Question 1

For the period 1926 to 2015,the mean return on large-company stocks is

Accepted Answer

A) 8)7 percent. 
B) 11.9 percent. 
C) 13.2 percent. 
D) 9)6 percent. 
E) 14.1 percent.

Question 2

As of 2015,the United States represents about ________ percent of the total world stock market capitalization.

Accepted Answer

A) 53 
B) 67 
C) 27 
D) 38 
E) 19

Question 3

For our historical comparison purposes,how are large-company stocks defined?

Accepted Answer

A) Stocks of the lowest 20 percent of the firms listed on the NYSE based on market capitalization 
B) Stocks with average annual returns that exceed the average annual return of the U.S.Treasury bill 
C) Any firm that has been listed on the NYSE for 40 years or more 
D) Stocks of firms included in the S&P 500 composite index 
E) Stocks of firms that employ over 5,000 employees

Question 4

One year ago,Ted purchased 300 shares of stock at $18.09 a share.Today,he received a total of $267 in dividends and sold his shares for a total of $5,250.What was his total rate of return?

Accepted Answer

A) −3.57% 
B) −2.94% 
C) −4.43% 
D) 2)47% 
E) 1)66%

Question 5

The variance of returns for a portfolio of stocks is computed by dividing the sum of the

Accepted Answer

A) squared deviations by (the number of returns minus one). 
B) average returns by (the number of returns minus one). 
C) average returns by (the number of returns plus one). 
D) squared deviations by the average rate of return. 
E) squared deviations by (the number of returns plus one).

Question 6

The higher the Sharpe ratio,the

Accepted Answer

A) greater the total risk. 
B) greater the return per unit of risk. 
C) more the security resembles the overall market. 
D) greater the risk per unit of return. 
E) lower the level of total risk.

Question 7

Over the past 3 years,a stock had annual returns of 6.4 percent,11.9 percent,and 14.8 percent.What is the mean return?

Accepted Answer

A) 11.03% 
B) 7)47% 
C) 8)28% 
D) 16.55% 
E) 12.60%

Question 8

This morning,you purchased one share of stock for $26.The stock pays $.32 per share each quarter as a dividend.What must the stock price be 1 year from now if you want to earn a total return of 16 percent for the year?

Accepted Answer

A) $29.84 
B) $28.88 
C) $25.01 
D) $27.12 
E) $27.46

Question 9

On average,for the period 1926 to 2015

Accepted Answer

A) U)S.Treasury bills had a negative risk premium. 
B) small-company stocks underperformed large-company stocks. 
C) large-company stocks had a higher risk premium than long-term corporate bonds. 
D) intermediate-term government bonds produced higher returns than long-term government bonds. 
E) large-company stocks had a higher risk premium than small-company stocks.

Question 10

Over the long-term,which one of the following is a correct statement concerning risk premium?

Accepted Answer

A) The lower the volatility of returns,the greater the risk premium. 
B) Stocks tend to have a higher risk premium than bonds. 
C) The lower the rate of return,the greater the risk premium. 
D) The risk premium does not affect the rate of return. 
E) The risk premium varies by the same percentage rate as the inflation rate.

Question 11

Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 to 2015?

Accepted Answer

A) Long-term corporate bonds 
B) Long-term government bonds 
C) Small-company stocks 
D) Large-company stocks 
E) U)S.Treasury bills

Question 12

The average compound return earned per year over a multiyear period is called the ________ average return.

Accepted Answer

A) real 
B) standard 
C) arithmetic 
D) variant 
E) geometric

Question 13

What lesson can be learned from the 2008 market decline?

Accepted Answer

A) Stocks and bonds react similarly in downward markets. 
B) Diversification lowers risk. 
C) Market declines cause high inflation rates. 
D) Global markets all react exactly the same. 
E) Equity risk premiums will decline in the future.

Question 14

Assume stocks A and B have had identical stock prices every day for the past 3 years.Stock A pays a dividend but Stock B does not.Which one of these statements applies to these stocks for the last 3 years?

Accepted Answer

A) Their annual total rates of return are equal. 
B) Stock A's total return has been higher than Stock B's every year. 
C) Stock B's capital gain has exceeded Stock A's every year. 
D) Stock A's total return had to be positive every year. 
E) Stock B's holding period return exceeded that of Stock A.

Question 15

Which one of the following values cannot be negative?

Accepted Answer

A) Capital gain 
B) Total dollar return 
C) Holding period return 
D) Dividend yield 
E) Total return

Question 16

For the period 1926 to 2015,small-company stocks had an average return of 16.5 percent,U.S.Treasury bills returned 3.5 percent,and inflation averaged 3.0 percent.What was the risk premium on small-company stocks during this period?

Accepted Answer

A) 12.5 percent 
B) 20.0 percent 
C) 13.0 percent 
D) 13.5 percent 
E) 10.0 percent

Question 17

Suppose a portfolio had an arithmetic average return of 8 percent for a 4-year period.Which one of these statements must be true regarding this portfolio for the period?

Accepted Answer

A) At least one of the 4 years produced an annual rate of return of 8 percent. 
B) If the standard deviation of the portfolio is greater than zero,then the geometric average portfolio return is less than 8 percent. 
C) The standard deviation of the portfolio must be lower than the standard deviation of a comparable portfolio that had an arithmetic average return of 9 percent. 
D) If the standard deviation of the portfolio is zero,then the geometric average return must also be zero. 
E) The holding period return must be less than 8 percent.

Question 18

A stock returned 11 percent,16 percent,−7 percent,and −13 percent annually for the past 4 years.Based on this information,what is the 99.74 percent probability range for any one given year?

Accepted Answer

A) −34.54 to 38.04% 
B) −36.1 to 40.1% 
C) −32.5 to 35.5% 
D) −40.06 to 43.56% 
E) −44.82 to 47.32%

Question 19

Given a set of returns,the wider the distribution of those returns,the

Accepted Answer

A) higher the number of those returns. 
B) lower the average rate of return. 
C) lower the variance. 
D) higher the standard deviation. 
E) lower the volatility.

Question 20

Which one of these countries had the highest average stock market risk premium for the period 1900 to 2010?

Accepted Answer

A) United States 
B) United Kingdom 
C) Italy 
D) Sweden 
E) Denmark

Exam 10: Risk Amcq Return: Lessons From Market History