Question 1

A stock has yielded returns of 9 percent,16 percent,18 percent,and -6 percent over the past four years,respectively.What is the standard deviation of these returns?

Accepted Answer

A)  15.52 percent
B)  15.86 percent
C)  11.05 percent
D)  9.38 percent
E)  10.87 percentF) All of the above
G) C) and D)

Question 2

New Labs just announced that it has received a patent for a product that will eliminate all flu viruses.This news is totally unexpected and viewed as a major medical advancement.Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?

Accepted Answer

A)  The price of New Labs stock remains unchanged.
B)  The price of New Labs stock increases rapidly and then settles back to its pre-announcement level.
C)  The price of New Labs stock increases rapidly to a higher price and then remains at that price.
D)  All stocks quickly increase in value and then all but New Labs stock fall back to their original values.
E)  The value of all stocks suddenly increase and then level off at their higher values.F) A) and E)
G) C) and E)

Question 3

Suppose you bought a$1,000 face value bond with a 5 percent coupon one year ago for $1,020.The bond sells today for $986.If the inflation rate last year was 2.3 percent,what was your total real rate of return on this investment?

Accepted Answer

A)  02 percent
B)  71 percent
C)  31 percent
D)  89 percent
E)  -48 percentF) A) and E)
G) None of the above

Question 4

Over the past five years,a stock returned 6.2 percent,-10.4 percent,-2.2 percent,16.9 percent,and 5.8 percent,respectively.What is the variance of these returns?

Accepted Answer

A)  008351
B)  076290
C)  10439
D)  012547
E)  091306F) C) and D)
G) B) and D)

Question 5

One year ago,you purchased 600 shares of stock for $14 a share.The stock pays $.41 a share in dividends each year.Today,you sold your shares for $15.30 a share.What is your total dollar return on this investment?

Accepted Answer

A)  $1,222
B)  $7,43
C)  $815
D)  $780
E)  $1,026F) A) and B)
G) All of the above

Question 6

Assume that over the past 88 years,U.S.Treasury bills had an average return of 3.5 percent as compared to 6.1 percent on long-term government bonds.During this same time period,assume inflation averaged 3.0 percent.What was the average nominal risk premium on the long-term government bonds?

Accepted Answer

A)  3.1 percent
B)  1 percent
C)  2.9 percent
D)  1.8 percent
E)  2.6 percentF) B) and D)
G) B) and C)

Question 7

A stock produced returns of 11 percent,19 percent,and 2 percent over three of the past four years,respectively.The arithmetic average for the past four years is 9 percent.What is the standard deviation of the stock's returns for the four-year period?

Accepted Answer

A)  5.46 percent
B)  8.54 percent
C)  9.09 percent
D)  6.83 percent
E)  7.70 percentF) A) and D)
G) A) and E)

Question 8

Five years ago,you purchased 800 shares of stock.The annual returns have been 6.4 percent,-28.7 percent,2.1 percent,14.4 percent,and 32.6 percent,respectively.What is the variance of these returns?

Accepted Answer

A)  049888
B)  030021
C)  030068
D)  050133
E)  050284F) B) and E)
G) A) and C)

Question 9

Assume that large-company stocks had an average return of 12.1 percent and a standard deviation of 19.6 percent for a 40-year period.What range of returns would you expect to see on these stocks 95 percent of the time?

Accepted Answer

A)  -30.3 percent to 53.2 percent
B)  -30.3 percent to 73.9 percent
C)  -30.3 percent to 64.1 percent
D)  -27.1 percent to 53.2 percent
E)  -27.1 percent to 51.3 percentF) A) and B)
G) A) and C)

Question 10

On a particular risky investment,investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent.What is this excess return called?

Accepted Answer

A)  Inflation premium
B)  Required return
C)  Real return
D)  Average return
E)  Risk premiumF) A) and B)
G) All of the above

Question 11

Assume large-company stocks returned 12.1 percent on average over the past 88 years.The risk premium on these stocks was 8.6 percent and the inflation rate was 3.0 percent.What was the average nominal risk-free rate of return for those 88 years?

Accepted Answer

A)  3.5 percent
B)  9.1 percent
C)  4.6 percent
D)  5 percent
E)  6.5 percent58F) B) and D)
G) C) and D)

Question 12

According to the efficient markets hypothesis,professional investors will earn:

Accepted Answer

A)  excess profits over the long-term.
B)  excess profits, but only on short-term investments.
C)  a dollar return equal to the value paid for an investment.
D)  a return that cannot be accurately predicted because investments are subject to the random movements of the markets.
E)  a return that "beats the market."F) C) and D)
G) B) and D)

Question 13

The common stock of Mountain Farms has yielded 14.2 percent,11.7 percent,3.4 percent,-2.8 percent,and 15.8 percent over the past five years,respectively.What is the geometric average return?

Accepted Answer

A)  7.91 percent
B)  8.03 percent
C)  8.22 percent
D)  8.27 percent
E)  7.64 percentF) A) and B)
G) None of the above

Question 14

Kelly decided to accept the risk and purchased a high growth stock.Her returns for the past five years are 32 percent,24 percent,-48 percent,12 percent,and -9 percent,respectively.What is the standard deviation of these returns?

Accepted Answer

A)  23.20 percent
B)  35.46 percent
C)  17.88 percent
D)  32.03 percent
E)  28.39 percentF) A) and D)
G) A) and C)

Question 15

One year ago,Debra purchased 5,400 shares of KNF stock for $218,056.Today,she sold those shares for $19.49 a share.What is the capital gains yield on this investment if the dividend yield is 1.7 percent?

Accepted Answer

A)  -28.01 percent
B)  -48.82 percent
C)  3.07 percent
D)  -51.73 percent
E)  4.53 percentF) A) and E)
G) None of the above

Question 16

You purchased 400 shares of KNO stock five years ago and have earned annual returns of 8.3 percent,9.6 percent,18.25 percent,-7.7 percent,and 1.8 percent,respectively.What is your arithmetic average return?

Accepted Answer

A)  5.47 percent
B)  6.05 percent
C)  6.23 percent
D)  6.47 percent
E)  8.01 percentF) B) and D)
G) D) and E)

Question 17

Windsor stock has produced returns of 13.8 percent,11.7 percent,2.3 percent,-21.4 percent,and 8.9 percent over the past five years,respectively.What is the variance of these returns?

Accepted Answer

A)  020574
B)  031947
C)  035682
D)  019515
E)  020016F) B) and C)
G) B) and D)

Question 18

You bought a share of 7.5 percent preferred stock for $91.60 last year.The market price for your stock is now $89.10.What is your total return to date on this investment?

Accepted Answer

A)  5.51 percent
B)  4.73 percent
C)  5.86 percent
D)  6.10 percent
E)  5.46 percentF) A) and D)
G) C) and D)

Question 19

One year ago,Peyton purchased 7,200 shares of Broncos stock for $329,640.Today,he sold those shares for $58.92 a share.What is the total return on this investment if the dividend yield is 2.2 percent?

Accepted Answer

A)  33.98 percent
B)  30.89 percent
C)  24.50 percent
D)  20.10 percent
E)  28.40 percentF) A) and C)
G) B) and E)

Question 20

Over the last four years,the common stock of Plymouth Shippers has had an arithmetic average return of 10.4 percent.Three of those four years produced returns of 16.1 percent,15.6 percent,and 9.4 percent,respectively.What is the geometric average return for this four-year period?

Accepted Answer

A)  9.72 percent
B)  10.41 percent
C)  8.93 percent
D)  10.22 percent
E)  9.38 percentF) A) and D)
G) C) and D)

Exam 10: Some Lessons From Capital Market History

New Labs just announced that it has received a patent for a product that will eliminate all flu viruses.This news is totally unexpected and viewed as a major medical advancement.Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?

Correct AnswerverifiedShow Answer

Five years ago,you purchased 800 shares of stock.The annual returns have been 6.4 percent,-28.7 percent,2.1 percent,14.4 percent,and 32.6 percent,respectively.What is the variance of these returns?

Correct AnswerverifiedShow Answer

On a particular risky investment,investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent.What is this excess return called?

Correct AnswerverifiedShow Answer

One year ago,Peyton purchased 7,200 shares of Broncos stock for $329,640.Today,he sold those shares for $58.92 a share.What is the total return on this investment if the dividend yield is 2.2 percent?

Correct AnswerverifiedShow Answer

A stock produced returns of 11 percent,19 percent,and 2 percent over three of the past four years,respectively.The arithmetic average for the past four years is 9 percent.What is the standard deviation of the stock's returns for the four-year period?

Correct AnswerverifiedShow Answer

A stock has yielded returns of 9 percent,16 percent,18 percent,and -6 percent over the past four years,respectively.What is the standard deviation of these returns?

Correct AnswerverifiedShow Answer

Assume large-company stocks returned 12.1 percent on average over the past 88 years.The risk premium on these stocks was 8.6 percent and the inflation rate was 3.0 percent.What was the average nominal risk-free rate of return for those 88 years?

Correct AnswerverifiedShow Answer

Over the last four years,the common stock of Plymouth Shippers has had an arithmetic average return of 10.4 percent.Three of those four years produced returns of 16.1 percent,15.6 percent,and 9.4 percent,respectively.What is the geometric average return for this four-year period?

Correct AnswerverifiedShow Answer

Kelly decided to accept the risk and purchased a high growth stock.Her returns for the past five years are 32 percent,24 percent,-48 percent,12 percent,and -9 percent,respectively.What is the standard deviation of these returns?

Correct AnswerverifiedShow Answer

Suppose you bought a$1,000 face value bond with a 5 percent coupon one year ago for $1,020.The bond sells today for $986.If the inflation rate last year was 2.3 percent,what was your total real rate of return on this investment?

Correct AnswerverifiedShow Answer

One year ago,you purchased 600 shares of stock for $14 a share.The stock pays $.41 a share in dividends each year.Today,you sold your shares for $15.30 a share.What is your total dollar return on this investment?

Correct AnswerverifiedShow Answer

Assume that over the past 88 years,U.S.Treasury bills had an average return of 3.5 percent as compared to 6.1 percent on long-term government bonds.During this same time period,assume inflation averaged 3.0 percent.What was the average nominal risk premium on the long-term government bonds?

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis,professional investors will earn:

Correct AnswerverifiedShow Answer

Assume that large-company stocks had an average return of 12.1 percent and a standard deviation of 19.6 percent for a 40-year period.What range of returns would you expect to see on these stocks 95 percent of the time?

Correct AnswerverifiedShow Answer

You bought a share of 7.5 percent preferred stock for $91.60 last year.The market price for your stock is now $89.10.What is your total return to date on this investment?

Correct AnswerverifiedShow Answer

One year ago,Debra purchased 5,400 shares of KNF stock for $218,056.Today,she sold those shares for $19.49 a share.What is the capital gains yield on this investment if the dividend yield is 1.7 percent?

Correct AnswerverifiedShow Answer

Over the past five years,a stock returned 6.2 percent,-10.4 percent,-2.2 percent,16.9 percent,and 5.8 percent,respectively.What is the variance of these returns?

Correct AnswerverifiedShow Answer

You purchased 400 shares of KNO stock five years ago and have earned annual returns of 8.3 percent,9.6 percent,18.25 percent,-7.7 percent,and 1.8 percent,respectively.What is your arithmetic average return?

Correct AnswerverifiedShow Answer

The common stock of Mountain Farms has yielded 14.2 percent,11.7 percent,3.4 percent,-2.8 percent,and 15.8 percent over the past five years,respectively.What is the geometric average return?

Correct AnswerverifiedShow Answer

Windsor stock has produced returns of 13.8 percent,11.7 percent,2.3 percent,-21.4 percent,and 8.9 percent over the past five years,respectively.What is the variance of these returns?

Correct AnswerverifiedShow Answer

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