Question 1

The dollar value of the world stock market capitalization,from largest to smallest is:

Accepted Answer

A) Europe and Middle East,Americas,Asia-Pacific 
B) Americas,Europe and Middle East,Asia-Pacific 
C) Americas,Asia-Pacific,Europe and Middle East

Question 2

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) 2.5% 
D) 5.0% 
E) 16.0%

Question 3

Based on the period of 1926 through 2012,_____ have tended to outperform other securities over the long-term.

Accepted Answer

A) U.S.Treasury bills 
B) large company stocks 
C) long-term corporate bonds 
D) small company stocks 
E) long-term government bonds

Question 4

The average annual return on small company stocks was about _____ percentage points greater than the average annual return on large-company stocks over the period of 1926 to 2012.

Accepted Answer

A) 3 
B) 5 
C) 7 
D) 9 
E) 11

Question 5

Excelsior share 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 6

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 7

A stock has an expected rate of return of 8.3% and a standard deviation of 6.4%.Which one of the following best describes the probability that this stock will lose 11% or more in any one given year?

Accepted Answer

A) less than 0.5% 
B) less than 1.0% 
C) less than 1.5% 
D) less than 2.5% 
E) less than 5%

Question 8

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 9

Estimates using the arithmetic average will probably tend to _____ values over the long-term while estimates using the geometric average will probably tend to _____ values over the short-term.

Accepted Answer

A) overestimate;overestimate 
B) overestimate;underestimate 
C) underestimate;overestimate 
D) underestimate;underestimate 
E) accurately;accurately

Question 10

You bought 100 shares of stock at $20 each.At the end of the year,you received a total of $400 in dividends,and your stock 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 11

What are the arithmetic and geometric average returns for a stock with annual returns of 4%,9%,-6%,and 18%?

Accepted Answer

A) 5.89%;6.25% 
B) 6.25%;5.89% 
C) 6.25%;8.33% 
D) 8.3%;5.89% 
E) 8.3%;6.25%

Question 12

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

Accepted Answer

A) $400;$500 
B) $400;$900 
C) $500;$900 
D) $900;$2,500 
E) None of the above

Question 13

Kids Toy Co.has had total returns over the past five years of 0%,7%,-2%,10%,and 12%.What was the arithmetic average return on this stock?

Accepted Answer

A) 5.40% 
B) 5.50% 
C) 6.15% 
D) 6.33% 
E) 6.75%

Question 14

Which one of the following is a correct statement concerning risk premium?

Accepted Answer

A) The greater the volatility of returns,the greater the risk premium. 
B) The lower the volatility of returns,the greater the risk premium. 
C) The lower the average rate of return,the greater the risk premium. 
D) The risk premium is not correlated to the average rate of return. 
E) The risk premium is not affected by the volatility of returns.

Question 15

Eight months ago,you purchased 400 shares of Winston,Inc.stock 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%

Question 16

One year ago,you purchased a stock at a price of $32.50.The stock pays quarterly dividends of $.40 per share.Today,the stock is worth $34.60 per share.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 17

Over the past five years,a stock produced returns of 14%,22%,-16%,2%,and 10%.What is the probability that an investor in this stock 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 18

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 19

The return pattern on your favorite stock has been 5%,8%,-12%,15%,21% over the last five years.What has been your average return and holding period return over the last 5 years?

Accepted Answer

A) 4.5%;6.5% 
B) 7.4%;38.9% 
C) 7.4%;7.76% 
D) 7.4%;76.73% 
E) None of the above

Question 20

Which country has the lowest stock market risk premium?

Accepted Answer

A) Denmark 
B) Belgium 
C) Switzerland 
D) Spain 
E) Norway

Exam 10: Risk and Return: Lessons From Market History