Question 1

Amazon.com stock prices gave a realized return of 5%, -5%, 11%, and -11% over four successive quarters. What is the annual realized return for Amazon.com for the year?

Accepted Answer

A) -1.46% 
B) 2.91% 
C) 0.00% 
D) 1.46%

Question 2

Which of the following statements is TRUE?

Accepted Answer

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

Question 3

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%

Question 4

Consider the following average annual returns:  What is the excess return for the portfolio of small stocks?

Accepted Answer

A) 11.7% 
B) 16.6% 
C) 19.5% 
D) 17.6%

Question 5

The standard deviation of returns of ________.
I. small stocks is higher than that of large stocks
II. large stocks is lower than that of corporate bonds
III. corporate bonds is higher than that of Treasury bills
Which statement is true?

Accepted Answer

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

Question 6

The geometric average annual return for a large capitalization stock portfolio is 10% for ten years and 6% per year for the next five years. The geometric average annual return for the entire 15 year period is ________.

Accepted Answer

A) 9.08% 
B) 8.65% 
C) 8.22% 
D) 9.52%

Question 7

Ford Motor Company had realized returns of 10%, 20%, -10%, and -10% over four quarters. What is the quarterly standard deviation of returns for Ford?

Accepted Answer

A) 12.75% 
B) 14.25% 
C) 13.50% 
D) 15.00%

Question 8

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

Accepted Answer

A) do not require a risk premium for bearing it 
B) require a risk premium for bearing it 
C) are indifferent about credit spread and risk premium 
D) do not require a credit spread

Question 9

A stock whose return does not depend on overall economic conditions has a low systematic risk.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) 11.5% 
B) 16.3% 
C) 0% 
D) 9.3%

Question 11

You purchase a 30-year, zero-coupon bond for a price of $25. The bond will pay back $100 after 30 years and make no interim payments. The annual compounded return (geometric average return)on this investment is ________.

Accepted Answer

A) 4.49% 
B) 5.68% 
C) 4.02% 
D) 4.73%

Question 12

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

Question 13

Investors should earn a risk premium for bearing unsystematic risk.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

The risk premium of a security is determined by its ________ risk and does not depend on its ________ risk.

Accepted Answer

A) systematic, undiversifiable 
B) systematic, unsystematic 
C) undiversifiable, diversifiable 
D) diversifiable, undiversifiable

Question 16

Bear Stearns' stock price closed at $98, $103, $58, $29, $4 over five successive weeks. The weekly standard deviation of the stock price calculated from this sample is ________.

Accepted Answer

A) $30.07 
B) $49.40 
C) $42.96 
D) $34.37

Question 17

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%

Question 18

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 ________.

Accepted Answer

A) Rannual = (1 + R1)(1 + R2)(1 + R3)( 1 + R4)- 1 
B) Rannual = R1 + R2 + R3 + R4 
C) Rannual = (1 + R1)(1 + R2)( 1 + R3)( 1 + R4) 
D) Rannual =

Question 19

If the Federal Reserve were to change from an expansionary to a contractionary monetary policy, this would be an example of ________.

Accepted Answer

A) unsystematic risk 
B) systematic risk 
C) independent risk 
D) diversification risk

Question 20

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 $95. What was your dividend yield and capital gains yield on the investment?

Accepted Answer

A) 2%, -5% 
B) 2%, 5% 
C) -2%, 5% 
D) 5%, 2%

Exam 11: Risk and Return in Capital Markets

Amazon.com stock prices gave a realized return of 5%, -5%, 11%, and -11% over four successive quarters. What is the annual realized return for Amazon.com for the year?

Which of the following statements is TRUE?

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?

Consider the following average annual returns: What is the excess return for the portfolio of small stocks?

The standard deviation of returns of ________. I. small stocks is higher than that of large stocks II. large stocks is lower than that of corporate bonds III. corporate bonds is higher than that of Treasury bills Which statement is true?

The geometric average annual return for a large capitalization stock portfolio is 10% for ten years and 6% per year for the next five years. The geometric average annual return for the entire 15 year period is ________.

Ford Motor Company had realized returns of 10%, 20%, -10%, and -10% over four quarters. What is the quarterly standard deviation of returns for Ford?

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

A stock whose return does not depend on overall economic conditions has a low systematic risk.

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

You purchase a 30-year, zero-coupon bond for a price of $25. The bond will pay back $100 after 30 years and make no interim payments. The annual compounded return (geometric average return) on this investment is ________.

Which of the following is NOT a diversifiable risk?

Investors should earn a risk premium for bearing unsystematic risk.

Which of the following statements is FALSE?

The risk premium of a security is determined by its risk and does not depend on its risk.

Bear Stearns' stock price closed at $98, $103, $58, $29, $4 over five successive weeks. The weekly standard deviation of the stock price calculated from this sample is ________.

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 ________.

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 ________.

If the Federal Reserve were to change from an expansionary to a contractionary monetary policy, this would be an example of ________.

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 $95. What was your dividend yield and capital gains yield on the investment?