Question 1

Over the past five years, Northern Railway stock had annual returns of 11, 15, -5, 8.5, and 18 percent, respectively. What is the variance of these returns?

Accepted Answer

A)  .00548 
B)  .00685 
C)  .00790 
D)  .01370 
E)  .02740 
A)  .00548 
B)  .00685 
C)  .00790 
D)  .01370 
E)  .02740

Question 2

We have studied three different "average return measures" - the arithmetic average return, the geometric average return and the dollar-weighted average return. Briefly outline what information each metric provides.

Accepted Answer

The arithmetic average return provides t

Question 3

Based on the period 1926-2006, the risk premium for U.S. Treasury bills was:

Accepted Answer

A)  0.0 percent. 
B)  1.2 percent. 
C)  2.0 percent. 
D)  2.4 percent. 
E)  2.7 percent. 
A)  0.0 percent. 
B)  1.2 percent. 
C)  2.0 percent. 
D)  2.4 percent. 
E)  2.7 percent.

Question 4

The geometric mean return on large-company stocks for the 1926-2009 period:

Accepted Answer

A)  is approximately equal to the arithmetic mean return plus one-half of the standard deviation. 
B)  exceeds the arithmetic mean return. 
C)  is approximately equal to the arithmetic mean return minus one-half of the standard deviation. 
D)  is approximately equal to the arithmetic mean return plus one-half of the variance. 
E)  is less than the arithmetic mean return. 
A)  is approximately equal to the arithmetic mean return plus one-half of the standard deviation. 
B)  exceeds the arithmetic mean return. 
C)  is approximately equal to the arithmetic mean return minus one-half of the standard deviation. 
D)  is approximately equal to the arithmetic mean return plus one-half of the variance. 
E)  is less than the arithmetic mean return.

Question 5

Which one of the following statements is correct?

Accepted Answer

A)  The standard deviation of the returns on Treasury bills is zero. 
B)  Large-company stocks are historically riskier than small-company stocks. 
C)  The variance is a means of measuring the volatility of returns on an investment. 
D)  A risky asset will always have a higher annual rate of return than a riskless asset. 
E)  There is an indirect relationship between risk and return. 
A)  The standard deviation of the returns on Treasury bills is zero. 
B)  Large-company stocks are historically riskier than small-company stocks. 
C)  The variance is a means of measuring the volatility of returns on an investment. 
D)  A risky asset will always have a higher annual rate of return than a riskless asset. 
E)  There is an indirect relationship between risk and return.

Question 6

An annualized return:

Accepted Answer

A)  is less than a holding period return when the holding period is less than one year. 
B)  is expressed as the summation of the capital gains yield and the dividend yield on an investment. 
C)  is expressed as the capital gains yield that would have been realized if an investment had been held for a twelve-month period. 
D)  is computed as (1 + holding period percentage return)m, where m is the number of holding periods in a year. 
E)  is computed as (1 + holding period percentage return)m, where m is the number of months in the holding period. 
A)  is less than a holding period return when the holding period is less than one year. 
B)  is expressed as the summation of the capital gains yield and the dividend yield on an investment. 
C)  is expressed as the capital gains yield that would have been realized if an investment had been held for a twelve-month period. 
D)  is computed as (1 + holding period percentage return)m, where m is the number of holding periods in a year. 
E)  is computed as (1 + holding period percentage return)m, where m is the number of months in the holding period.

Question 7

A stock has an average historical return of 14.3 percent and a standard deviation of 18.2 percent. Which range of returns would you expect to see approximately two-thirds of the time?

Accepted Answer

A)  -23.8 to +53.0 percent 
B)  +4.6 to +33.8 percent 
C)  +5.8 to +31.6 percent 
D)  -3.9 to +32.5 percent 
E)  -5.8 to +31.6 percent 
A)  -23.8 to +53.0 percent 
B)  +4.6 to +33.8 percent 
C)  +5.8 to +31.6 percent 
D)  -3.9 to +32.5 percent 
E)  -5.8 to +31.6 percent

Question 8

You purchased a stock five months ago for $40 a share. Today, you sold that stock for $44 a share. The stock pays no dividends. What was your annualized rate of return?

Accepted Answer

A)  23.93 percent 
B)  24.77 percent 
C)  25.70 percent 
D)  26.03 percent 
E)  27.67 percent 
A)  23.93 percent 
B)  24.77 percent 
C)  25.70 percent 
D)  26.03 percent 
E)  27.67 percent

Question 9

Christine owns a stock that dropped in price from $42.40 to $37.20 over the past year. The dividend yield on that stock is 1.4 percent. What is her total return on this investment for the year?

Accepted Answer

A)  -11.31 percent 
B)  -10.86 percent 
C)  -9.91 percent 
D)  -9.59 percent 
E)  -8.51 percent 
A)  -11.31 percent 
B)  -10.86 percent 
C)  -9.91 percent 
D)  -9.59 percent 
E)  -8.51 percent

Question 10

A portfolio had an original value of $7,400 seven years ago. The current value of the portfolio is $11,898. What is the average geometric return on this portfolio?

Accepted Answer

A)  7.02 percent 
B)  7.47 percent 
C)  7.59 percent 
D)  7.67 percent 
E)  7.88 percent 
A)  7.02 percent 
B)  7.47 percent 
C)  7.59 percent 
D)  7.67 percent 
E)  7.88 percent

Question 11

One year ago, you purchased 300 shares of stock at a cost of $7,521. The stock paid an annual dividend of $1.10 per share. Today, you sold those shares for $28.20 each. What is the capital gains yield on this investment?

Accepted Answer

A)  9.96 percent 
B)  10.44 percent 
C)  12.49 percent 
D)  13.33 percent 
E)  14.75 percent 
A)  9.96 percent 
B)  10.44 percent 
C)  12.49 percent 
D)  13.33 percent 
E)  14.75 percent

Question 12

Which one of the following had the highest average return for the period 1926-2006?

Accepted Answer

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

Question 13

An asset had annual returns of 19, -38, -17, 25, and 5 percent, respectively, over the past five years. What is the arithmetic average return?

Accepted Answer

A)  -1.2 percent 
B)  0.8 percent 
C)  1.2 percent 
D)  1.6 percent 
E)  2.3 percent 
A)  -1.2 percent 
B)  0.8 percent 
C)  1.2 percent 
D)  1.6 percent 
E)  2.3 percent

Question 14

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

Question 15

The total dollar return on a share of stock is defined as the:

Accepted Answer

A)  change in the price of the stock over a period of time. 
B)  dividend income divided by the beginning price per share. 
C)  capital gain or loss plus any dividend income. 
D)  change in the stock price divided by the original stock price. 
E)  annual dividend income received. 
A)  change in the price of the stock over a period of time. 
B)  dividend income divided by the beginning price per share. 
C)  capital gain or loss plus any dividend income. 
D)  change in the stock price divided by the original stock price. 
E)  annual dividend income received.

Question 16

You purchased a stock for $29.40 a share, received a dividend of $0.72 per share, and sold the stock after one year for $31.30 a share. What was your dividend yield on this investment?

Accepted Answer

A)  2.30 percent 
B)  2.38 percent 
C)  2.45 percent 
D)  2.67 percent 
E)  2.80 percent 
A)  2.30 percent 
B)  2.38 percent 
C)  2.45 percent 
D)  2.67 percent 
E)  2.80 percent

Question 17

The average risk premium on long-term corporate bonds for the period 1926-2009 was:

Accepted Answer

A)  2.4 percent. 
B)  2.7 percent. 
C)  3.3 percent. 
D)  3.7 percent. 
E)  3.9 percent. 
A)  2.4 percent. 
B)  2.7 percent. 
C)  3.3 percent. 
D)  3.7 percent. 
E)  3.9 percent.

Question 18

You purchased a stock for $46.70 a share and resold it one year later. Your total return for the year was 11.2 percent and the dividend yield was 2.8 percent. At what price did you resell the stock?

Accepted Answer

A)  $42.78 
B)  $50.62 
C)  $51.93 
D)  $52.08 
E)  $57.54 
A)  $42.78 
B)  $50.62 
C)  $51.93 
D)  $52.08 
E)  $57.54

Question 19

Bill has been adding funds to his investment account each year for the past 3 years. He started with an initial investment of $1,000. After earning a 10% return the first year, he added $3,000 to his portfolio. In this year his investments lost 5%. Undeterred, Bill added $2,000 the next year and earned a 2% return. Last year, discouraged by the recent results, he only added $500 to his portfolio, but in this final year his investments earned 8%. What was Bill's dollar-weighted average return for his investments?

Accepted Answer

A)  1.5 percent 
B)  2.0 percent 
C)  2.5 percent 
D)  3.0 percent 
E)  3.5 percent 
A)  1.5 percent 
B)  2.0 percent 
C)  2.5 percent 
D)  3.0 percent 
E)  3.5 percent

Question 20

Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before reselling it. What is the value of "m" when computing the annualized return on this investment?

Accepted Answer

A)  .25 
B)  .33 
C)  .40 
D)  3.00 
E)  4.00 
A)  .25 
B)  .33 
C)  .40 
D)  3.00 
E)  4.00

Over the past five years, Northern Railway stock had annual returns of 11, 15, -5, 8.5, and 18 percent, respectively. What is the variance of these returns?

We have studied three different "average return measures" - the arithmetic average return, the geometric average return and the dollar-weighted average return. Briefly outline what information each metric provides.

Based on the period 1926-2006, the risk premium for U.S. Treasury bills was:

The geometric mean return on large-company stocks for the 1926-2009 period:

Which one of the following statements is correct?

An annualized return:

A stock has an average historical return of 14.3 percent and a standard deviation of 18.2 percent. Which range of returns would you expect to see approximately two-thirds of the time?

You purchased a stock five months ago for $40 a share. Today, you sold that stock for $44 a share. The stock pays no dividends. What was your annualized rate of return?

Christine owns a stock that dropped in price from $42.40 to $37.20 over the past year. The dividend yield on that stock is 1.4 percent. What is her total return on this investment for the year?

A portfolio had an original value of $7,400 seven years ago. The current value of the portfolio is $11,898. What is the average geometric return on this portfolio?

One year ago, you purchased 300 shares of stock at a cost of $7,521. The stock paid an annual dividend of $1.10 per share. Today, you sold those shares for $28.20 each. What is the capital gains yield on this investment?

Which one of the following had the highest average return for the period 1926-2006?

An asset had annual returns of 19, -38, -17, 25, and 5 percent, respectively, over the past five years. What is the arithmetic average return?

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

The total dollar return on a share of stock is defined as the:

You purchased a stock for $29.40 a share, received a dividend of $0.72 per share, and sold the stock after one year for $31.30 a share. What was your dividend yield on this investment?

The average risk premium on long-term corporate bonds for the period 1926-2009 was:

You purchased a stock for $46.70 a share and resold it one year later. Your total return for the year was 11.2 percent and the dividend yield was 2.8 percent. At what price did you resell the stock?

Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before reselling it. What is the value of "m" when computing the annualized return on this investment?

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds

Mortgage-Backed Securities

Filters

Exam 1: A Brief History of Risk and Return

Over the past five years, Northern Railway stock had annual returns of 11, 15, -5, 8.5, and 18 percent, respectively. What is the variance of these returns?

We have studied three different "average return measures" - the arithmetic average return, the geometric average return and the dollar-weighted average return. Briefly outline what information each metric provides.

Based on the period 1926-2006, the risk premium for U.S. Treasury bills was:

The geometric mean return on large-company stocks for the 1926-2009 period:

Which one of the following statements is correct?

An annualized return:

A stock has an average historical return of 14.3 percent and a standard deviation of 18.2 percent. Which range of returns would you expect to see approximately two-thirds of the time?

You purchased a stock five months ago for $40 a share. Today, you sold that stock for $44 a share. The stock pays no dividends. What was your annualized rate of return?

Christine owns a stock that dropped in price from $42.40 to $37.20 over the past year. The dividend yield on that stock is 1.4 percent. What is her total return on this investment for the year?

A portfolio had an original value of $7,400 seven years ago. The current value of the portfolio is $11,898. What is the average geometric return on this portfolio?

One year ago, you purchased 300 shares of stock at a cost of $7,521. The stock paid an annual dividend of $1.10 per share. Today, you sold those shares for $28.20 each. What is the capital gains yield on this investment?

Which one of the following had the highest average return for the period 1926-2006?

An asset had annual returns of 19, -38, -17, 25, and 5 percent, respectively, over the past five years. What is the arithmetic average return?

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

The total dollar return on a share of stock is defined as the:

You purchased a stock for $29.40 a share, received a dividend of $0.72 per share, and sold the stock after one year for $31.30 a share. What was your dividend yield on this investment?

The average risk premium on long-term corporate bonds for the period 1926-2009 was:

You purchased a stock for $46.70 a share and resold it one year later. Your total return for the year was 11.2 percent and the dividend yield was 2.8 percent. At what price did you resell the stock?

Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before reselling it. What is the value of "m" when computing the annualized return on this investment?

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds

Mortgage-Backed Securities

Filters