Question 1

Ellen just sold a stock and realized a 7.5 percent return for a 7-month holding period. What was her annualized rate of return?

Accepted Answer

A) 13.20% 
B) 14.49% 
C) 15.78% 
D) 16.29% 
E) 27.20% 
A) 13.20% 
B) 14.49% 
C) 15.78% 
D) 16.29% 
E) 27.20%

Question 2

Over the past four years, Hi-Tech Development stock returned 35.2, 38.8, 18.4, and −32.2 percent annually. What is the arithmetic average return?

Accepted Answer

A) 15.05% 
B) 17.67% 
C) 20.53% 
D) 24.20% 
E) 32.25% 
A) 15.05% 
B) 17.67% 
C) 20.53% 
D) 24.20% 
E) 32.25%

Question 3

The geometric return on a stock over the past 10 years was 7.9 percent. The arithmetic return over the same period was 8.8 percent. What is the best estimate of the average return on this stock over the next 5 years?

Accepted Answer

A) 8.40% 
B) 9.05% 
C) 9.08% 
D) 9.13% 
E) 9.47% 
A) 8.40% 
B) 9.05% 
C) 9.08% 
D) 9.13% 
E) 9.47%

Question 4

A stock sold for $25 at the beginning of the year. The end of year stock price was $25.50. What is the amount of the annual dividend if the total return for the year was 8.5 percent?

Accepted Answer

A) $1.23 
B) $1.50 
C) $1.63 
D) $1.81 
E) $2.12 
A) $1.23 
B) $1.50 
C) $1.63 
D) $1.81 
E) $2.12

Question 5

Jim began his investing program with a $4,000 initial investment. The table below recaps his returns each year as well as the amounts he added to his investment account. What is his dollar-weighted average return?
$$\begin{array} { c l c } 
\text { Time } & \text { Investment } & \text { Return } \
0 & \$ 4,000 & 10\%\
1 & \$ 2,800 & -5\% \
2 & \$900 &2\% \
3 & \$ 1,600&8\% \
4 & \$ 2,100 &-3\% \
5 & \$ 2,400 &6\%
\end{array}$$

Accepted Answer

A) 1.6% 
B) 2.2% 
C) 2.6% 
D) 3.2% 
E) 3.6% 
A) 1.6% 
B) 2.2% 
C) 2.6% 
D) 3.2% 
E) 3.6%

Question 6

Which one of the following statements is correct based on the historical returns for the period 1926-2018?

Accepted Answer

A) Treasury bills yielded a higher rate of return than long-term government bonds. 
B) The inflation rate exceeded the rate of return on Treasury bills during some years. 
C) Small-company stocks outperformed large-company stocks every year during the period. 
D) Bond prices, in general, were more volatile than stock prices. 
E) Large-company stocks outperformed small-company stocks. 
A) Treasury bills yielded a higher rate of return than long-term government bonds. 
B) The inflation rate exceeded the rate of return on Treasury bills during some years. 
C) Small-company stocks outperformed large-company stocks every year during the period. 
D) Bond prices, in general, were more volatile than stock prices. 
E) Large-company stocks outperformed small-company stocks.

Question 7

Downtown Industries' common stock had returns of 5.2, 10.3, 9.3, and 9.5 percent, respectively, over the past four years. What is the standard deviation of these returns?

Accepted Answer

A) 2.29% 
B) 2.38% 
C) 2.41% 
D) 2.59% 
E) 2.82% 
A) 2.29% 
B) 2.38% 
C) 2.41% 
D) 2.59% 
E) 2.82%

Question 8

Celsius stock had year-end prices of $42, $37, $44, and $46 over the past four years, respectively. What is the arithmetic average rate of return?

Accepted Answer

A) 3.17% 
B) 3.85% 
C) 4.28% 
D) 10.63% 
E) 11.79% 
A) 3.17% 
B) 3.85% 
C) 4.28% 
D) 10.63% 
E) 11.79%

Question 9

Which one of the following statements is correct?

Accepted Answer

A) The standard deviation of the returns on Treasury bills is zero. 
B) Large-company stocks are historically riskier than small-company stocks. 
C) The standard deviation is a means of measuring the volatility of returns on an investment. 
D) A risky asset will always have a higher annual rate of return than a riskless asset. 
E) There is an indirect relationship between risk and return. 
A) The standard deviation of the returns on Treasury bills is zero. 
B) Large-company stocks are historically riskier than small-company stocks. 
C) The standard deviation is a means of measuring the volatility of returns on an investment. 
D) A risky asset will always have a higher annual rate of return than a riskless asset. 
E) There is an indirect relationship between risk and return.

Question 10

The geometric return on an asset over the past 12 years has been 14.50 percent. The arithmetic return over the same period was 14.96 percent. What is the best estimate of the average return on this asset over the next 5 years?

Accepted Answer

A) 14.47% 
B) 14.67% 
C) 14.79% 
D) 14.88% 
E) 14.86% 
A) 14.47% 
B) 14.67% 
C) 14.79% 
D) 14.88% 
E) 14.86%

Question 11

The geometric mean return on large-company stocks for the 1926-2018 period:

Accepted Answer

A) is approximately equal to the arithmetic mean return plus one-half of the standard deviation. 
B) exceeds the arithmetic mean return. 
C) is approximately equal to the arithmetic mean return minus one-half of the standard deviation. 
D) is approximately equal to the arithmetic mean return plus one-half of the variance. 
E) is less than the arithmetic mean return. 
A) is approximately equal to the arithmetic mean return plus one-half of the standard deviation. 
B) exceeds the arithmetic mean return. 
C) is approximately equal to the arithmetic mean return minus one-half of the standard deviation. 
D) is approximately equal to the arithmetic mean return plus one-half of the variance. 
E) is less than the arithmetic mean return.

Question 12

An asset had annual returns of 12, 18, 6, −9, and 5 percent, respectively, for the last five years. What is the variance of these returns?

Accepted Answer

A) .00810 
B) .01013 
C) .01065 
D) .02038 
E) .04052 
A) .00810 
B) .01013 
C) .01065 
D) .02038 
E) .04052

Question 13

Which one of the following statements is correct concerning the dividend yield and the total return?

Accepted Answer

A) The dividend yield can be zero while the total return must be a positive value. 
B) The total return can be negative but the dividend yield cannot be negative. 
C) The total return must be greater than the dividend yield. 
D) The total return plus the capital gains yield is equal to the dividend yield. 
E) The dividend yield exceeds the total return when a stock increases in value. 
A) The dividend yield can be zero while the total return must be a positive value. 
B) The total return can be negative but the dividend yield cannot be negative. 
C) The total return must be greater than the dividend yield. 
D) The total return plus the capital gains yield is equal to the dividend yield. 
E) The dividend yield exceeds the total return when a stock increases in value.

Question 14

The mean plus or minus one standard deviation defines the ________ percent probability range of a normal distribution.

Accepted Answer

A) 50 
B) 68 
C) 82 
D) 90 
E) 95 
A) 50 
B) 68 
C) 82 
D) 90 
E) 95

Question 15

Over the past five years, Teen Clothing stock produced returns of 18.7, 5.8, 7.9, 10.8, and 11.6 percent, respectively. For the same five years, the risk-free rate was 5.2, 3.4, 2.8, 3.4, and 3.9 percent, respectively. What is the arithmetic average risk premium on Teen Clothing stock for this time period?

Accepted Answer

A) 6.89% 
B) 7.01% 
C) 7.22% 
D) 7.34% 
E) 7.57% 
A) 6.89% 
B) 7.01% 
C) 7.22% 
D) 7.34% 
E) 7.57%

Question 16

An asset had returns of 7.7, 5.4, 3.6, −4.2, and −1.3 percent, respectively, over the past five years. What is the variance of these returns?

Accepted Answer

A) .00173 
B) .00184 
C) .00216 
D) .00239 
E) .00259 
A) .00173 
B) .00184 
C) .00216 
D) .00239 
E) .00259

Question 17

Christine owns a stock that dropped in price from $43.57 per share to $39.49 per share over the past year. The dividend yield on that stock is 1.6 percent. What is her total return on this investment for the year?

Accepted Answer

A) −11.31% 
B) −10.49% 
C) −9.11% 
D) −8.73% 
E) −8.04% 
A) −11.31% 
B) −10.49% 
C) −9.11% 
D) −8.73% 
E) −8.04%

Question 18

Shane purchased a stock this morning at a cost of $13 a share. He expects to receive an annual dividend of $.27 a share next year. What will the price of the stock have to be one year from today if Shane is to earn an 8 percent rate of return on this investment?

Accepted Answer

A) $12.38 
B) $12.60 
C) $12.88 
D) $13.77 
E) $14.28 
A) $12.38 
B) $12.60 
C) $12.88 
D) $13.77 
E) $14.28

Question 19

Last year, ABC stock returned 12.6 percent, the risk-free rate was 4.0 percent, and the inflation rate was 2.5 percent. What was the risk premium on ABC stock?

Accepted Answer

A) 8.20% 
B) 8.43% 
C) 8.60% 
D) 8.88% 
E) 8.97% 
A) 8.20% 
B) 8.43% 
C) 8.60% 
D) 8.88% 
E) 8.97%

Question 20

Which one of the following had the highest risk premium for the period 1926-2018?

Accepted Answer

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

Ellen just sold a stock and realized a 7.5 percent return for a 7-month holding period. What was her annualized rate of return?

Over the past four years, Hi-Tech Development stock returned 35.2, 38.8, 18.4, and −32.2 percent annually. What is the arithmetic average return?

The geometric return on a stock over the past 10 years was 7.9 percent. The arithmetic return over the same period was 8.8 percent. What is the best estimate of the average return on this stock over the next 5 years?

A stock sold for $25 at the beginning of the year. The end of year stock price was $25.50. What is the amount of the annual dividend if the total return for the year was 8.5 percent?

Which one of the following statements is correct based on the historical returns for the period 1926-2018?

Downtown Industries' common stock had returns of 5.2, 10.3, 9.3, and 9.5 percent, respectively, over the past four years. What is the standard deviation of these returns?

Celsius stock had year-end prices of $42, $37, $44, and $46 over the past four years, respectively. What is the arithmetic average rate of return?

Which one of the following statements is correct?

The geometric return on an asset over the past 12 years has been 14.50 percent. The arithmetic return over the same period was 14.96 percent. What is the best estimate of the average return on this asset over the next 5 years?

The geometric mean return on large-company stocks for the 1926-2018 period:

An asset had annual returns of 12, 18, 6, −9, and 5 percent, respectively, for the last five years. What is the variance of these returns?

Which one of the following statements is correct concerning the dividend yield and the total return?

The mean plus or minus one standard deviation defines the ________ percent probability range of a normal distribution.

An asset had returns of 7.7, 5.4, 3.6, −4.2, and −1.3 percent, respectively, over the past five years. What is the variance of these returns?

Christine owns a stock that dropped in price from $43.57 per share to $39.49 per share over the past year. The dividend yield on that stock is 1.6 percent. What is her total return on this investment for the year?

Shane purchased a stock this morning at a cost of $13 a share. He expects to receive an annual dividend of $.27 a share next year. What will the price of the stock have to be one year from today if Shane is to earn an 8 percent rate of return on this investment?

Last year, ABC stock returned 12.6 percent, the risk-free rate was 4.0 percent, and the inflation rate was 2.5 percent. What was the risk premium on ABC stock?

Which one of the following had the highest risk premium for the period 1926-2018?

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 1: A Brief History of Risk and Return

Ellen just sold a stock and realized a 7.5 percent return for a 7-month holding period. What was her annualized rate of return?

Over the past four years, Hi-Tech Development stock returned 35.2, 38.8, 18.4, and −32.2 percent annually. What is the arithmetic average return?

The geometric return on a stock over the past 10 years was 7.9 percent. The arithmetic return over the same period was 8.8 percent. What is the best estimate of the average return on this stock over the next 5 years?

A stock sold for $25 at the beginning of the year. The end of year stock price was $25.50. What is the amount of the annual dividend if the total return for the year was 8.5 percent?

Which one of the following statements is correct based on the historical returns for the period 1926-2018?

Downtown Industries' common stock had returns of 5.2, 10.3, 9.3, and 9.5 percent, respectively, over the past four years. What is the standard deviation of these returns?

Celsius stock had year-end prices of $42, $37, $44, and $46 over the past four years, respectively. What is the arithmetic average rate of return?

Which one of the following statements is correct?

The geometric return on an asset over the past 12 years has been 14.50 percent. The arithmetic return over the same period was 14.96 percent. What is the best estimate of the average return on this asset over the next 5 years?

The geometric mean return on large-company stocks for the 1926-2018 period:

An asset had annual returns of 12, 18, 6, −9, and 5 percent, respectively, for the last five years. What is the variance of these returns?

Which one of the following statements is correct concerning the dividend yield and the total return?

The mean plus or minus one standard deviation defines the ________ percent probability range of a normal distribution.

An asset had returns of 7.7, 5.4, 3.6, −4.2, and −1.3 percent, respectively, over the past five years. What is the variance of these returns?

Christine owns a stock that dropped in price from $43.57 per share to $39.49 per share over the past year. The dividend yield on that stock is 1.6 percent. What is her total return on this investment for the year?

Shane purchased a stock this morning at a cost of $13 a share. He expects to receive an annual dividend of $.27 a share next year. What will the price of the stock have to be one year from today if Shane is to earn an 8 percent rate of return on this investment?

Last year, ABC stock returned 12.6 percent, the risk-free rate was 4.0 percent, and the inflation rate was 2.5 percent. What was the risk premium on ABC stock?

Which one of the following had the highest risk premium for the period 1926-2018?

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters