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| 1 | |
Historically, the asset class with the lowest risk premium over Treasury bills has been ____________. |
| | A) | large company U.S. stocks |
| | B) | a world equity portfolio |
| | C) | long-term U.S. Treasury bonds |
| | D) | small company U.S. stocks |
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| 2 | |
The geometric average rate of return is ____________. |
| | A) | also called the time-weighted average return |
| | B) | also called the dollar-weighted average return |
| | C) | equivalent to the internal rate of return |
| | D) | an uncompounded rate of return |
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| 3 | |
Suppose you pay $9,950 for a Treasury bill with a $10,000 face value that matures in one month. What is the effective rate of return for this investment? |
| | A) | 6.00% |
| | B) | 6.03% |
| | C) | 6.17% |
| | D) | 6.20% |
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| 4 | |
A risky portfolio has an expected rate of return of 15% and a standard deviation of 20%. The Treasury bill rate is 4%. What is the reward-to-volatility ratio for the portfolio? |
| | A) | 0.55 |
| | B) | 0.75 |
| | C) | 0.80 |
| | D) | 0.95 |
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| 5 | |
What is the real rate of return for an investment that has an expected nominal rate of return of 15% while the expected rate of inflation is 9%? |
| | A) | 5.5% |
| | B) | 6.0% |
| | C) | 9.5% |
| | D) | 10.0% |
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| 6 | |
You purchased 100 shares of ABC stock for $20 per share. One year later you received cash dividends of $1 per share and sold the stock for $22 per share. Your holding-period return was _______________. |
| | A) | 5% |
| | B) | 10% |
| | C) | 15% |
| | D) | 20% |
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| 7 | |
Compute the geometric average of the following rates of return:10%, -20%, -10%, and 20% |
| | A) | 0% |
| | B) | -4.96% |
| | C) | -1.26% |
| | D) | 0.95% |
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| 8 | |
A stock portfolio with normally distributed returns has an annual expected rate of return of 15% and standard deviation of returns of 20%. What is the probability that, in any one year, the rate of return for this portfolio will be between -25% and 55%? |
| | A) | 68.26% |
| | B) | 95.44% |
| | C) | 99.74% |
| | D) | 100.00% |
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| 9 | |
Compute the sample standard deviation of the following historical rates of return:18%, -15%, -10% and 30% |
| | A) | 5.75% |
| | B) | 18.8% |
| | C) | 21.7% |
| | D) | 37.6% |
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| 10 | |
An investment has a 10% probability of earning a 20% rate of return, a 60% probability of earning a 10% rate of return and a 30% probability of losing 5%. What is the expected rate of return for this investment? |
| | A) | -7.0% |
| | B) | 9.5% |
| | C) | 8.3% |
| | D) | 6.5% |
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| 11 | |
A complete portfolio is composed of a risky portfolio with an expected rate of return of 14% and a standard deviation of 20%, and Treasury bills with a rate of return of 5%. The complete portfolio has a standard deviation of 12%. What proportion of the complete portfolio is invested in the risky portfolio? |
| | A) | 100% |
| | B) | 60% |
| | C) | 40% |
| | D) | 12% |
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| 12 | |
An investor invests 80% of her portfolio in a risky asset with an expected rate of return of 18% and a standard deviation of 25%. The investor invests the remaining 20% of her portfolio in a Treasury bill with a 4% rate of return. Her portfolio's expected rate of return and standard deviation are ____________ and ____________, respectively. |
| | A) | 14.4%; 20.0% |
| | B) | 18.4%; 20.8% |
| | C) | 15.2%; 20.0% |
| | D) | 15.2%; 44.7% |
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| 13 | |
Which of the following statements is true about the Capital Allocation Line (CAL)? |
| | A) | The slope of the CAL is the same as the reward-to-volatility ratio. |
| | B) | The slope of the CAL equals the increase in expected return per unit of additional standard deviation. |
| | C) | The CAL represents the risk-return combinations resulting from varying asset allocation. |
| | D) | All of the above are true statements about the CAL. |
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| 14 | |
Treasury securities are commonly regarded as risk-free assets because ____________. |
| | A) | returns on Treasury securities are adjusted for inflation |
| | B) | interest on Treasury securities is not subject to federal income taxes |
| | C) | investors can match their desired holding periods with the maturity of a Treasury security |
| | D) | Treasury securities are free of default risk |
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| 15 | |
A passive investment strategy is based on the premise that ____________. |
| | A) | investors are highly risk averse |
| | B) | securities are normally undervalued or overvalued |
| | C) | securities are fairly priced |
| | D) | the most important part of portfolio construction is security selection |
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