Student ID: 21458913

Exam: 500303RR – Risk and Return

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Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.

1. The average compounded return earned per year in a multiyear period is called the A. arithmetic average return.

B. standard deviation.

C. variance.

D. geometric average return.

2. Suppose the firm, Elena, Inc., has a major lawsuit pending against it. Everyone expects the company to win the suit, but to everyone’s surprise, the firm loses. As far as the firm’s stock price goes, the news is likely to have a/an A. immediate and significantly positive effect.

B. immediate and significantly negative effect.

C. slow and slightly negative effect.

D. immediate and slightly negative effect.

3. How can the expected return of a portfolio be calculated? A. Square the expected returns before multiplying by the portfolio weights. Add each of the results, and then take the square root of the sum.

B. Expected return can be calculated only with Excel.

C. If the portfolio has two assets, multiply the expected returns by 50 percent, and then add the results. If the portfolio has three assets, multiply the expected returns by 1/3, and so on. Then multiply the result. The proportions of each asset do not affect the

answer.

D. Take a weighted average by taking the expected return of each asset and multiplying by their proportion in the portfolio. Add the results.

4. Six months ago, you purchased 100 shares of stock in Global Trading at a price of $38.70 a share. The stock pays a quarterly dividend of $.15 a share. Today, you sold all of your shares for $40.10 per share. What’s the total amount of your dividend income on this investment? A. $30

B. $15

C. $50

D. $45

5. The average compound return earned per year over a multiyear period is called the _______ average return.

A. standard

B. geometric

C. variant

D. arithmetic

6. Which of the following yields on a stock can be negative? A. Dividend yield and total return

B. Dividend, capital gains, and total return

C. Capital gains yield

D. Capital gains yield and total return

7. The common stock of Air United had annual returns of 13.7 percent, 4.8 percent, –6.7 percent, and 27.9 percent over the last four years, respectively. What’s the standard deviation of these returns? A. 14.61 percent

B. 17.78 percent

C. 13.29 percent

D. 14.14 percent

8. Suppose that you purchased 250 shares of a stock at $32 per share, ignoring all commissions. Assume the stock paid a dividend of $3.75 per share for the year. The stock price rose to $44.25 per share and was then sold at that price. What was the total dollar return? A. $4,000

B. $5,750

C. $937.50

D. $12,000

9. Using the following, what’s the expected return for the portfolio? Portfolio Stock A Value: 5,000 Expected Return: 14 percent Stock B Value: 3,000 Expected Return: 25 percent A. 18.1 percent

B. 18.9 percent

C. 20.1 percent

D. 17.5 percent

10. _______ is the concept that all securities within well-organized markets, such as the NYSE, incorporate all publicly available information. A. The geometric average return

B. The efficient market hypothesis

C. Normal distribution

D. Standard deviation

11. The term “unsystematic risk” is synonymous with which of the following? A. Beta risk

B. Undiversifiable risk

C. Diversifiable risk

D. Systematic risk

12. You have a portfolio consisting solely of stock A and stock B. The portfolio has an expected return of 9.8 percent. Stock A has an expected return of 11.4 percent, while stock B is expected to return 6.4 percent. What’s the portfolio weight of stock A? A. 59 percent

B. 74 percent

C. 81 percent

D. 68 percent

13. The minimum that an investor should accept as a return for a new investment is the A. cost of capital.

B. average return.

C. risk premium.

D. beta coefficient.

14. What’s the arithmetic average return? A. The average compounded dividend earned per year in a multiyear period

B. The return earned in an average year over a multiyear period

C. The average compounded return earned per year in a multiyear period

D. The average dividend in an average year over a multiyear period

15. What’s the risk premium for U.S. Treasury bills? A. Equal to the return on the T-bills plus compensation for any additional risk

B. It depends on the rate of inflation.

C. Equal to the return on the T-bills

D. Essentially zero

16. The market risk premium—the concept that investors should be rewarded for taking on extra risk—is illustrated as the A. x-access intersection of the SML.

B. y-access intersection of the SML.

End of exam

C. slope of the SML.

D. peak of the SML.

17. Suppose that you purchased 300 shares of a stock at $36 per share, ignoring all commissions. Assume the stock paid a dividend of $2.15 per share for the year. The stock price rose to $41.05 per share and was then sold at that price. What was the capital gains yield? (Round your answer to the nearest tenth of a percent.) A. 12.3 percent

B. 10 percent

C. 14 percent

D. 6 percent

18. Systematic risk is measured by the A. arithmetic average.

B. geometric average.

C. beta.

D. mean.

19. Assume you invest in a portfolio of U. S. Treasury bills and that the portfolio will earn a rate of return similar to the average return on U.S. Treasury bills for the period 1926–2013. What rate of return should you expect to earn? A. Between two and three percent

B. More than five percent

C. Less than two percent

D. Between three and four percent

20. Suppose that you purchased stock at $40 per share, ignoring all commissions. Assume the stock paid a dividend of $1.50 per share for the year. The stock price fell to $38.50 per share and was then sold at that price. What was the total yield? (Round your answer to the nearest tenth of a percent.) A. 0 percent

B. &$8211;3.8 percent

C. 3.8 percent

D. 3.9 percent