Question 1

The dollar-weighted return is the ________.

Accepted Answer

A)  difference between cash inflows and cash outflows 
B)  arithmetic average return 
C)  geometric average return 
D)  internal rate of return 
A)  difference between cash inflows and cash outflows 
B)  arithmetic average return 
C)  geometric average return 
D)  internal rate of return D

Question 2

Which measure of downside risk predicts the worst loss that will be suffered with a given probability?

Accepted Answer

A)  standard deviation 
B)  variance 
C)  value at risk 
D)  Sharpe ratio 
A)  standard deviation 
B)  variance 
C)  value at risk 
D)  Sharpe ratio C

Question 3

The reward-to-volatility ratio is given by ________.

Accepted Answer

A)  the slope of the capital allocation line 
B)  the second derivative of the capital allocation line 
C)  the point at which the second derivative of the investor's indifference curve reaches zero 
D)  the portfolio's excess return 
A)  the slope of the capital allocation line 
B)  the second derivative of the capital allocation line 
C)  the point at which the second derivative of the investor's indifference curve reaches zero 
D)  the portfolio's excess return A

Question 4

What is the VaR of a $10 million portfolio with normally distributed returns at the 5% VaR? Assume the expected return is 13% and the standard deviation is 20%.

Accepted Answer

A)  13% 
B)  -13% 
C)  19.90% 
D)  -19.90% 
A)  13% 
B)  -13% 
C)  19.90% 
D)  -19.90%

Question 5

You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 8%, you should invest approximately ________ in the risky portfolio. This will mean you will also invest approximately ________ and ________ of your complete portfolio in security X and Y, respectively.

Accepted Answer

A)  0%; 60%; 40% 
B)  25%; 45%; 30% 
C)  40%; 24%; 16% 
D)  50%; 30%; 20% 
A)  0%; 60%; 40% 
B)  25%; 45%; 30% 
C)  40%; 24%; 16% 
D)  50%; 30%; 20%

Question 6

Consider the following two investment alternatives: First, a risky portfolio that pays a 15% rate of return with a probability of 40% or a 5% rate of return with a probability of 60%. Second, a Treasury bill that pays 6%. The risk premium on the risky investment is ________.

Accepted Answer

A)  1% 
B)  3% 
C)  6% 
D)  9% 
A)  1% 
B)  3% 
C)  6% 
D)  9%

Question 7

You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends.
 
What is the dollar-weighted return over the entire time period?

Accepted Answer

A)  2.87% 
B)  .74% 
C)  2.6% 
D)  2.21% 
A)  2.87% 
B)  .74% 
C)  2.6% 
D)  2.21%

Question 8

If you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the ________.

Accepted Answer

A)  geometric average return 
B)  arithmetic average return 
C)  dollar-weighted return 
D)  index return 
A)  geometric average return 
B)  arithmetic average return 
C)  dollar-weighted return 
D)  index return

Question 9

You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. The slope of the capital allocation line formed with the risky asset and the risk-free asset is approximately ________.

Accepted Answer

A)  1.040 
B)  .80 
C)  .50 
D)  .25 
A)  1.040 
B)  .80 
C)  .50 
D)  .25

Question 10

During the 1926-2013 period the geometric mean return on Treasury bonds was ________.

Accepted Answer

A)  5.07% 
B)  5.56% 
C)  9.34% 
D)  11.43% 
A)  5.07% 
B)  5.56% 
C)  9.34% 
D)  11.43%

Question 11

Rank the following from highest average historical standard deviation to lowest average historical standard deviation from 1926 to 2017.
I. Small stocks
II. Long-term bonds
III. Large stocks
IV. T-bills

Accepted Answer

A)  I, II, III, IV 
B)  III, IV, II, I 
C)  I, III, II, IV 
D)  III, I, II, IV 
A)  I, II, III, IV 
B)  III, IV, II, I 
C)  I, III, II, IV 
D)  III, I, II, IV

Question 12

The holding-period return on a stock was 32%. Its beginning price was $25, and its cash dividend was $1.50. Its ending price must have been ________.

Accepted Answer

A)  $28.50 
B)  $33.20 
C)  $31.50 
D)  $29.75 
A)  $28.50 
B)  $33.20 
C)  $31.50 
D)  $29.75

Question 13

The excess return is the ________.

Accepted Answer

A)  rate of return that can be earned with certainty 
B)  rate of return in excess of the Treasury-bill rate 
C)  rate of return to risk aversion 
D)  index return 
A)  rate of return that can be earned with certainty 
B)  rate of return in excess of the Treasury-bill rate 
C)  rate of return to risk aversion 
D)  index return

Question 14

Most studies indicate that investors' risk aversion is in the range ________.

Accepted Answer

A)  1-3 
B)  1.5-4 
C)  3-5.2 
D)  4-6 
A)  1-3 
B)  1.5-4 
C)  3-5.2 
D)  4-6

Question 15

During the 1926-2013 period the Sharpe ratio was greatest for which of the following asset classes?

Accepted Answer

A)  small U.S. stocks 
B)  large U.S. stocks 
C)  long-term U.S. Treasury bonds 
D)  bond world portfolio return in U.S. dollars 
A)  small U.S. stocks 
B)  large U.S. stocks 
C)  long-term U.S. Treasury bonds 
D)  bond world portfolio return in U.S. dollars

Question 16

The complete portfolio refers to the investment in ________.

Accepted Answer

A)  the risk-free asset 
B)  the risky portfolio 
C)  the risk-free asset and the risky portfolio combined 
D)  the risky portfolio and the index 
A)  the risk-free asset 
B)  the risky portfolio 
C)  the risk-free asset and the risky portfolio combined 
D)  the risky portfolio and the index

Question 17

You have calculated the historical dollar-weighted return, annual geometric average return, and annual arithmetic average return. If you desire to forecast performance for next year, the best forecast will be given by the ________.

Accepted Answer

A)  dollar-weighted return 
B)  geometric average return 
C)  arithmetic average return 
D)  index return 
A)  dollar-weighted return 
B)  geometric average return 
C)  arithmetic average return 
D)  index return

Question 18

Which one of the following would be considered a risk-free asset in real terms as opposed to nominal?

Accepted Answer

A)  money market fund 
B)  U.S. T-bill 
C)  short-term corporate bonds 
D)  U.S. T-bill whose return was indexed to inflation 
A)  money market fund 
B)  U.S. T-bill 
C)  short-term corporate bonds 
D)  U.S. T-bill whose return was indexed to inflation

Question 19

Historical returns have generally been ________ for stocks of small firms as (than) for stocks of large firms.

Accepted Answer

A)  the same 
B)  lower 
C)  higher 
D)  none of these options (There is no evidence of a systematic relationship between returns on small-firm stocks and returns on large-firm stocks.) 
A)  the same 
B)  lower 
C)  higher 
D)  none of these options (There is no evidence of a systematic relationship between returns on small-firm stocks and returns on large-firm stocks.)

Question 20

You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 11%, you should invest ________ of your complete portfolio in Treasury bills.

Accepted Answer

A)  19% 
B)  25% 
C)  36% 
D)  50% 
A)  19% 
B)  25% 
C)  36% 
D)  50%

The dollar-weighted return is the ________.

Which measure of downside risk predicts the worst loss that will be suffered with a given probability?

The reward-to-volatility ratio is given by ________.

What is the VaR of a $10 million portfolio with normally distributed returns at the 5% VaR? Assume the expected return is 13% and the standard deviation is 20%.

Consider the following two investment alternatives: First, a risky portfolio that pays a 15% rate of return with a probability of 40% or a 5% rate of return with a probability of 60%. Second, a Treasury bill that pays 6%. The risk premium on the risky investment is ________.

You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends. What is the dollar-weighted return over the entire time period?

If you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the ________.

During the 1926-2013 period the geometric mean return on Treasury bonds was ________.

Rank the following from highest average historical standard deviation to lowest average historical standard deviation from 1926 to 2017. I. Small stocks II. Long-term bonds III. Large stocks IV. T-bills

The holding-period return on a stock was 32%. Its beginning price was $25, and its cash dividend was $1.50. Its ending price must have been ________.

The excess return is the ________.

Most studies indicate that investors' risk aversion is in the range ________.

During the 1926-2013 period the Sharpe ratio was greatest for which of the following asset classes?

The complete portfolio refers to the investment in ________.

You have calculated the historical dollar-weighted return, annual geometric average return, and annual arithmetic average return. If you desire to forecast performance for next year, the best forecast will be given by the ________.

Which one of the following would be considered a risk-free asset in real terms as opposed to nominal?

Historical returns have generally been ________ for stocks of small firms as (than) for stocks of large firms.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Filters

Exam 5: Risk, Return, and the Historical Record

The dollar-weighted return is the ________.

Which measure of downside risk predicts the worst loss that will be suffered with a given probability?

The reward-to-volatility ratio is given by ________.

What is the VaR of a $10 million portfolio with normally distributed returns at the 5% VaR? Assume the expected return is 13% and the standard deviation is 20%.

Consider the following two investment alternatives: First, a risky portfolio that pays a 15% rate of return with a probability of 40% or a 5% rate of return with a probability of 60%. Second, a Treasury bill that pays 6%. The risk premium on the risky investment is ________.

You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends. What is the dollar-weighted return over the entire time period?

If you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the ________.

During the 1926-2013 period the geometric mean return on Treasury bonds was ________.

Rank the following from highest average historical standard deviation to lowest average historical standard deviation from 1926 to 2017. I. Small stocks II. Long-term bonds III. Large stocks IV. T-bills

The holding-period return on a stock was 32%. Its beginning price was $25, and its cash dividend was $1.50. Its ending price must have been ________.

The excess return is the ________.

Most studies indicate that investors' risk aversion is in the range ________.

During the 1926-2013 period the Sharpe ratio was greatest for which of the following asset classes?

The complete portfolio refers to the investment in ________.

You have calculated the historical dollar-weighted return, annual geometric average return, and annual arithmetic average return. If you desire to forecast performance for next year, the best forecast will be given by the ________.

Which one of the following would be considered a risk-free asset in real terms as opposed to nominal?

Historical returns have generally been ________ for stocks of small firms as (than) for stocks of large firms.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Filters