Question 1

Risk that is linked across outcomes is called:

Accepted Answer

A) diversifiable risk. 
B) common risk. 
C) uncorrelated risk. 
D) independent risk. 
E) systematic risk. 
A) diversifiable risk. 
B) common risk. 
C) uncorrelated risk. 
D) independent risk. 
E) systematic risk.

Question 2

Your investment over one year had a realized return of 9% and a dividend yield of 6%.If the sale price was $45 per share,what was the cost of the investment?

Accepted Answer

A) $41.28 
B) $43.69 
C) $44.21 
D) $45.00 
E) $46.35 
A) $41.28 
B) $43.69 
C) $44.21 
D) $45.00 
E) $46.35

Question 3

The standard deviation for the return on an portfolio of 20 type S firms is closest to:

Accepted Answer

A) 15.0% 
B) 23.0% 
C) 5.25% 
D) 5.10% 
E) 20.0% 
A) 15.0% 
B) 23.0% 
C) 5.25% 
D) 5.10% 
E) 20.0%

Question 4

While ________ seems to be a reasonable measure of risk when evaluating a large portfolio,the ________ of an individual security does not explain the size of its average return.

Accepted Answer

A) volatility,volatility 
B) the mean return,standard deviation 
C) mode,volatility 
D) volatility,compound annual return 
E) volatility,mean return 
A) volatility,volatility 
B) the mean return,standard deviation 
C) mode,volatility 
D) volatility,compound annual return 
E) volatility,mean return

Question 5

The risk premium is the difference between the average return on a security and the average return for:

Accepted Answer

A) long-term Government of Canada bonds. 
B) a portfolio of securities with similar risk. 
C) a broad-based market portfolio like the S&P 500 index. 
D) Treasury bills. 
E) corporate bonds. 
A) long-term Government of Canada bonds. 
B) a portfolio of securities with similar risk. 
C) a broad-based market portfolio like the S&P 500 index. 
D) Treasury bills. 
E) corporate bonds.

Question 6

There is an overall relationship between ________ and ________-larger stocks have a lower volatility overall.

Accepted Answer

A) size,risk 
B) mean,standard deviation 
C) risk aversion,size 
D) volatility,mean 
E) return,size 
A) size,risk 
B) mean,standard deviation 
C) risk aversion,size 
D) volatility,mean 
E) return,size

Question 7

Stocks with high returns are expected to have:

Accepted Answer

A) high variability. 
B) low variability. 
C) no relation to variability. 
D) inverse relationship with variability. 
E) no variability. 
A) high variability. 
B) low variability. 
C) no relation to variability. 
D) inverse relationship with variability. 
E) no variability.

Question 8

When investing for a long horizon,investors care about the volatility of ________ returns and not the volatility of ________ returns.

Accepted Answer

A) average,cumulative 
B) cumulative,average 
C) mean,cumulative 
D) mean,average 
E) average,mean 
A) average,cumulative 
B) cumulative,average 
C) mean,cumulative 
D) mean,average 
E) average,mean

Question 9

Which of the following is a systematic risk?

Accepted Answer

A) the risk that oil prices rise,increasing production costs 
B) the risk that the CEO is killed in a plane crash 
C) the risk of a key employee being hired away by a competitor 
D) the risk of a product liability lawsuit 
E) the risk of an equipment failure 
A) the risk that oil prices rise,increasing production costs 
B) the risk that the CEO is killed in a plane crash 
C) the risk of a key employee being hired away by a competitor 
D) the risk of a product liability lawsuit 
E) the risk of an equipment failure

Question 10

You own shares in Yahoo that were purchased at a price of $21 per share.Microsoft has offered to purchase Yahoo and buy your shares at a price of $31 per share.What will be your return if you tender your shares to Microsoft and the deal is completed?

Accepted Answer

A) 47.62% 
B) 33.45% 
C) 49.65% 
D) 43.34% 
E) 37.71% 
A) 47.62% 
B) 33.45% 
C) 49.65% 
D) 43.34% 
E) 37.71%

Question 11

Which of the following investments had the largest fluctuations in overall return over the past fifty years?

Accepted Answer

A) S&P/TSX Composite Index 
B) S&P 500 
C) corporate bonds 
D) Treasury bills 
E) long-term Government of Canada bonds 
A) S&P/TSX Composite Index 
B) S&P 500 
C) corporate bonds 
D) Treasury bills 
E) long-term Government of Canada bonds

Question 12

Use the table for the question(s)below.
Consider the following price and dividend data for Ford Motor Company:
  
-Assume that you purchased Ford Motor Company stock at the closing price on December 31,2014 and sold it at the closing price on December 30,2015.Your realized annual return is for the year 2015 is closest to:

Accepted Answer

A) -44.5% 
B) -45.1% 
C) -47.3% 
D) -48.5% 
E) -46.3% 
A) -44.5% 
B) -45.1% 
C) -47.3% 
D) -48.5% 
E) -46.3%

Question 13

Use the table for the question(s)below.
Consider the following realized annual returns:
  
-The average annual return on the S&P 500 from 1996 to 2005 is closest to:

Accepted Answer

A) 8.75% 
B) 4.00% 
C) 7.10% 
D) 9.75% 
E) 5.85% 
A) 8.75% 
B) 4.00% 
C) 7.10% 
D) 9.75% 
E) 5.85%

Question 14

How does diversification affect systematic and unsystematic risk?

Accepted Answer

Diversification does not affect systemat

Question 15

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 10.5%,and the standard deviation of returns is 18.5%.Based on these numbers,what is a 95% confidence interval for 2007 returns?

Accepted Answer

A) -18.5%,18.5% 
B) -10%,10% 
C) -26.5%,47.5% 
D) -37%,37% 
E) -8%,29% 
A) -18.5%,18.5% 
B) -10%,10% 
C) -26.5%,47.5% 
D) -37%,37% 
E) -8%,29%

Question 16

Lululemon Athletica stock had a realized return of 7%,-2%,-3%,and -8% over four successive quarters.What is your annual realized return if you bought Lululemon at the beginning of the year and sold it at the end of the year?

Accepted Answer

A) -1.5% 
B) 21.4% 
C) -6% 
D) -6.4% 
E) 0% 
A) -1.5% 
B) 21.4% 
C) -6% 
D) -6.4% 
E) 0%

Question 17

Use the table for the question(s)below.
Consider the following average annual returns:
  
-What is the risk premium for the S&P 500?

Accepted Answer

A) 5.7% 
B) 7.0% 
C) 0% 
D) 8.4% 
E) 4.5% 
A) 5.7% 
B) 7.0% 
C) 0% 
D) 8.4% 
E) 4.5%

Question 18

If the returns on a stock index can be characterized by a normal distribution with mean 12%,the probability that returns will be lower than 12% over the next period equals:

Accepted Answer

A) 50% 
B) 25% 
C) 46% 
D) 33% 
E) 70% 
A) 50% 
B) 25% 
C) 46% 
D) 33% 
E) 70%

Question 19

What is the expected payoff for Little Cure's ten drugs?

Accepted Answer

A) $500 million 
B) $100 million 
C) $1 billion 
D) $0 
E) $50 million 
A) $500 million 
B) $100 million 
C) $1 billion 
D) $0 
E) $50 million

Question 20

Suppose you invested $33 in Pfizer one month ago.It paid a dividend of $0.88 and you sold it right after the dividend was paid for $31.14.What was your realized return from holding the stock?

Accepted Answer

A) 2.7% 
B) 8.7% 
C) 8.3% 
D) -2.9% 
E) -5.6% 
A) 2.7% 
B) 8.7% 
C) 8.3% 
D) -2.9% 
E) -5.6%

Exam 10: Risk and Return in Capital Markets

Risk that is linked across outcomes is called:

Your investment over one year had a realized return of 9% and a dividend yield of 6%.If the sale price was $45 per share,what was the cost of the investment?

The standard deviation for the return on an portfolio of 20 type S firms is closest to:

While ________ seems to be a reasonable measure of risk when evaluating a large portfolio,the ________ of an individual security does not explain the size of its average return.

The risk premium is the difference between the average return on a security and the average return for:

There is an overall relationship between ________ and ________-larger stocks have a lower volatility overall.

Stocks with high returns are expected to have:

When investing for a long horizon,investors care about the volatility of ________ returns and not the volatility of ________ returns.

Which of the following is a systematic risk?

You own shares in Yahoo that were purchased at a price of $21 per share.Microsoft has offered to purchase Yahoo and buy your shares at a price of $31 per share.What will be your return if you tender your shares to Microsoft and the deal is completed?

Which of the following investments had the largest fluctuations in overall return over the past fifty years?

Use the table for the question(s)below. Consider the following realized annual returns: -The average annual return on the S&P 500 from 1996 to 2005 is closest to:

How does diversification affect systematic and unsystematic risk?

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 10.5%,and the standard deviation of returns is 18.5%.Based on these numbers,what is a 95% confidence interval for 2007 returns?

Lululemon Athletica stock had a realized return of 7%,-2%,-3%,and -8% over four successive quarters.What is your annual realized return if you bought Lululemon at the beginning of the year and sold it at the end of the year?

Use the table for the question(s)below. Consider the following average annual returns: -What is the risk premium for the S&P 500?

If the returns on a stock index can be characterized by a normal distribution with mean 12%,the probability that returns will be lower than 12% over the next period equals:

What is the expected payoff for Little Cure's ten drugs?

Suppose you invested $33 in Pfizer one month ago.It paid a dividend of $0.88 and you sold it right after the dividend was paid for $31.14.What was your realized return from holding the stock?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

While seems to be a reasonable measure of risk when evaluating a large portfolio,the of an individual security does not explain the size of its average return.

There is an overall relationship between and -larger stocks have a lower volatility overall.

When investing for a long horizon,investors care about the volatility of returns and not the volatility of returns.