Exam 7: An Introduction to Risk and Return-History of Financial Market Returns

Work by the behavioral economists Robert Shiller and Daniel Kahnemann strongly supports the weak and semi-strong forms of the Efficient Market Hypothesis.

If an investor holds a stock for three years, the value at the end of three years will always be the initial cost of the stock times (1 + arithmetic average return) to the third power.

How much money did Roddy Richards receive when he sold his shares of W.M.D.?

Which of the following sequences is arranged in the correct order, from highest long-term returns to lowest?

You are considering investing in a firm that has the following possible outcomes: Economic boom: probability of 25%; return of 25% Economic growth: probability of 60%; return of 15% Economic decline: probability of 15%; return of -5% What is the standard deviation of returns on the investment?

Spartan Sofas, Inc. is selling for $50.00 per share today. In one year, Spartan will be selling for $48.00 per share, and the dividend for the year will be $3.00. What is the cash return on Spartan stock?

Michael Lynch invested $10,000 in the Rearguard Fund four years ago. All earnings were reinvested in the fund. If his compound annual rate of return was 7%, what is his investment worth today (round to the nearest dollar)?

Investments in emerging markets have higher volatility than do U.S. Stocks.

Under the efficient market hypothesis, would securities be properly priced.

Historically, in the United States stocks have had higher returns and greater volatility than have government bonds.

How much will Susan's stock be worth if she sells it five years from today?

What is the standard deviation of an investment that has the following expected scenario? 18% probability of a recession, 2.0% return; 65% probability of a moderate economy, 9.5% return; 17% probability of a strong economy, 14.2% return.

The cash return on an investment is calculated as purchase price-selling price.

Madison was hired to design and decorate the offices of a large pharmaceutical company. She accidentally read a report indicating that a new drug had just been approved by the Food and Drug administration. She immediately bought the company's stock which doubled in price over the following week. This outcome is inconsistent with

Investments that have earned the highest rates of return over 1995-2015 also have

Investors are always rewarded for taking higher risk with higher realized returns.