Question 1

An equity had returns of 8%, 14%, and 2% for the past three years.Based on these returns, what is the probability that this equity will earn at least 20% in any one given year?

Accepted Answer

A) 0.5% 
B) 1.0% 
C) 2.5% 
D) 5.0% 
E) 16.0%

Question 2

One year ago, you purchased a stock at a price of £32.50.The equity pays quarterly dividends of £.40 per share.Today, the shares are worth £34.60.What is the total amount of your dividend
Income to date from this investment?

Accepted Answer

A) £0.40 
B) £1.60 
C) £2.10 
D) £2.50 
E) £3.70

Question 3

Excelsior shares are currently selling for £25 each.You bought 200 shares one year ago at £24 and received dividend payments of £1.50 per share.What was your total rate of return?

Accepted Answer

A) 4.17% 
B) 6.25% 
C) 10.42% 
D) 104.67% 
E) 110.42%

Question 4

The return earned in an average year over a multi-year period is called the _____ average return.

Accepted Answer

A) arithmetic 
B) standard 
C) variant 
D) geometric 
E) real

Question 5

Which of the following statements are correct concerning the variance of the annual returns on an investment?
I.The larger the variance, the more the actual returns tend to differ from the average return.
II.The larger the variance, the larger the standard deviation.
III.The larger the variance, the greater the risk of the investment.
IV.The larger the variance, the higher the expected return.

Accepted Answer

A) I and III only. 
B) II, III, and IV only. 
C) I, III, and IV only. 
D) I, II, and III only. 
E) I, II, III, and IV.

Question 6

Zolo plc just declared that it is increasing its annual dividend from £1.00 per share to £1.25 per share.If the share price remains constant, then:

Accepted Answer

A) the capital gains yield will decrease. 
B) the capital gains yield will increase. 
C) the dividend yield will increase. 
D) the dividend yield will also remain constant. 
E) neither the capital gains yield nor the dividend yield will change.

Question 7

The market portfolio of equities earned 14.7% in one year.Treasury bills earned 5.7%.What was the real risk premium on equities?

Accepted Answer

A) 5.0% 
B) 6.5% 
C) 9.0% 
D) 12.2% 
E) 18.7%

Question 8

You bought 100 shares at £20 each.At the end of the year, you received a total of £400 in dividends, and your shares was worth £2,500 total.What was your total return?

Accepted Answer

A) 20% 
B) 45% 
C) 50% 
D) 90% 
E) None of the above.

Question 9

The variance of returns is computed by dividing the sum of the:

Accepted Answer

A) squared deviations by the number of returns minus one. 
B) average returns by the number of returns minus one. 
C) average returns by the number of returns plus one. 
D) squared deviations by the average rate of return. 
E) squared deviations by the number of returns plus one.

Question 10

Over the past ﬁve years, a share produced returns of 14%, 22%, -16%, 2%, and 10%.What is the probability that an investor in this share will NOT lose more than 8% nor earn more than 21% in any
One given year?

Accepted Answer

A) 34% 
B) 68% 
C) 95% 
D) 99% 
E) 100%

Question 11

Winslow plc is currently selling for £40 a share.The equity has a dividend yield of 3.8%.How much dividend income will you receive per year if you purchase 500 shares?

Accepted Answer

A) £152 
B) £190 
C) £329 
D) £760 
E) £1,053

Question 12

What securities have offered the highest average annual returns over the last several decades? Can we conclude that return and risk are related in real life?

Accepted Answer

The answer of What securities have offered the highest average...

Question 13

The long term inﬂation rate average was 3.2% and you invested in long term corporate bonds over the same period which earned 6.1%.What was the average risk premium you earned?

Accepted Answer

A) 2.9% 
B) 3.1% 
C) 9.3% 
D) 9.4% 
E) None of the above.

Question 14

The average squared difference between the actual return and the average return is called the:

Accepted Answer

A) volatility return. 
B) variance. 
C) standard deviation. 
D) risk premium. 
E) excess return.

Question 15

What are the lessons learned from capital market history? What evidence is there to suggest these lessons are correct?

Accepted Answer

The answer of What are the lessons learned from capital...

Question 16

Excelsior shares are currently selling for £25 each.You bought 200 shares one year ago at £24 and received dividend payments of £1.50 per share.What was your percentage capital gain this year?

Accepted Answer

A) 4.17% 
B) 6.25% 
C) 10.42% 
D) 104.17% 
E) 110.42%

Question 17

Eight months ago, you purchased 400 shares of Winston plc at a price of £54.90 a share.The company pays quarterly dividends of £.50 a share.Today, you sold all of your shares for £49.30 a
Share.What is your total percentage return on this investment?

Accepted Answer

A) -10.2% 
B) -9.3% 
C) -8.4% 
D) 12.0% 
E) 13.4%

Exam 9: Risk and Return: Lessons From Market History