Exam 11: Risk and Return in Capital Markets

A portfolio of stocks where each stock has a large component of independent risk benefits when such stocks are held in a portfolio, because the independent risks are averaged out. This is also referred to as diversification of risks.

Amazon.com stock prices gave a realized return of 15%, 15%, -15%, and -15% over four successive quarters. What is the annual realized return for Amazon.com for the year?

Which of the following investments offered the lowest overall return over the past eighty years?

A company's stock price jumped when it announced that its revenue had decreased because of the quality issues of its products. This is an example of ________.

Two slot machines offer to double your money 3 times out of 5. Machine A takes $10 bets and Machine B takes $100 bets on each occasion. A risk-averse investor prefers to bet on ________.

In the United States over the long term, small stocks have provided the highest return followed by the large stocks in the S&P 500.

Investors demand a higher return for investments that have larger fluctuations in values because ________.

Consider the following realized annual returns: The average annual return on IBM from 1996 to 2005 is closest to ________.

Suppose that a stock gave a realized return of 20% over a two-year time period and a 10% return over the third year. The geometric average annual return is ________.

When looking at investment portfolios historically, was there a pattern between returns and volatility?

There is a clear link between the volatility of returns for individual stocks and the returns for individual stocks.

Which of the following statements is FALSE?

What is the diversification achieved by an investor if he invests in Exxon Mobil, Dell, and Bank of America?

Independent risks can be diversified by holding a large number of uncorrelated assets with independent risks.

Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently of each other. For both types of firms there is a 20% probability that they will have a 20% return and a(n)80% probability that they will have a -30% return. What is the expected return for an individual firm?

Suppose the quarterly arithmetic average return for a stock is 10% per quarter and the stock gives a return of 15% each over the next two quarters. The arithmetic average return over the six quarters is ________.

Ford Motor Company had realized returns of 15%, 30%, -15%, and -30% over four quarters. What is the quarterly standard deviation of returns for Ford?

Consider the following average annual returns: What is the excess return for corporate bonds?

Suppose you invested $93 in the Ishares High Yield Fund (HYG)a month ago. It paid a dividend of $0.53 today and then you sold it for $94. What was your dividend yield and capital gains yield on the investment?

The probability mass between two standard deviations around the mean for a normal distribution is ________.