Question 1

Historically, the higher the risk premium, the ___________ the average return and the ___________ the standard deviation of the returns.

Accepted Answer

A)  Lower; lower 
B)  Lower; higher 
C)  Higher; higher 
D)  Higher; lower 
E)  There is no relationship between the risk premium and the average return 
A)  Lower; lower 
B)  Lower; higher 
C)  Higher; higher 
D)  Higher; lower 
E)  There is no relationship between the risk premium and the average return

Question 2

You invested $20,000 eight years ago. With a geometric average return of 12.2 percent per year, what was your ending portfolio value?

Accepted Answer

A)  $47,043 
B)  $48,162 
C)  $50,231 
D)  $52,406 
E)  $54,693 
A)  $47,043 
B)  $48,162 
C)  $50,231 
D)  $52,406 
E)  $54,693

Question 3

The value that is equal to the ending price of a security minus the beginning price is called the:

Accepted Answer

A)  Geometric return. 
B)  Negative dividend. 
C)  risk premium. 
D)  capital gain or loss. 
E)  Percentage return. 
A)  Geometric return. 
B)  Negative dividend. 
C)  risk premium. 
D)  capital gain or loss. 
E)  Percentage return.

Question 4

Which of the following is true regarding capital gains?

Accepted Answer

A)  Gains must be included whenever they occur regardless the status of the investment 
B)  Gains have to be computed on an annual basis 
C)  Gains are only included when they are realized at the time the investment is sold 
D)  Both (
A)  and (
B)  
E)  Both (
B)  and (
C)  
A)  Gains must be included whenever they occur regardless the status of the investment 
B)  Gains have to be computed on an annual basis 
C)  Gains are only included when they are realized at the time the investment is sold 
D)  Both (
A)  and (
B)  
E)  Both (
B)  and (
C)

Question 5

A stock had a price at the beginning of the year of $48.20. The end of year stock price was $43.12 and your total return was - 8.15%. What dividend did the stock pay during the year?

Accepted Answer

A)  $0.87 
B)  $0.96 
C)  $1.09 
D)  $1.15 
E)  $1.23 
A)  $0.87 
B)  $0.96 
C)  $1.09 
D)  $1.15 
E)  $1.23

Question 6

What are the two most important lessons from capital market history?

Accepted Answer

First, risky assets earn a ris

Question 7

Why is the rate of return on a risk free asset considered to represent the "time value of money"?

Accepted Answer

A)  It represents the return for forgoing the use of our money without bearing risk. 
B)  It has an efficient risk premium when compared to other risk free investments. 
C)  The yield of the risk free investment increases proportionally with time. 
D)  The money from the return from your investment won't be created until the future. 
E)  It represents the minimum amount of time necessary to have the asset become risk free. 
A)  It represents the return for forgoing the use of our money without bearing risk. 
B)  It has an efficient risk premium when compared to other risk free investments. 
C)  The yield of the risk free investment increases proportionally with time. 
D)  The money from the return from your investment won't be created until the future. 
E)  It represents the minimum amount of time necessary to have the asset become risk free.

Question 8

You have the returns for a stock over the last twenty years. Assuming the returns are different each year, you know:

Accepted Answer

A)  the arithmetic return will always be larger. 
B)  the geometric return will always be larger. 
C)  the arithmetic return will be larger if there are no negative returns. 
D)  the geometric return will be larger if there are no negative returns. 
E)  it is uncertain whether the arithmetic or geometric return will be larger. 
A)  the arithmetic return will always be larger. 
B)  the geometric return will always be larger. 
C)  the arithmetic return will be larger if there are no negative returns. 
D)  the geometric return will be larger if there are no negative returns. 
E)  it is uncertain whether the arithmetic or geometric return will be larger.

Question 9

It is important to account for capital gains:

Accepted Answer

A)  On an annual basis. 
B)  Whenever the asset is sold and the capital gain is realized. 
C)  Whenever dividends are paid. 
D)  Whenever they occur, whether or not the asset is sold. 
E)  If the asset incurs a loss in value. 
A)  On an annual basis. 
B)  Whenever the asset is sold and the capital gain is realized. 
C)  Whenever dividends are paid. 
D)  Whenever they occur, whether or not the asset is sold. 
E)  If the asset incurs a loss in value.

Question 10

A stock has varying annual rates of return over a 10-year period and a positive geometric average return for the same period. Given this, you know the arithmetic return will be:

Accepted Answer

A)  Positive but less than the geometric average return 
B)  Less than the geometric return and can be negative, zero or positive 
C)  Equal to the geometric average return 
D)  Either equal to or greater than the geometric average return 
E)  Greater than the geometric average return 
A)  Positive but less than the geometric average return 
B)  Less than the geometric return and can be negative, zero or positive 
C)  Equal to the geometric average return 
D)  Either equal to or greater than the geometric average return 
E)  Greater than the geometric average return

Question 11

The fact that higher returns are associated with higher standard deviation is known as the:

Accepted Answer

A)  Real return factor 
B)  Geometric relationship 
C)  Risk-return tradeoff 
D)  Market variance 
E)  Market capitalization 
A)  Real return factor 
B)  Geometric relationship 
C)  Risk-return tradeoff 
D)  Market variance 
E)  Market capitalization

Question 12

In the last 25 years, US large-company stocks historically produced ____________ returns compared with the Canadian counterparts.

Accepted Answer

A)  Substantially higher 
B)  Marginally higher 
C)  Identical 
D)  Much lower 
E)  Slightly lower 
A)  Substantially higher 
B)  Marginally higher 
C)  Identical 
D)  Much lower 
E)  Slightly lower

Question 13

You purchased 100 shares of a stock at the beginning of the year for $43.20 per share. The share price at the end of the year is $46.10 and the stock paid an annual dividend of $1.10 per share. What was your total percentage return for the year?

Accepted Answer

A)  7.16% 
B)  7.73% 
C)  8.68% 
D)  9.26% 
E)  10.39% 
A)  7.16% 
B)  7.73% 
C)  8.68% 
D)  9.26% 
E)  10.39%

Question 14

The dividend yield on a stock will be ___________, while the capital gains yield will be ___________.

Accepted Answer

A)  Positive; either positive or zero 
B)  Positive; positive 
C)  Positive; negative, positive or zero 
D)  Positive or zero; positive or zero 
E)  Positive or zero; negative, positive or zero 
A)  Positive; either positive or zero 
B)  Positive; positive 
C)  Positive; negative, positive or zero 
D)  Positive or zero; positive or zero 
E)  Positive or zero; negative, positive or zero

Question 15

The geometric return on an asset is approximately equal to the arithmetic return:

Accepted Answer

A)  Plus one-half the standard deviation 
B)  Plus one-half the variance 
C)  Minus one-half the standard deviation 
D)  Minus one-half the variance 
E)  Times one-half 
A)  Plus one-half the standard deviation 
B)  Plus one-half the variance 
C)  Minus one-half the standard deviation 
D)  Minus one-half the variance 
E)  Times one-half

Question 16

___________ is an annualized return rate on an investment using compound interest techniques.

Accepted Answer

A)  Bond equivalent yield 
B)  Annual market yield 
C)  Average percentage yield 
D)  Effective annual yield 
E)  Compounded annual yield 
A)  Bond equivalent yield 
B)  Annual market yield 
C)  Average percentage yield 
D)  Effective annual yield 
E)  Compounded annual yield

Question 17

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

Accepted Answer

A)  .01287 
B)  .01614 
C)  .02018 
D)  .02632 
E)  .03512 
A)  .01287 
B)  .01614 
C)  .02018 
D)  .02632 
E)  .03512

Question 18

You own a stock with an average historical risk premium of 7.4 percent. The risk-free rate next year will be 4.1 percent. What do you expect the stock return to be next year?

Accepted Answer

A)  4.1% 
B)  7.4% 
C)  9.8% 
D)  10.6% 
E)  11.5% 
A)  4.1% 
B)  7.4% 
C)  9.8% 
D)  10.6% 
E)  11.5%

Question 19

An asset has a return of 10.5 percent and a variance of 70 percent square. What range of returns would you expect to see two-thirds of the time?

Accepted Answer

A)  - 73.17% to 94.17% 
B)  - 6.24% to 27.24% 
C)  - 31.2% to 51.7% 
D)  - 43.8% to 62.8% 
E)  - 59.5% to 80.5% 
A)  - 73.17% to 94.17% 
B)  - 6.24% to 27.24% 
C)  - 31.2% to 51.7% 
D)  - 43.8% to 62.8% 
E)  - 59.5% to 80.5%

Question 20

You purchased 500 shares of stock at a price of $86.34 and received a dividend of $0.97 per share. You sold the stock for $92.14. What was your total dollar return?

Accepted Answer

A)  $2,900.00 
B)  $3,163.00 
C)  $3,385.00 
D)  $3,504.00 
E)  $3,723.00 
A)  $2,900.00 
B)  $3,163.00 
C)  $3,385.00 
D)  $3,504.00 
E)  $3,723.00

Historically, the higher the risk premium, the _ the average return and the _ the standard deviation of the returns.

You invested $20,000 eight years ago. With a geometric average return of 12.2 percent per year, what was your ending portfolio value?

The value that is equal to the ending price of a security minus the beginning price is called the:

Which of the following is true regarding capital gains?

A stock had a price at the beginning of the year of $48.20. The end of year stock price was $43.12 and your total return was - 8.15%. What dividend did the stock pay during the year?

What are the two most important lessons from capital market history?

Why is the rate of return on a risk free asset considered to represent the "time value of money"?

You have the returns for a stock over the last twenty years. Assuming the returns are different each year, you know:

It is important to account for capital gains:

A stock has varying annual rates of return over a 10-year period and a positive geometric average return for the same period. Given this, you know the arithmetic return will be:

The fact that higher returns are associated with higher standard deviation is known as the:

In the last 25 years, US large-company stocks historically produced ____________ returns compared with the Canadian counterparts.

You purchased 100 shares of a stock at the beginning of the year for $43.20 per share. The share price at the end of the year is $46.10 and the stock paid an annual dividend of $1.10 per share. What was your total percentage return for the year?

The dividend yield on a stock will be _, while the capital gains yield will be _.

The geometric return on an asset is approximately equal to the arithmetic return:

___________ is an annualized return rate on an investment using compound interest techniques.

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

You own a stock with an average historical risk premium of 7.4 percent. The risk-free rate next year will be 4.1 percent. What do you expect the stock return to be next year?

An asset has a return of 10.5 percent and a variance of 70 percent square. What range of returns would you expect to see two-thirds of the time?

You purchased 500 shares of stock at a price of $86.34 and received a dividend of $0.97 per share. You sold the stock for $92.14. What was your total dollar return?

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

Historically, the higher the risk premium, the ___________ the average return and the ___________ the standard deviation of the returns.

You invested $20,000 eight years ago. With a geometric average return of 12.2 percent per year, what was your ending portfolio value?

The value that is equal to the ending price of a security minus the beginning price is called the:

Which of the following is true regarding capital gains?

A stock had a price at the beginning of the year of $48.20. The end of year stock price was $43.12 and your total return was - 8.15%. What dividend did the stock pay during the year?

What are the two most important lessons from capital market history?

Why is the rate of return on a risk free asset considered to represent the "time value of money"?

You have the returns for a stock over the last twenty years. Assuming the returns are different each year, you know:

It is important to account for capital gains:

A stock has varying annual rates of return over a 10-year period and a positive geometric average return for the same period. Given this, you know the arithmetic return will be:

The fact that higher returns are associated with higher standard deviation is known as the:

In the last 25 years, US large-company stocks historically produced ____________ returns compared with the Canadian counterparts.

You purchased 100 shares of a stock at the beginning of the year for $43.20 per share. The share price at the end of the year is $46.10 and the stock paid an annual dividend of $1.10 per share. What was your total percentage return for the year?

The dividend yield on a stock will be ___________, while the capital gains yield will be ___________.

The geometric return on an asset is approximately equal to the arithmetic return:

___________ is an annualized return rate on an investment using compound interest techniques.

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

You own a stock with an average historical risk premium of 7.4 percent. The risk-free rate next year will be 4.1 percent. What do you expect the stock return to be next year?

An asset has a return of 10.5 percent and a variance of 70 percent square. What range of returns would you expect to see two-thirds of the time?

You purchased 500 shares of stock at a price of $86.34 and received a dividend of $0.97 per share. You sold the stock for $92.14. What was your total dollar return?

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, the higher the risk premium, the _ the average return and the _ the standard deviation of the returns.

The dividend yield on a stock will be _, while the capital gains yield will be _.