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Exam 5: Risk and Return: Past and Prologue

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Question 1

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A loan for a new car costs the borrower 0.8% per month.What is the EAR?

A) 0.80%
B) 6.87%
C) 9.60%
D) 10.03%

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

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Question 2

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The buyer of a new home is quoted a mortgage rate of 0.5% per month.What is the APR on the loan?

A) 0.50%
B) 5.0%
C) 6.0%
D) 6.5%

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

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Question 3

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You purchased a share of stock for $29.One year later you received $2.25 as dividend and sold the share for $28.Your holding-period return was _________.

What is the geometric average return of the following quarterly returns: 3%,5%,4%,and 7%,respectively?

The holding period return on a stock is equal to _________.

Suppose you pay $9,700 for a $10,000 par Treasury bill maturing in three months.What is the holding period return for this investment?

Rank the following from highest average historical standard deviation to lowest average historical standard deviation from 1926-2008. I.Small stocks II.Long term bonds III.Large stocks IV.T-bills

Which one of the following measure time weighted returns? I.Geometric average return II.Arithmetic average return III.Dollar weighted return

The complete portfolio refers to the investment in _________.

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.

A security with normally distributed returns has an annual expected return of 18% and standard deviation of 23%.The probability of getting a return between -28% and 64% in any one year is

Most studies indicate that investors' risk aversion is in the range _____.

Consider a treasury bill with a rate of return of 5% and the following risky securities: Security A: E(r) = .15; variance = .0400 Security B: E(r) = .10; variance = .0225 Security C: E(r) = .12; variance = .1000 Security D: E(r) = .13; variance = .0625 The investor must develop a complete portfolio by combining the risk-free asset with one of the securities mentioned above.The security the investor should choose as part of his complete portfolio to achieve the best CAL would be _________.

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 measure of ____.

You have calculated the historical dollar weighted return,annual geometric average return and annual arithmetic average return.If you desire to forecast performance for next year,the best forecast will be given by the ________.

The price of a stock is $55 at the beginning of the year and $50 at the end of the year.If the stock paid a $3 dividend and inflation was 3%,what is the real holding period return for the year?

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?

The market risk premium is defined as __________.

The CAL provided by combinations of one month T-bills and a broad index of common stocks is called the ______.

Historically small firm stocks have earned higher returns than large firm stocks.When viewed in the context of an efficient market,this suggests that ___________.