Question 1

Based on the period 1926-2012,the risk premium for U.S.Treasury bills was:

Accepted Answer

A) 0.0 percent. 
B) 1.2 percent. 
C) 2.0 percent. 
D) 2.4 percent. 
E) 2.7 percent. 
A) 0.0 percent. 
B) 1.2 percent. 
C) 2.0 percent. 
D) 2.4 percent. 
E) 2.7 percent.

Question 2

A stock has an average arithmetic return of 10.55 percent and an average geometric return of 10.41 percent based on the annual returns for the last 15 years.What is projected average annual return on this stock for the next 10 years?

Accepted Answer

A) 10.17 percent 
B) 10.21 percent 
C) 10.38 percent 
D) 10.46 percent 
E) 10.79 percent 
A) 10.17 percent 
B) 10.21 percent 
C) 10.38 percent 
D) 10.46 percent 
E) 10.79 percent

Question 3

Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share.After six months,he resold the stock for $71.30 a share.What was his total dollar return?

Accepted Answer

A) $1,008 
B) $1,860 
C) $2,712 
D) $3,211 
E) $3,400 
A) $1,008 
B) $1,860 
C) $2,712 
D) $3,211 
E) $3,400

Question 4

Downtown Industries common stock had returns of 8.2,12.2,11.5,and 6.3 percent,respectively,over the past four years.What is the standard deviation of these returns?

Accepted Answer

A) 2.07 percent 
B) 2.38 percent 
C) 2.41 percent 
D) 2.59 percent 
E) 2.82 percent 
A) 2.07 percent 
B) 2.38 percent 
C) 2.41 percent 
D) 2.59 percent 
E) 2.82 percent

Question 5

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 6

Joanne invested $15,000 six years ago.Her arithmetic average return on this investment is 8.72 percent,and her geometric average return is 8.50 percent.What is Joanne's portfolio worth today?

Accepted Answer

A) $23,989 
B) $24,472 
C) $26,409 
D) $26,514 
E) $26,766 
A) $23,989 
B) $24,472 
C) $26,409 
D) $26,514 
E) $26,766

Question 7

You own a stock that has produced an arithmetic average return of 7.8 percent over the past five years.The annual returns for the first four years were 16,11,-19,and 3 percent,respectively. What was the rate of return on the stock in year five?

Accepted Answer

A) -5.00 percent 
B) 2.75 percent 
C) 6.25 percent 
D) 28.00 percent 
E) 32.00 percent 
A) -5.00 percent 
B) 2.75 percent 
C) 6.25 percent 
D) 28.00 percent 
E) 32.00 percent

Question 8

For the period 1926-2012,the annual return on large-company stocks:

Accepted Answer

A) was negative following every three-year period of positive returns. 
B) was only negative for two or more consecutive years during the Great Depression. 
C) remained negative for at least two consecutive years anytime that it was negative. 
D) never exceeded a positive 30 percent nor lost more than 20 percent. 
E) was unpredictable based on the prior year's performance. 
A) was negative following every three-year period of positive returns. 
B) was only negative for two or more consecutive years during the Great Depression. 
C) remained negative for at least two consecutive years anytime that it was negative. 
D) never exceeded a positive 30 percent nor lost more than 20 percent. 
E) was unpredictable based on the prior year's performance.

Question 9

Which one of the following had the smallest standard deviation of returns for the period 1926-2012?

Accepted Answer

A) large-company stocks 
B) small-company stocks 
C) long-term government bonds 
D) intermediate-term government bonds 
E) long-term corporate bonds 
A) large-company stocks 
B) small-company stocks 
C) long-term government bonds 
D) intermediate-term government bonds 
E) long-term corporate bonds

Question 10

An annualized return:

Accepted Answer

A) is less than a holding period return when the holding period is less than one year. 
B) is expressed as the summation of the capital gains yield and the dividend yield on an investment. 
C) is expressed as the capital gains yield that would have been realized if an investment had been held for a twelve-month period. 
D) is computed as (1 + holding period percentage return)m, where m is the number of holding periods in a year. 
E) is computed as (1 + holding period percentage return)m, where m is the number of months in the holding period. 
A) is less than a holding period return when the holding period is less than one year. 
B) is expressed as the summation of the capital gains yield and the dividend yield on an investment. 
C) is expressed as the capital gains yield that would have been realized if an investment had been held for a twelve-month period. 
D) is computed as (1 + holding period percentage return)m, where m is the number of holding periods in a year. 
E) is computed as (1 + holding period percentage return)m, where m is the number of months in the holding period.

Question 11

The arithmetic average return is the:

Accepted Answer

A) summation of the returns for a number of years, t, divided by (t - 1). 
B) compound total return for a period of years, t, divided by t. 
C) average compound return earned per year over a multi-year period. 
D) average squared return earned in a single year. 
E) return earned in an average year over a multi-year period. 
A) summation of the returns for a number of years, t, divided by (t - 1). 
B) compound total return for a period of years, t, divided by t. 
C) average compound return earned per year over a multi-year period. 
D) average squared return earned in a single year. 
E) return earned in an average year over a multi-year period.

Question 12

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

Question 13

Which one of the following had the highest risk premium for the period 1926-2012?

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

Question 14

A frequency distribution,which is completely defined by its average (mean)and standard deviation,is referred to as a(n):

Accepted Answer

A) normal distribution. 
B) variance distribution. 
C) expected rate of return. 
D) average geometric return. 
E) average arithmetic return. 
A) normal distribution. 
B) variance distribution. 
C) expected rate of return. 
D) average geometric return. 
E) average arithmetic return.

Question 15

The risk-free rate is:

Accepted Answer

A) another term for the dividend yield. 
B) defined as the increase in the value of a share of stock over time. 
C) the rate of return earned on an investment in a firm that you personally own. 
D) defined as the total of the capital gains yield plus the dividend yield. 
E) the rate of return on a riskless investment. 
A) another term for the dividend yield. 
B) defined as the increase in the value of a share of stock over time. 
C) the rate of return earned on an investment in a firm that you personally own. 
D) defined as the total of the capital gains yield plus the dividend yield. 
E) the rate of return on a riskless investment.

Question 16

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?

Accepted Answer

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

Question 17

The geometric return on an investment is approximately equal to the arithmetic return:

Accepted Answer

A) plus half the standard deviation. 
B) plus half the variance. 
C) minus half the standard deviation. 
D) minus half the variance. 
E) divided by two. 
A) plus half the standard deviation. 
B) plus half the variance. 
C) minus half the standard deviation. 
D) minus half the variance. 
E) divided by two.

Question 18

You have owned a stock for seven years.The geometric average return on this investment for those seven years is positive even though the annual rates of return have varied significantly.Given this,you know the arithmetic average return for the period is:

Accepted Answer

A) positive but less than the geometric average return. 
B) less than the geometric return and could be negative, zero, or positive. 
C) equal to the geometric average return. 
D) either equal to or greater than the geometric average return. 
E) greater than the geometric average return. 
A) positive but less than the geometric average return. 
B) less than the geometric return and could be negative, zero, or positive. 
C) equal to the geometric average return. 
D) either equal to or greater than the geometric average return. 
E) greater than the geometric average return.

Question 19

A stock sold for $25 at the beginning of the year.The end of year stock price was $25.70.What is the amount of the annual dividend if the total return for the year was 7.7 percent?

Accepted Answer

A) $1.23 
B) $1.38 
C) $1.60 
D) $1.81 
E) $2.31 
A) $1.23 
B) $1.38 
C) $1.60 
D) $1.81 
E) $2.31

Question 20

The risk premium is defined as the rate of return on:

Accepted Answer

A) a risky asset minus the risk-free rate. 
B) the overall market. 
C) a U.S. Treasury bill. 
D) a risky asset minus the inflation rate. 
E) a riskless investment. 
A) a risky asset minus the risk-free rate. 
B) the overall market. 
C) a U.S. Treasury bill. 
D) a risky asset minus the inflation rate. 
E) a riskless investment.

Based on the period 1926-2012,the risk premium for U.S.Treasury bills was:

A stock has an average arithmetic return of 10.55 percent and an average geometric return of 10.41 percent based on the annual returns for the last 15 years.What is projected average annual return on this stock for the next 10 years?

Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share.After six months,he resold the stock for $71.30 a share.What was his total dollar return?

Downtown Industries common stock had returns of 8.2,12.2,11.5,and 6.3 percent,respectively,over the past four years.What is the standard deviation of these returns?

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

Joanne invested $15,000 six years ago.Her arithmetic average return on this investment is 8.72 percent,and her geometric average return is 8.50 percent.What is Joanne's portfolio worth today?

You own a stock that has produced an arithmetic average return of 7.8 percent over the past five years.The annual returns for the first four years were 16,11,-19,and 3 percent,respectively. What was the rate of return on the stock in year five?

For the period 1926-2012,the annual return on large-company stocks:

Which one of the following had the smallest standard deviation of returns for the period 1926-2012?

An annualized return:

The arithmetic average return is the:

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 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?

Which one of the following had the highest risk premium for the period 1926-2012?

A frequency distribution,which is completely defined by its average (mean)and standard deviation,is referred to as a(n):

The risk-free rate is:

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?

The geometric return on an investment is approximately equal to the arithmetic return:

You have owned a stock for seven years.The geometric average return on this investment for those seven years is positive even though the annual rates of return have varied significantly.Given this,you know the arithmetic average return for the period is:

A stock sold for $25 at the beginning of the year.The end of year stock price was $25.70.What is the amount of the annual dividend if the total return for the year was 7.7 percent?

The risk premium is defined as the rate of return on:

The Investment Process

Overview of Security Types

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

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 1: A Brief History of Risk and Return

Based on the period 1926-2012,the risk premium for U.S.Treasury bills was:

A stock has an average arithmetic return of 10.55 percent and an average geometric return of 10.41 percent based on the annual returns for the last 15 years.What is projected average annual return on this stock for the next 10 years?

Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share.After six months,he resold the stock for $71.30 a share.What was his total dollar return?

Downtown Industries common stock had returns of 8.2,12.2,11.5,and 6.3 percent,respectively,over the past four years.What is the standard deviation of these returns?

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

Joanne invested $15,000 six years ago.Her arithmetic average return on this investment is 8.72 percent,and her geometric average return is 8.50 percent.What is Joanne's portfolio worth today?

You own a stock that has produced an arithmetic average return of 7.8 percent over the past five years.The annual returns for the first four years were 16,11,-19,and 3 percent,respectively. What was the rate of return on the stock in year five?

For the period 1926-2012,the annual return on large-company stocks:

Which one of the following had the smallest standard deviation of returns for the period 1926-2012?

An annualized return:

The arithmetic average return is the:

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 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?

Which one of the following had the highest risk premium for the period 1926-2012?

A frequency distribution,which is completely defined by its average (mean)and standard deviation,is referred to as a(n):

The risk-free rate is:

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?

The geometric return on an investment is approximately equal to the arithmetic return:

You have owned a stock for seven years.The geometric average return on this investment for those seven years is positive even though the annual rates of return have varied significantly.Given this,you know the arithmetic average return for the period is:

A stock sold for $25 at the beginning of the year.The end of year stock price was $25.70.What is the amount of the annual dividend if the total return for the year was 7.7 percent?

The risk premium is defined as the rate of return on:

The Investment Process

Overview of Security Types

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

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters