Exam 11: Risk and Return in Capital Markets

If a stock pays dividends at the end of each quarter, with realized returns of R₁, R₂, R₃, and R₄ each quarter, then the annual realized return is calculated as ________.

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

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

Which of the following statements is FALSE?

The average annual return over the period 1926-2009 for small stocks is 21.2%, and the standard deviation of returns is 21.2%. Based on these numbers, what is a 95% confidence interval for 2010 returns?

Stocks with high returns are expected to have ________.

Consider the following average annual returns: What is the excess return for the S&P 500?

On average, stocks have delivered higher returns than bonds in the long run.

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

The average annual return for the S&P 500 from 1886 to 2006 is 5%, with a standard deviation of 15%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

The risk that is linked across outcomes is called ________.

Which of the following statements is FALSE?

What care, if any, should be taken when selecting stocks for an investment portfolio?

Because investors can eliminate unsystematic risk "for free" by diversifying their portfolios, they ________.

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

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.

Suppose you invested $60 in the Ishares Dividend Stock Fund (DVY) a month ago. It paid a dividend of $0.63 today and then you sold it for $65. What was your return on the investment?

Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential "blockbuster" drug before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has ten separate, less important drugs before the FDA waiting for approval. If approved, each of Little Cure's drugs would produce $100 million in net income. The probability of the FDA approving a drug is 40%. What is the expected payoff for Big Cure's blockbuster drug?

The risk premium of a stock is NOT affected by its ________.

If asset A's return is exactly two times asset B's return, then following risk return tradeoff, the standard deviation of asset A should be ________ times the standard deviation of asset B.