Exam 7: Risk and Returnan Introduction: History of Financial Market Returns

Identify the three anomalies to the efficient markets hypothesis.

What is the arithmetic average return of Kamal's investment?

Using the following information for Graphics Ltd shares, calculate their expected return and standard deviation.

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

Madison's sister, Amanda, works at a large pharmaceutical company.While visiting Amanda at work, Madison glanced at a report indicating that a new drug had just been approved by the Therapeutic Goods Administration.She immediately bought some of the company's shares, which doubled in price over the following week.This outcome is inconsistent with the [blank] market hypothesis.

If an investor earns 10% on her investment in the first year and loses 10% the next year, she will have neither a gain nor a loss.

If a market is weak form efficient, an investor can make higher than expected profits by studying the past price patterns of shares.

An investor who wishes to hold a share for five years will be most interested in the geometric average rather than in the arithmetic average return.

The risk-return trade-off tells us that expected returns should be higher on investments that have higher risk.

Which sequence is arranged in the correct order, from highest expected long-term returns to lowest? A.Small shares, government bonds, large shares B.Large shares, Treasury notes, small shares C.Small shares, large shares, Treasury notes D.Government bonds, large shares, Treasury notes

Riskier investments have traditionally had lower returns than less risky investments have had.

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)?

The difference between returns on shares and government bonds is known as [blank].

Spartan Furniture Pty Ltd 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 shares?

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

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 expected rate of return on the investment?