Exam 4: Return and Risk

Alexis bought a stock for $34 a share two years ago.The stock does not pay any dividends.Today she sold the stock for $28.50 a share.What was her internal rate of return on this investment?

If the discount rate is appropriate for the level of risk, a satisfactory investment will have a present value of benefits equal to or greater than than the present value of costs.

Which of the following should be considered when deciding among alternative investments? I.time value of money II.risks associated with each investment III.risk free rate of return IV.personal risk tolerance level

The following investment cash flows have been entered into cells B5 through B9 of an EXCEL spreadsheet.B5 $(5,200 ), B6 $2,100, B7 $1,300, B8 $1,800, B9 $1,200, where $(5,200)is the cost of the investment and the following amounts are cash flows at the end of years one through four.The correct function for computing the yield on this investment is

Over the long term, which one of the following has historically had the lowest risk and lowest average annual rate of return?

The present value of $10,000 discounted at 5% per year and received at the end of 5 years is

Samantha bought a stock one year ago for $66 a share.She received a total of $2.00 in dividends.Today she sold the stock for $70 a share.Which one of the following statements is correct concerning this investment?

Lauren purchased a stock for $28 a share and sold it six months later for $31.While she owned the stock, Lauren received two quarterly dividends of $0.35 per share.Brittany's holding period return on this stock is

Ryan purchased a bond for $980 at the beginning of 2011.He received annual interest payments of $55 at the end of each year through 2016 when the bond was redeemed at its face value of $1,000.Compute the yield (internal rate of return)Ryan earned on his bond purchase.

Historically speaking, the standard deviation of returns on U.S.Treasury Bills is zero.

An investment produced annual rates of return of 4%, 8%, 14% and 6%, respectively, over the past four years.What is the standard deviation of these returns?

Justin invests $4,000 in a savings account for two years.The account pays 2% interest compounded annually.How much interest income will Justin earn on this investment?

The standard deviation is computed by dividing the sum of the squared deviations by the number of observations.

Historical returns are of no use in estimating the risk of an investment.

The greater the dispersion around an asset's expected return, the greater the risk.

An investment's internal rate of return does not depend on the rate at which income from the investment is reinvested.

One reason that the holding period return should not be used to compare long-term investments is that it does not consider the time value of money.

Bob's house has doubled in value since he bought it 30 years ago.The house's value has increased by an annual rate of

A capital loss is computed by

Josh purchased 100 shares of XOM for $76.63 per share at the beginning of 2011.He received dividends per share of $1.37 (2011), $1.55 (2012), $1.66 (2013), $1.74 (2014), $1.85 (2015).At the end of 2015 just after receiving the last dividend, he sold the stock for $84.76.What was his average annual rate of return form both dividends and capital gains? (Hint: compute the IRR, assume that all dividends were received at the end of the year.)