B)  - 6.73% 
C)  - 6.05% 
D)  - 5.48% 
E)  - 5.09%

Question 3

You purchased a stock at the beginning of the year for $80.25. Your total return for the year was 10.2%, and the stock had a dividend yield of 1.8%. What was the end of year stock price?

Accepted Answer

A)  $84.73 
B)  $85.02 
C)  $86.99 
D)  $88.44 
E)  $89.56 
A)  $84.73 
B)  $85.02 
C)  $86.99 
D)  $88.44 
E)  $89.56

Question 4

A company whose has 1,000,000 shares and a current stock price of $15.67 would have a market capitalization of:

Accepted Answer

A)  $6,380,000 
B)  6.38% 
C)  15.67% 
D)  $15,670,000 
E)  $1,000,000 
A)  $6,380,000 
B)  6.38% 
C)  15.67% 
D)  $15,670,000 
E)  $1,000,000

Question 5

To annualize a two-year holding-period-return, you need to assume that:

Accepted Answer

A)  All cash receipts in the first year are ignored in the calculation 
B)  All cash receipts in the first year are reinvested 
C)  The arithmetic average will be smaller than the geometric average 
D)  There are no outliners in the returns 
E)  Nothing 
A)  All cash receipts in the first year are ignored in the calculation 
B)  All cash receipts in the first year are reinvested 
C)  The arithmetic average will be smaller than the geometric average 
D)  There are no outliners in the returns 
E)  Nothing

Question 6

An asset has annual returns of 11 percent, 17 percent, - 21 percent, 3 percent and 18 percent. What is the variance?

Accepted Answer

A)  .01210 
B)  .01329 
C)  .02568 
D)  .02748 
E)  .01964 
A)  .01210 
B)  .01329 
C)  .02568 
D)  .02748 
E)  .01964

Question 7

You plan to buy a stock and hold it for one year. You expect the stock price to be $68 per share in one year, and the stock will pay an annual dividend of $1.25. If you want a 14 percent return, what is the maximum amount you are willing to pay for the stock today?

Accepted Answer

A)  $58.32 
B)  $59.65 
C)  $60.75 
D)  $62.12 
E)  $68.00 
A)  $58.32 
B)  $59.65 
C)  $60.75 
D)  $62.12 
E)  $68.00

Question 8

You have an asset that has an arithmetic average return of 10.9 percent over the past five years. The annual returns for four years were 8%, 16%, - 9%, and 13%. What was the asset's return for the fifth year?

Accepted Answer

A)  15.6% 
B)  17.8% 
C)  20.7% 
D)  22.8% 
E)  26.5% 
A)  15.6% 
B)  17.8% 
C)  20.7% 
D)  22.8% 
E)  26.5%

Question 9

The geometric return on a stock over the past 15 years has been 9.3%. The arithmetic return over the same period was 11.1%. What is the best estimate of the return on this stock over the next 10 years?

Accepted Answer

A)  11.04% 
B)  10.20% 
C)  9.94% 
D)  10.61% 
E)  11.87% 
A)  11.04% 
B)  10.20% 
C)  9.94% 
D)  10.61% 
E)  11.87%

Question 10

The risk-free rate that is paid as compensation for waiting is referred to as the:

Accepted Answer

A)  Time value of money 
B)  Real rate of return 
C)  Total dollar return 
D)  Average real return 
E)  Financial reward 
A)  Time value of money 
B)  Real rate of return 
C)  Total dollar return 
D)  Average real return 
E)  Financial reward

Question 11

The reward for bearing risk is known as the:

Accepted Answer

A)  Excess return. 
B)  Volatility. 
C)  Geometric premium. 
D)  Risk premium. 
E)  Dividend yield. 
A)  Excess return. 
B)  Volatility. 
C)  Geometric premium. 
D)  Risk premium. 
E)  Dividend yield.

Question 12

While you purchased a zero-coupon bond at $30.85 two years, you were lucky enough to sell the bond at $43.57 yesterday. What was your annualized return?

Accepted Answer

A)  9.19% 
B)  21.62% 
C)  37.12% 
D)  41.23% 
E)  18.84% 
A)  9.19% 
B)  21.62% 
C)  37.12% 
D)  41.23% 
E)  18.84%

Question 13

Which of the following is more appealing? Why?
Stock X bought at $34 a share and sold for $36 in three months.
Stock Y bought at $120 a share and sold for $130 in six months.
No dividend is paid for either stock.

Accepted Answer

A)  Y as it has a higher holding period percentage return 
B)  X because of the lower investment cost 
C)  X due to its higher effective annual return 
D)  Y since it provides a better dollar return 
E)  X and Y are equally attractive 
A)  Y as it has a higher holding period percentage return 
B)  X because of the lower investment cost 
C)  X due to its higher effective annual return 
D)  Y since it provides a better dollar return 
E)  X and Y are equally attractive

Question 14

The historic risk premium for equities in Canada, from 1900 to 2005, is:

Accepted Answer

A)  7.41% 
B)  7.54% 
C)  5.88% 
D)  16.71% 
E)  11.7% 
A)  7.41% 
B)  7.54% 
C)  5.88% 
D)  16.71% 
E)  11.7%

Question 15

The average compound return earned per year over a multiyear period when inflows and outflows are considered is called the:

Accepted Answer

A)  total return 
B)  average capital gains yield 
C)  dollar-weighted average return. 
D)  arithmetic average return. 
E)  Percentage return. 
A)  total return 
B)  average capital gains yield 
C)  dollar-weighted average return. 
D)  arithmetic average return. 
E)  Percentage return.

Question 16

Which of the following is false?

Accepted Answer

A)  Risky assets have a risk premium on average. 
B)  In general, the greater the risk, the greater the return. 
C)  Standard deviation is a commonly used measure of risk. 
D)  Risk and return have historically exhibited a direct relationship. 
E)  None of the above. 
A)  Risky assets have a risk premium on average. 
B)  In general, the greater the risk, the greater the return. 
C)  Standard deviation is a commonly used measure of risk. 
D)  Risk and return have historically exhibited a direct relationship. 
E)  None of the above.

Question 17

When we refer to the rate of return on an investment, we are generally referring to the:

Accepted Answer

A)  capital gains yield 
B)  effective annual rate of return. 
C)  total percentage return. 
D)  dividend yield. 
E)  annualized dividend yield. 
A)  capital gains yield 
B)  effective annual rate of return. 
C)  total percentage return. 
D)  dividend yield. 
E)  annualized dividend yield.

Question 18

An asset has annual returns of 11 percent, 17 percent, - 21 percent, 3 percent and 18 percent. What is the standard deviation?

Accepted Answer

A)  11.05% 
B)  12.30% 
C)  14.31% 
D)  15.12% 
E)  16.02% 
A)  11.05% 
B)  12.30% 
C)  14.31% 
D)  15.12% 
E)  16.02%

Question 19

The asset commonly used as the risk-free asset is:

Accepted Answer

A)  Small company stocks. 
B)  Gold. 
C)  The Consumer Price Index. 
D)  Long-term corporate bonds. 
E)  Treasury bills. 
A)  Small company stocks. 
B)  Gold. 
C)  The Consumer Price Index. 
D)  Long-term corporate bonds. 
E)  Treasury bills.

Question 20

You know that historically small capitalization stocks have provided the highest average return. Given this fact, why doesn't everyone invest in small stocks?

Accepted Answer

A good answer would explain the risk-ret

A particular stock had year-end prices of $45, $43, $54, and $61 over the past four years, respectively. What was the arithmetic average return of the stock?

You own a stock that dropped in price from $86.50 to $79.12. The dividend yield was 1.8 percent. What was your total return?

You purchased a stock at the beginning of the year for $80.25. Your total return for the year was 10.2%, and the stock had a dividend yield of 1.8%. What was the end of year stock price?

A company whose has 1,000,000 shares and a current stock price of $15.67 would have a market capitalization of:

To annualize a two-year holding-period-return, you need to assume that:

An asset has annual returns of 11 percent, 17 percent, - 21 percent, 3 percent and 18 percent. What is the variance?

You plan to buy a stock and hold it for one year. You expect the stock price to be $68 per share in one year, and the stock will pay an annual dividend of $1.25. If you want a 14 percent return, what is the maximum amount you are willing to pay for the stock today?

You have an asset that has an arithmetic average return of 10.9 percent over the past five years. The annual returns for four years were 8%, 16%, - 9%, and 13%. What was the asset's return for the fifth year?

The geometric return on a stock over the past 15 years has been 9.3%. The arithmetic return over the same period was 11.1%. What is the best estimate of the return on this stock over the next 10 years?

The risk-free rate that is paid as compensation for waiting is referred to as the:

The reward for bearing risk is known as the:

While you purchased a zero-coupon bond at $30.85 two years, you were lucky enough to sell the bond at $43.57 yesterday. What was your annualized return?

Which of the following is more appealing? Why? Stock X bought at $34 a share and sold for $36 in three months. Stock Y bought at $120 a share and sold for $130 in six months. No dividend is paid for either stock.

The historic risk premium for equities in Canada, from 1900 to 2005, is:

The average compound return earned per year over a multiyear period when inflows and outflows are considered is called the:

Which of the following is false?

When we refer to the rate of return on an investment, we are generally referring to the:

An asset has annual returns of 11 percent, 17 percent, - 21 percent, 3 percent and 18 percent. What is the standard deviation?

The asset commonly used as the risk-free asset is:

You know that historically small capitalization stocks have provided the highest average return. Given this fact, why doesn't everyone invest in small stocks?

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

A particular stock had year-end prices of $45, $43, $54, and $61 over the past four years, respectively. What was the arithmetic average return of the stock?

You own a stock that dropped in price from $86.50 to $79.12. The dividend yield was 1.8 percent. What was your total return?

You purchased a stock at the beginning of the year for $80.25. Your total return for the year was 10.2%, and the stock had a dividend yield of 1.8%. What was the end of year stock price?

A company whose has 1,000,000 shares and a current stock price of $15.67 would have a market capitalization of:

To annualize a two-year holding-period-return, you need to assume that:

An asset has annual returns of 11 percent, 17 percent, - 21 percent, 3 percent and 18 percent. What is the variance?

You plan to buy a stock and hold it for one year. You expect the stock price to be $68 per share in one year, and the stock will pay an annual dividend of $1.25. If you want a 14 percent return, what is the maximum amount you are willing to pay for the stock today?

You have an asset that has an arithmetic average return of 10.9 percent over the past five years. The annual returns for four years were 8%, 16%, - 9%, and 13%. What was the asset's return for the fifth year?

The geometric return on a stock over the past 15 years has been 9.3%. The arithmetic return over the same period was 11.1%. What is the best estimate of the return on this stock over the next 10 years?

The risk-free rate that is paid as compensation for waiting is referred to as the:

The reward for bearing risk is known as the:

While you purchased a zero-coupon bond at $30.85 two years, you were lucky enough to sell the bond at $43.57 yesterday. What was your annualized return?

Which of the following is more appealing? Why? Stock X bought at $34 a share and sold for $36 in three months. Stock Y bought at $120 a share and sold for $130 in six months. No dividend is paid for either stock.

The historic risk premium for equities in Canada, from 1900 to 2005, is:

The average compound return earned per year over a multiyear period when inflows and outflows are considered is called the:

Which of the following is false?

When we refer to the rate of return on an investment, we are generally referring to the:

An asset has annual returns of 11 percent, 17 percent, - 21 percent, 3 percent and 18 percent. What is the standard deviation?

The asset commonly used as the risk-free asset is:

You know that historically small capitalization stocks have provided the highest average return. Given this fact, why doesn't everyone invest in small stocks?

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