FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 5: Risk, Return, and the Historical Record

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Multiple Choice

Review LaterAdd Note

Review Later

The ________ measure of returns ignores compounding.

A) geometric average
B) arithmetic average
C) IRR
D) dollar-weighted

E) All of the above
F) B) and C)

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

According to historical data, over the long run which of the following assets has the best chance to provide the best after-inflation, after-tax rate of return?

A) long-term Treasury bonds
B) corporate bonds
C) common stocks
D) preferred stocks

E) B) and C)
F) A) and D)

Correct Answer

verified

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe ratio of ________.

Consider the following two investment alternatives: First, a risky portfolio that pays a 20% rate of return with a probability of 60% or a 5% rate of return with a probability of 40%. Second, a Treasury bill that pays 6%. If you invest $50,000 in the risky portfolio, your expected profit after one year would be ________.

Suppose you pay $9,800 for a $10,000 par Treasury bill maturing in 2 months. What is the annual percentage rate of return for this investment?

Your investment has a 40% chance of earning a 15% rate of return, a 50% chance of earning a 10% rate of return, and a 10% chance of losing 3%. What is the standard deviation of this investment?

Treasury bills are paying a 4% rate of return. A risk-averse investor with a risk aversion of A = 3 should invest entirely in a risky portfolio with a standard deviation of 24% only if the risky portfolio's expected return is at least ________.

The rate of return on ________ is known at the beginning of the holding period, while the rate of return on ________ is not known until the end of the holding period.

During the 1926-2013 period the geometric mean return on small-firm stocks was ________.

An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5%, and she puts 30% in a Treasury bill that pays 5%. Her portfolio's expected rate of return and standard deviation are ________ and ________ respectively.

One method of forecasting the risk premium is to use the ________.

Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: Asset A E(r_A) = 10% σ_A = 20% Asset B E(r_B) = 15% σ_B = 27% An investor with a risk aversion of A = 3 would find that ________ on a risk-return basis.

You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends. What is the geometric average return for the period?

In calculating the variance of a portfolio's returns, squaring the deviations from the mean results in: I. Preventing the sum of the deviations from always equaling zero II. Exaggerating the effects of large positive and negative deviations III. A number for which the unit is percentage of returns

Published data on past returns earned by mutual funds are required to be ________.

You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR was ________.

Which of the following arguments supporting passive investment strategies is (are) correct? I. Active trading strategies may not guarantee higher returns but guarantee higher costs. II. Passive investors can free-ride on the activity of knowledge investors whose trades force prices to reflect currently available information. III. Passive investors are guaranteed to earn higher rates of return than active investors over sufficiently long time horizons.

You invest all of your money in 1-year T-bills. Which of the following statements is (are) correct? I. Your nominal return on the T-bills is riskless. II. Your real return on the T-bills is riskless. III. Your nominal Sharpe ratio is zero.

If you believe you have a 60% chance of doubling your money, a 30% chance of gaining 15%, and a 10% chance of losing your entire investment, what is your expected return?

The market risk premium is defined as ________.