Question 1

Investors should earn a risk premium for bearing unsystematic risk.

Accepted Answer

A) True 
 B)False  False

Question 2

Suppose you invested $100 in the Ishares High Yield Fund (HYG) a month ago. It paid a dividend of $2 today and then you sold it for $100. What was your dividend yield and capital gains yield on the investment?

Accepted Answer

A)  2%, 2% 
B)  0%, 2% 
C)  3%, 2% 
D)  2%, 0% 
A)  2%, 2% 
B)  0%, 2% 
C)  3%, 2% 
D)  2%, 0% D

Question 3

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?

Accepted Answer

A)  -4.45% 
B)  -7.12% 
C)  -5.12% 
D)  0% 
A)  -4.45% 
B)  -7.12% 
C)  -5.12% 
D)  0% A

Question 4

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

Accepted Answer

A)  small stocks 
B)  S&P 500 
C)  corporate bonds 
D)  Treasury bills 
A)  small stocks 
B)  S&P 500 
C)  corporate bonds 
D)  Treasury bills

Question 5

The standard deviation of returns of ________. I. small stocks is higher than that of large stocks
  Which statement is true?

Accepted Answer

A)  I and III 
B)  I, II, and III 
C)  I and II 
D)  I only 
A)  I and III 
B)  I, II, and III 
C)  I and II 
D)  I only

Question 6

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

Accepted Answer

A)  66% 
B)  90% 
C)  75% 
D)  95% 
A)  66% 
B)  90% 
C)  75% 
D)  95%

Question 7

The S&P 500 index delivered a return of 10%, 15%, 15%, and -30% over four successive years. What is the arithmetic average annual return for four years?

Accepted Answer

A)  3.00% 
B)  3.50% 
C)  2.25% 
D)  2.50% 
A)  3.00% 
B)  3.50% 
C)  2.25% 
D)  2.50%

Question 8

Which of the following is NOT a diversifiable 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 
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

Question 9

Which type of investment has historically had the lowest volatility?

Accepted Answer

Investments in Treas

Question 10

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

Accepted Answer

A)  market risk 
B)  unsystematic risk 
C)  systematic risk 
D)  undiversifiable risk 
A)  market risk 
B)  unsystematic risk 
C)  systematic risk 
D)  undiversifiable risk

Question 11

Many former employees at AlphaEnergy, an energy trading and supply company, had a large part of their portfolio invested in AlphaEnergy's stock. These employees were bearing a high degree of ________ risk.

Accepted Answer

A)  unsystematic 
B)  systematic 
C)  market-specific 
D)  non-diversifiable 
A)  unsystematic 
B)  systematic 
C)  market-specific 
D)  non-diversifiable

Question 12

The average annual return over the period 1926-2009 for the S&P 500 is 12.0%, and the standard deviation of returns is 21.3%. Based on these numbers, what is a 95% confidence interval for 2010 returns?

Accepted Answer

A)  -1.5%, 21.8% 
B)  -10.7%, 32.8% 
C)  -30.6%, 54.6% 
D)  -30.6%, 76.4% 
A)  -1.5%, 21.8% 
B)  -10.7%, 32.8% 
C)  -30.6%, 54.6% 
D)  -30.6%, 76.4%

Question 13

When investing for a long term, 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 
A)  average, cumulative 
B)  cumulative, average 
C)  mean, cumulative 
D)  mean, average

Question 14

Comment on the accuracy of the statement that as we put more stocks in a portfolio, its risk gets eliminated to zero.

Accepted Answer

This is an inaccurate statemen

Question 15

Consider the following price and dividend data for Quicksilver Inc.:   Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it after the dividend had been paid at the closing price on January 26, 2005. Your dividend yield for this period is closest to ________.

Accepted Answer

A)  -7.80% 
B)  -8.53% 
C)  0.74% 
D)  0.81% 
A)  -7.80% 
B)  -8.53% 
C)  0.74% 
D)  0.81%

Question 16

Consider the following average annual returns:   What is the excess return for Treasury bills?

Accepted Answer

A)  0% 
B)  -9.1% 
C)  -3.2% 
D)  -2.4% 
A)  0% 
B)  -9.1% 
C)  -3.2% 
D)  -2.4%

Question 17

Treasury bill returns are 4%, 3%, 2%, and 5% over four years. The standard deviation of returns of Treasury bills is ________.

Accepted Answer

A)  1.55% 
B)  1.03% 
C)  0.90% 
D)  1.29% 
A)  1.55% 
B)  1.03% 
C)  0.90% 
D)  1.29%

Question 18

Rational investors ________ fluctuations in the value of their investments.

Accepted Answer

A)  are averse to 
B)  prefer 
C)  are indifferent to 
D)  are in favor of 
A)  are averse to 
B)  prefer 
C)  are indifferent to 
D)  are in favor of

Question 19

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?

Accepted Answer

A)  0.54%, 1.13% 
B)  0.57%, 1.08% 
C)  0.57%, 1.13% 
D)  1.08%, 1.18% 
A)  0.54%, 1.13% 
B)  0.57%, 1.08% 
C)  0.57%, 1.13% 
D)  1.08%, 1.18%

Question 20

The average annual return for the S&P 500 from 1886 to 2006 is 9.5%, with a standard deviation of 18%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

Accepted Answer

A)  -13.25%, 22.75% 
B)  -16.5%, 35.5% 
C)  -26.5%, 45.5% 
D)  -11.5%, 30.5% 
A)  -13.25%, 22.75% 
B)  -16.5%, 35.5% 
C)  -26.5%, 45.5% 
D)  -11.5%, 30.5%

Exam 11: Risk and Return in Capital Markets

Investors should earn a risk premium for bearing unsystematic risk.

Suppose you invested $100 in the Ishares High Yield Fund (HYG) a month ago. It paid a dividend of $2 today and then you sold it for $100. What was your dividend yield and capital gains yield on the investment?

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 had the largest fluctuations overall return over the past eighty years?

The standard deviation of returns of ________. I. small stocks is higher than that of large stocks Which statement is true?

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

The S&P 500 index delivered a return of 10%, 15%, 15%, and -30% over four successive years. What is the arithmetic average annual return for four years?

Which of the following is NOT a diversifiable risk?

Which type of investment has historically had the lowest volatility?

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

Many former employees at AlphaEnergy, an energy trading and supply company, had a large part of their portfolio invested in AlphaEnergy's stock. These employees were bearing a high degree of ________ risk.

The average annual return over the period 1926-2009 for the S&P 500 is 12.0%, and the standard deviation of returns is 21.3%. Based on these numbers, what is a 95% confidence interval for 2010 returns?

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

Comment on the accuracy of the statement that as we put more stocks in a portfolio, its risk gets eliminated to zero.

Consider the following average annual returns: What is the excess return for Treasury bills?

Treasury bill returns are 4%, 3%, 2%, and 5% over four years. The standard deviation of returns of Treasury bills is ________.

Rational investors ________ fluctuations in the value of their investments.

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 average annual return for the S&P 500 from 1886 to 2006 is 9.5%, with a standard deviation of 18%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters

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