Question 1

Which of the following statements is FALSE?

Accepted Answer

A)  On average, larger stocks have higher volatility than smaller stocks. 
B)  Portfolios of large stocks are typically less volatile than individual large stocks. 
C)  On average, smaller stocks have higher returns than larger stocks. 
D)  On average, Treasury Bills have lower returns than corporate bonds. 
A)  On average, larger stocks have higher volatility than smaller stocks. 
B)  Portfolios of large stocks are typically less volatile than individual large stocks. 
C)  On average, smaller stocks have higher returns than larger stocks. 
D)  On average, Treasury Bills have lower returns than corporate bonds.

Question 2

If returns on stock A are more volatile than the returns on stock B, the geometric average return of stock A will be ________ the geometric average return of stock B when their arithmetic average returns are same.

Accepted Answer

A)  same as 
B)  higher than 
C)  lower than 
D)  always same as 
A)  same as 
B)  higher than 
C)  lower than 
D)  always same as

Question 3

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

Accepted Answer

Yes, there is a direct relatio

Question 4

The Ishares Bond Index fund (TLT) has a mean and annual standard deviation of returns of 5% and 10%, respectively. What is the 66% confidence interval for the returns on TLT?

Accepted Answer

A)  -7%, 10% 
B)  5%, 10% 
C)  -5%, 15% 
D)  -10%, 10% 
A)  -7%, 10% 
B)  5%, 10% 
C)  -5%, 15% 
D)  -10%, 10%

Question 5

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 6

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

Question 7

What are the two components of realized return from a stock investment?

Accepted Answer

The total realized return earn

Question 8

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?

Accepted Answer

A)  24.65% 
B)  32.86% 
C)  27.39% 
D)  30.12% 
A)  24.65% 
B)  32.86% 
C)  27.39% 
D)  30.12%

Question 9

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?

Accepted Answer

A)  -10.6%, 31.8% 
B)  0%, 42.4% 
C)  -21.2%, 42.4% 
D)  -21.2%, 63.6% 
A)  -10.6%, 31.8% 
B)  0%, 42.4% 
C)  -21.2%, 42.4% 
D)  -21.2%, 63.6%

Question 10

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 11

As we increase the number of stocks in a portfolio, the standard deviation of returns of the portfolio ________.

Accepted Answer

A)  increases 
B)  remains unchanged 
C)  decreases 
D)  doubles 
A)  increases 
B)  remains unchanged 
C)  decreases 
D)  doubles

Question 12

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%

Question 13

Amazon.com stock prices gave a realized return of 15%, 15%, 15%, and 10% over four successive quarters. What is the annual realized return for Amazon.com for the year?

Accepted Answer

A)  60.57% 
B)  67.30% 
C)  53.84% 
D)  74.03% 
A)  60.57% 
B)  67.30% 
C)  53.84% 
D)  74.03%

Question 14

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)  8.68% 
B)  4.34% 
C)  5.21% 
D)  9.55% 
A)  8.68% 
B)  4.34% 
C)  5.21% 
D)  9.55%

Question 15

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

Accepted Answer

A)  they do not like risk 
B)  they are risk seeking 
C)  they invest for the long term 
D)  they prefer fluctuations 
A)  they do not like risk 
B)  they are risk seeking 
C)  they invest for the long term 
D)  they prefer fluctuations

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

Is volatility a reasonable measure of risk when evaluating the investment in a single stock?

Accepted Answer

No. In the case of an investme

Question 18

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 capital gains rate (yield) for this period is closest to ________.

Accepted Answer

A)  0.93% 
B)  1.02% 
C)  -3.85% 
D)  -2.93% 
A)  0.93% 
B)  1.02% 
C)  -3.85% 
D)  -2.93%

Question 19

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

Accepted Answer

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

Question 20

The average annual return for the S&P 500 from 1886 to 2006 is 15%, with a standard deviation of 25%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

Accepted Answer

A)  -35%, 65% 
B)  -17.5%, 32.5% 
C)  -25%, 55% 
D)  -20%, 50% 
A)  -35%, 65% 
B)  -17.5%, 32.5% 
C)  -25%, 55% 
D)  -20%, 50%

Exam 11: Risk and Return in Capital Markets

Which of the following statements is FALSE?

If returns on stock A are more volatile than the returns on stock B, the geometric average return of stock A will be ________ the geometric average return of stock B when their arithmetic average returns are same.

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

The Ishares Bond Index fund (TLT) has a mean and annual standard deviation of returns of 5% and 10%, respectively. What is the 66% confidence interval for the returns on TLT?

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

Stocks with high returns are expected to have ________.

What are the two components of realized return from a stock investment?

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?

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?

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

As we increase the number of stocks in a portfolio, the standard deviation of returns of the portfolio ________.

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?

Amazon.com stock prices gave a realized return of 15%, 15%, 15%, and 10% over four successive quarters. What is the annual realized return for Amazon.com for the year?

Consider the following realized annual returns: The average annual return on the S&P 500 from 1996 to 2005 is closest to ________.

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

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

Is volatility a reasonable measure of risk when evaluating the investment in a single stock?

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

The average annual return for the S&P 500 from 1886 to 2006 is 15%, with a standard deviation of 25%. 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

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