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| 1.
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Historically, which security had the lowest standard deviation? |
| | A) | U.S. large stocks |
| | B) | World bond portfolio |
| | C) | U.S. long-term Treasury bonds |
| | D) | U.S. Treasury bills |
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| 2.
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Arithmetic average returns are generally _______________ geometric average returns. |
| | A) | the same as |
| | B) | lower than |
| | C) | higher than |
| | D) | None of the above. |
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| 3.
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What is the effective rate of return on a bond that has a holding period of return of 10%, assuming it pays coupons semiannually? |
| | A) | 10.25% |
| | B) | 10% |
| | C) | 21% |
| | D) | 8.25% |
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| 4.
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What is the risk premium of a stock that has an expected return of 20%, assuming the rate of return on Treasury bills is 3%? |
| | A) | 20% |
| | B) | 23% |
| | C) | 17% |
| | D) | Cannot be determined. |
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| 5.
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What is the exact real rate of return on an investment that has expected nominal return of 30% while the expected rate of inflation is 15%? |
| | A) | 15% |
| | B) | 13% |
| | C) | 18% |
| | D) | 10% |
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| 6.
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You purchased 100 shares of ABC stock for $20 per share. One year later you received $1 cash dividend and sold the shares for $22 each. Your holding-period return was _______________. |
| | A) | 5% |
| | B) | 10% |
| | C) | 15% |
| | D) | 20% |
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| 7.
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The geometric average return of 10%, -20%, -10%, and 20% is _______________. |
| | A) | 0% |
| | B) | 1.26% |
| | C) | -1.26% |
| | D) | -2% |
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| 8.
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Suppose stock ABC has an average return of 12% and a standard deviation of 30%. Determine the range of returns that ABC's actual returns will fall within 68% of the time. |
| | A) | Between -18% and 42%. |
| | B) | Between -48% and 72%. |
| | C) | Between 12% and 30%. |
| | D) | None of the above. |
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| 9.
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The sample standard deviation of returns of 18%, -15%, -10% and 30% is _______________. |
| | A) | 15.2% |
| | B) | 18.8% |
| | C) | 21.7% |
| | D) | 25.3% |
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| 10.
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What is the ending price of a stock if its beginning price was $20, its cash dividend was $2, and the holding period return on a stock was 10%? |
| | A) | $18 |
| | B) | $20 |
| | C) | $22 |
| | D) | $24 |
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| 11.
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A complete portfolio holds _______________. |
| | A) | all risky assets |
| | B) | all risk-free assets |
| | C) | risky and risk-free assets |
| | D) | bonds and stocks |
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| 12.
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Which of the following is most correct concerning the standard deviation of a stock's returns? |
| | A) | It represents the chance of making negative returns from investing in the stock. |
| | B) | It should be zero if the stock has the same return every year. |
| | C) | It should be greater than the stock's geometric mean return. |
| | D) | All of the above are correct. |
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| 13.
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The _______________ return ignores the compounding effect. |
| | A) | geometric average |
| | B) | arithmetic average |
| | C) | dollar-weighted |
| | D) | Both B and C above. |
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| 14.
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The risk-free asset is proxied by the _______________. |
| | A) | Treasury bills |
| | B) | AAA corporate bonds |
| | C) | inflation-index bonds |
| | D) | money market mutual funds |
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| 15.
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A passive investment strategy assumes that securities are _______________. |
| | A) | overvalued |
| | B) | undervalued |
| | C) | priced fairly |
| | D) | priced inefficiently |
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