Question 1

Suppose you are the risk manager of a bank with a trading portfolio of $1 billion.You have just received the latest information about the portfolio allocations made by the trading branch of your bank,who tell you that the portfolio will earn a premium return of 23% over the risk free rate in one year.You have carried out an independent analysis,and find that the return on your portfolio over the next ten days is normally distributed with a mean of 0.77% and a standard deviation of 5%.Find the ten day 1% value at risk for this portfolio.

Accepted Answer

The answer of Suppose you are the risk manager of...

Question 2

List 2 shortcomings of using value at risk (VaR)as a risk management tool.

Accepted Answer

The answer of List 2 shortcomings of using value at...

Question 3

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 and your precise rate of return?

Accepted Answer

A)  2.9%; -2.9% 
B)  9.3%; 10.3% 
C)  2.9%; 2.81% 
D)  cannot be determined

Question 4

Capital market history shows us that the average return relationship between securities where:

Accepted Answer

A)  lowest return is inflation, then corporate bonds, Treasuries, small company stocks, to highest return all common stocks. 
B)  lowest return is Treasury bills, inflation, small company stocks, highest return all common stocks. 
C)  lowest return is Treasury bills, corporate bonds, government bonds, all common stocks, highest small company stocks. 
D)  lowest return is Treasury bills, government bonds, corporate bonds, all common stocks, highest small company stocks.

Question 5

The Alpha stock you bought for $26.75 a year ago is now selling for $32.50.Alpha also paid you $2.25 in dividends.What would your dollar return be from this stock?

Accepted Answer

A)  $7.75 
B)  $8.00 
C)  $8.25 
D)  $5.75

Question 6

The return on your portfolio over the last 5 years were -5%,20%,0%,10% and 5%.What was the standard deviation of your return? What is your best guess as to next year's return?

Accepted Answer

A)  2.74%; 6.00%. 
B)  5.31%; 5.65%. 
C)  9.62%; 6.00%. 
D)  9.62%; 15.00%. 
E)  12.70%; 20.00%.

Question 7

Little John Industries sold for $1.90 on January 1 and ended the year at a price of $2.50.In addition,the stock paid dividends of $0.20 per share.Calculate Little John's dividend yield,capital gain yield,and total rate of return for the year.

Accepted Answer

The answer of Little John Industries sold for $1.90 on...

Question 8

A capital gain occurs when:

Accepted Answer

A)  the selling price is less than the purchase price. 
B)  the purchase price is less than the selling price. 
C)  there is no dividend paid. 
D)  there is no income component of return.

Question 9

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

Accepted Answer

A)  0.5% 
B)  1.0% 
C)  2.3% 
D)  5.0% 
E)  16.0%

Question 10

The expected return on a security in the market context is:

Accepted Answer

A)  a negative function of execs security risk. 
B)  a positive function of the beta. 
C)  a negative function of the beta. 
D)  a positive function of the excess security risk. 
E)  independent of beta.

Question 11

A stock had the following prices and dividends.What is the geometric average return on this stock?

Accepted Answer

A)  3.0% 
B)  3.3% 
C)  3.6% 
D)  3.8% 
E)  4.0%

Question 12

The returns on your portfolio over the last 5 years were -5%,20%,0%,10% and 5%.What is the arithmetic average return?

Accepted Answer

A)  5.0% 
B)  6.0% 
C)  7.5% 
D)  8.0% 
E)  10.0%

Question 13

The Zolo Co.just declared that it is increasing its annual dividend from $1.00 per share to $1.25 per share.If the stock 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 14

You have a sample of returns observations for the Malta Stock Fund.The 4 returns are 0.0725,0.056,0.125,0.010.What is the average return and variance of these returns?

Accepted Answer

A)  6.50%, 0.0017. 
B)  6.60%, 0.0023. 
C)  26.35%, 0.0067. 
D)  8.80%, 0.0017.

Question 15

You earned a total return of -5% on NoDotCom this year,earned -40% last year,and earned 30% two years ago.Calculate both the three-year holding period return and the average three year return.

Accepted Answer

The answer of You earned a total return of -5%...

Question 16

The return pattern on your favorite stock has been 5%,8%,-12%,15%,21% over the last five years.What is your average return and total change in wealth per year over the period?

Accepted Answer

A)  4.5%, 6.5% 
B)  15%, 21% 
C)  7.4%, 6.8% 
D)  9.2%, 8.6%

Question 17

Last year you bought some Alpha stock for $26.75 a share.It is currently selling for $32.50.You received a dividend of $2.25 during the year.What is your total rate of return?

Accepted Answer

A)  30% 
B)  21% 
C)  8.5% 
D)  12%

Question 18

Six months ago,you purchased 100 shares of stock in ABC Co.at a price of $43.89 a share.ABC stock pays a quarterly dividend of $.10 a share.Today,you sold all of your shares for $45.13 per share.What is the total amount of your capital gains on this investment?

Accepted Answer

A)  $1.24 
B)  $1.64 
C)  $40.00 
D)  $124.00 
E)  $164.00

Question 19

Explain why a financial manager of a large company should use the standard deviation as the measure of risk to determine the discount rate?

Accepted Answer

The answer of Explain why a financial manager of a...

Question 20

Excelsior shares are currently selling for $25.00 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)  10.42% 
B)  4.17% 
C)  6.25% 
D)  110.42% 
E)  104.67%

Exam 10: Risk and Return: Lessons From Market History