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1 | |
Which one of the following is true about risk and return? |
| | A) | Riskier assets will, on average, earn lower returns. |
| | B) | The reward for bearing risk is known as the standard deviation. |
| | C) | Based on historical data, there is no reward for bearing risk. |
| | D) | An increase in the risk of an investment will result in a decreased risk premium. |
| | E) | In general, the higher the expected return, the higher the risk. |
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2 | |
Over the 1926 - 2004 period, the nominal risk premium on long-term corporate bonds averaged _____ percent per year. |
| | A) | 0.0 |
| | B) | 1.9 |
| | C) | 2.4 |
| | D) | 6.2 |
| | E) | 10.0 |
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3 | |
Over the 1926 - 2004 period, the nominal risk premium on large-company stocks has averaged _____ percent per year. |
| | A) | 0.0 |
| | B) | 2.0 |
| | C) | 2.4 |
| | D) | 8.6 |
| | E) | 13.7 |
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4 | |
Over the 1926 - 2004 period, the nominal risk premium on small-company stocks has averaged _____ percent per year. |
| | A) | 0.0 |
| | B) | 1.9 |
| | C) | 2.3 |
| | D) | 9.4 |
| | E) | 13.6 |
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5 | |
A stock produced annual returns of 8 percent, -12 percent, 6 percent, 1 percent, and -19 percent over the last five years, respectively. What is the variance of these returns? |
| | A) | 0.0063 |
| | B) | 0.0089 |
| | C) | 0.0139 |
| | D) | 0.0394 |
| | E) | 0.1178 |
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6 | |
A stock produced annual returns of 20 percent, -12 percent, 16 percent, 3 percent and -15 percent over the last five years, respectively. What is the standard deviation? |
| | A) | 11.89 percent |
| | B) | 12.48 percent |
| | C) | 14.18 percent |
| | D) | 15.85 percent |
| | E) | 16.87 percent |
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7 | |
Which one of the following asset classes has highest level of risk over the 1926 to 2004 period as measured by the standard deviation? |
| | A) | long-term corporate bonds |
| | B) | U.S. Treasury bills |
| | C) | long-term government bonds |
| | D) | common stock of the largest companies in the U.S. |
| | E) | common stock of the smallest companies listed on the NYSE |
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8 | |
If you are interested in assessing both the return and the risk of an investment, which of the following might you consider? I. risk premium
II. variance of returns
III. standard deviation of returns
IV. mean return |
| | A) | II only |
| | B) | I and II only |
| | C) | I, II, and III only |
| | D) | I, III, and IV only |
| | E) | I, II, III, and IV |
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9 | |
The normal distribution is useful in analyzing security returns because: |
| | A) | we frequently deal with finite data sets. |
| | B) | it is defined by the geometric average rate of return. |
| | C) | 99 percent of all observations fall within two standard deviations of the mean. |
| | D) | the distribution of security returns varies so much from a normal distribution. |
| | E) | it can be completely described by its mean and standard deviation. |
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10 | |
Which one of the following asset classes has the widest normal distribution of returns? |
| | A) | small-company stocks |
| | B) | large-company common stocks |
| | C) | U.S. Treasury bills |
| | D) | long-term government bonds |
| | E) | long-term corporate bonds |
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