Question 1

The period 1926-2008 illustrates that U.S. Treasury bills:

Accepted Answer

A)   outperform inflation by approximately 1 percent every year.
B)   have a zero standard deviation.
C)   can either outperform or underperform inflation on an annual basis.
D)   produce a rate of return roughly equivalent to the rate of return on long-term government bonds.
E)   routinely have negative annual returns.F) D) and E)
G) B) and E)

Question 2

Investors require a 4 percent return on risk-free investments. 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) C) and D)
G) A) and E)

Question 3

Over the last four years, a stock has had an arithmetic average return of 8.8 percent. Three of those four years produced returns of 16.3 percent, 10.2 percent, and -14.1 percent. What is the geometric average return for this 4-year period?

Accepted Answer

A)   7.83 percent
B)   8.39 percent
C)   8.67 percent
D)   9.40 percent
E)   9.97 percentF) B) and C)
G) D) and E)

Question 4

Last year, Thomas invested $38,000 in Oil Town stock, $11,000 in long-term government bonds, and $8,000 in U.S. Treasury bills. Over the course of the year, he earned returns of 12.1 percent, 6.3 percent, and 3.9 percent, respectively. What was the nominal risk premium on Oil Town's stock for the year?

Accepted Answer

A)   1.9 percent
B)   4.7 percent
C)   5.8 percent
D)   7.6 percent
E)   8.2 percentF) C) and D)
G) B) and E)

Question 5

Percentage returns: I. are easy to understand.
II)  relay information about a security more easily than dollar returns do.
III)  are not affected by the amount of the investment.
IV)  can be easily separated into dividend yield and capital gain yield.

Accepted Answer

A)   II and III only
B)   I and III only
C)   I, II, and III only
D)   I, II, and IV only
E)   I, II, III, and IVF) B) and C)
G) A) and B)

Question 6

Which one of the following is defined as the average compound return earned per year over a multiyear period?

Accepted Answer

A)   Geometric average return
B)   Variance of returns
C)   Standard deviation of returns
D)   Arithmetic average return
E)   Normal distribution of returnsF) A) and E)
G) C) and D)

Question 7

A stock has produced returns of 11 percent, 18 percent, -6 percent, -13 percent, and 21 percent for the past five years, respectively. What is the standard deviation of these returns?

Accepted Answer

A)   7.75 percent
B)   8.87 percent
C)   9.23 percent
D)   14.99 percent
E)   16.64 percentF) A) and D)
G) D) and E)

Question 8

You earned 26.3 percent on your investments for a time period when the risk-free rate was 3.8 percent and the inflation rate was 3.1 percent. What was your real rate of return for the period?

Accepted Answer

A)   19.92 percent
B)   20.06 percent
C)   22.50 percent
D)   21.67 percent
E)   21.08 percentF) A) and D)
G) B) and E)

Question 9

When, if ever, will the geometric average return exceed the arithmetic average return for a given set of returns?

Accepted Answer

A)   When the set of returns includes only risk-free rates.
B)   When the set of returns has a wide frequency distribution.
C)   When the set of returns has a very narrow frequency distribution.
D)   When all of the rates of return in the set of returns are equal to each other.
E)   NeverF) All of the above
G) A) and C)

Question 10

Which one of the following is defined as a bell-shaped frequency distribution that is defined by its average and its standard deviation?

Accepted Answer

A)   Arithmetic average return
B)   Variance
C)   Standard deviation
D)   Probability curve
E)   Normal distributionF) C) and E)
G) B) and D)

Question 11

What is the probability associated with a return that lies in the upper tail when the mean plus two standard deviations is graphed?

Accepted Answer

A)   0.05 percent
B)   0.5 percent
C)   1.0 percent
D)   2.5 percent
E)   5.0 percentF) A) and E)
G) B) and E)

Question 12

Assume large-company stocks returned 11.8 percent on average over the past 75 years. The risk premium on these stocks was 7.9 percent and the inflation rate was 3.2 percent. What was the average nominal risk-free rate of return for those 75 years?

Accepted Answer

A)   3.90 percent
B)   9.27 percent
C)   4.26 percent
D)   8.33 percent
E)   8.60 percentF) A) and B)
G) B) and C)

Question 13

Over the period of 1926-2008:

Accepted Answer

A)   the risk premium on large-company stocks was greater than the risk premium on small- company stocks.
B)   U.S. Treasury bills had a risk premium that was just slightly over 2 percent.
C)   the risk premium on long-term government bonds was zero percent.
D)   the risk premium on stocks exceeded the risk premium on bonds.
E)   U. S. Treasury bills had a negative risk premium.F) All of the above
G) B) and E)

Question 14

A security produced returns of 12 percent, -11 percent, -2 percent, 15 percent, and 9 percent over the past five years, respectively. Based on these five years, what is the probability that an investor in this stock will lose more than 17.06 percent in any one given year?

Accepted Answer

A)   0.50 percent
B)   1.00 percent
C)   1.25 percent
D)   2.50 percent
E)   5.00 percentF) A) and C)
G) A) and E)

Question 15

Which one of the following is the most apt to have the largest risk premium in the future based on the historical record for 1926-2008?

Accepted Answer

A)   U.S. Treasury bills
B)   Large-company stocks
C)   Long-term government debt
D)   Small-company stocks
E)   Long-term corporate debtF) B) and C)
G) All of the above

Question 16

Which one of the following statements is correct?

Accepted Answer

A)   The risk-free rate of return has a risk premium of 1.0.
B)   The reward for bearing risk is called the standard deviation.
C)   Risks and expected return are inversely related.
D)   The higher the expected rate of return, the wider the distribution of returns.
E)   Risk premiums are inversely related to the standard deviation of returns.F) B) and D)
G) A) and C)

Question 17

According to the Efficient Market 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) A) and D)

Question 18

Katie earned a 2.7 percent real rate of return on her investments for the past year. During that time, the risk-free rate was 4.1 percent and the inflation rate was 3.6 percent. What was her nominal rate of return?

Accepted Answer

A)   5.30 percent
B)   5.87 percent
C)   6.40 percent
D)   6.67 percent
E)   6.91 percentF) B) and C)
G) D) and E)

Question 19

The average risk premium on long-term government bonds for the period 1926-2008 was equal to:

Accepted Answer

A)   zero.
B)   one percent.
C)   the rate of return on the bonds plus the corporate bond rate.
D)   the rate of return on the bonds minus the T-bill rate.
E)   the rate of return on the bonds minus the inflation rate.F) A) and B)
G) B) and C)

Question 20

You expect the inflation rate to be 2.9 percent and the U.S. Treasury bill yield to be 3.7 percent for the next year. The risk premium on small-company stocks is 12.6 percent. What nominal rate of return do you expect to earn on small-company stocks next year?

Accepted Answer

A)   15.5 percent
B)   16.3 percent
C)   16.8 percent
D)   9.2 percent
E)   9.7 percentF) A) and D)
G) A) and B)

Exam 10: Some Lessons From Capital Market History

You expect the inflation rate to be 2.9 percent and the U.S. Treasury bill yield to be 3.7 percent for the next year. The risk premium on small-company stocks is 12.6 percent. What nominal rate of return do you expect to earn on small-company stocks next year?

Correct Answer
verified

Which one of the following is defined as a bell-shaped frequency distribution that is defined by its average and its standard deviation?

Correct Answer
verified

What is the probability associated with a return that lies in the upper tail when the mean plus two standard deviations is graphed?

Correct Answer
verified

Correct Answer
verified

You earned 26.3 percent on your investments for a time period when the risk-free rate was 3.8 percent and the inflation rate was 3.1 percent. What was your real rate of return for the period?

Correct Answer
verified

Katie earned a 2.7 percent real rate of return on her investments for the past year. During that time, the risk-free rate was 4.1 percent and the inflation rate was 3.6 percent. What was her nominal rate of return?

Correct Answer
verified

Which one of the following is the most apt to have the largest risk premium in the future based on the historical record for 1926-2008?

Correct Answer
verified

Which one of the following is defined as the average compound return earned per year over a multiyear period?

Correct Answer
verified

The average risk premium on long-term government bonds for the period 1926-2008 was equal to:

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

When, if ever, will the geometric average return exceed the arithmetic average return for a given set of returns?

Correct Answer
verified

Over the period of 1926-2008:

Correct Answer
verified

Investors require a 4 percent return on risk-free investments. 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 Answer
verified

Over the last four years, a stock has had an arithmetic average return of 8.8 percent. Three of those four years produced returns of 16.3 percent, 10.2 percent, and -14.1 percent. What is the geometric average return for this 4-year period?

Correct Answer
verified

A stock has produced returns of 11 percent, 18 percent, -6 percent, -13 percent, and 21 percent for the past five years, respectively. What is the standard deviation of these returns?

Correct Answer
verified

According to the Efficient Market Hypothesis, professional investors will earn:

Correct Answer
verified

Assume large-company stocks returned 11.8 percent on average over the past 75 years. The risk premium on these stocks was 7.9 percent and the inflation rate was 3.2 percent. What was the average nominal risk-free rate of return for those 75 years?

Correct Answer
verified

Percentage returns: I. are easy to understand. II) relay information about a security more easily than dollar returns do. III) are not affected by the amount of the investment. IV) can be easily separated into dividend yield and capital gain yield.

Correct Answer
verified

A security produced returns of 12 percent, -11 percent, -2 percent, 15 percent, and 9 percent over the past five years, respectively. Based on these five years, what is the probability that an investor in this stock will lose more than 17.06 percent in any one given year?

Correct Answer
verified

The period 1926-2008 illustrates that U.S. Treasury bills:

Correct Answer
verified

Exam 10: Some Lessons From Capital Market History

You expect the inflation rate to be 2.9 percent and the U.S. Treasury bill yield to be 3.7 percent for the next year. The risk premium on small-company stocks is 12.6 percent. What nominal rate of return do you expect to earn on small-company stocks next year?

Correct AnswerverifiedShow Answer

Which one of the following is defined as a bell-shaped frequency distribution that is defined by its average and its standard deviation?

Correct AnswerverifiedShow Answer

What is the probability associated with a return that lies in the upper tail when the mean plus two standard deviations is graphed?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You earned 26.3 percent on your investments for a time period when the risk-free rate was 3.8 percent and the inflation rate was 3.1 percent. What was your real rate of return for the period?

Correct AnswerverifiedShow Answer

Katie earned a 2.7 percent real rate of return on her investments for the past year. During that time, the risk-free rate was 4.1 percent and the inflation rate was 3.6 percent. What was her nominal rate of return?

Correct AnswerverifiedShow Answer

Which one of the following is the most apt to have the largest risk premium in the future based on the historical record for 1926-2008?

Correct AnswerverifiedShow Answer

Which one of the following is defined as the average compound return earned per year over a multiyear period?

Correct AnswerverifiedShow Answer

The average risk premium on long-term government bonds for the period 1926-2008 was equal to:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

When, if ever, will the geometric average return exceed the arithmetic average return for a given set of returns?

Correct AnswerverifiedShow Answer

Over the period of 1926-2008:

Correct AnswerverifiedShow Answer

Investors require a 4 percent return on risk-free investments. 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

Over the last four years, a stock has had an arithmetic average return of 8.8 percent. Three of those four years produced returns of 16.3 percent, 10.2 percent, and -14.1 percent. What is the geometric average return for this 4-year period?

Correct AnswerverifiedShow Answer

A stock has produced returns of 11 percent, 18 percent, -6 percent, -13 percent, and 21 percent for the past five years, respectively. What is the standard deviation of these returns?

Correct AnswerverifiedShow Answer

According to the Efficient Market Hypothesis, professional investors will earn:

Correct AnswerverifiedShow Answer

Assume large-company stocks returned 11.8 percent on average over the past 75 years. The risk premium on these stocks was 7.9 percent and the inflation rate was 3.2 percent. What was the average nominal risk-free rate of return for those 75 years?

Correct AnswerverifiedShow Answer

Percentage returns: I. are easy to understand. II) relay information about a security more easily than dollar returns do. III) are not affected by the amount of the investment. IV) can be easily separated into dividend yield and capital gain yield.

Correct AnswerverifiedShow Answer

A security produced returns of 12 percent, -11 percent, -2 percent, 15 percent, and 9 percent over the past five years, respectively. Based on these five years, what is the probability that an investor in this stock will lose more than 17.06 percent in any one given year?

Correct AnswerverifiedShow Answer

The period 1926-2008 illustrates that U.S. Treasury bills:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified