978-0133507676 Chapter 11 Part 2

Unlock access to all the studying documents.

View Full Document

21) Suppose the quarterly arithmetic average return for a stock is 10% per quarter and the

stock gives a return of 15% each over the next two quarters. The arithmetic average return

over the six quarters is ________.

A) 15.17%

B) 11.67%

C) 12.83%

D) 16.33%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

22) The geometric average annual return for a large capitalization stock portfolio is 10%

for ten years and 6% per year for the next ive years. The geometric average annual return

for the entire 15 year period is ________.

A) 9.08%

B) 8.65%

C) 8.22%

D) 9.52%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

23) Bear Stearns’ stock price closed at $98, $103, $58, $29, $4 over ive successive weeks.

The weekly standard deviation of the stock price calculated from this sample is ________.

A) $30.07

B) $49.40

C) $42.96

D) $34.37

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

24) Ford Motor Company had realized returns of 20%, 30%, 30%, and 20% over four

quarters. What is the quarterly standard deviation of returns for Ford calculated from this

sample?

A) 5.77%

B) 5.20%

C) 6.06%

D) 4.62%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

25) Ford Motor Company had realized returns of 10%, 20%, -10%, and -10% over four

quarters. What is the quarterly standard deviation of returns for Ford?

A) 12.75%

B) 14.25%

C) 13.50%

D) 15.00%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

26) Ford Motor Company had realized returns of 15%, 30%, -15%, and -30% over four

quarters. What is the quarterly standard deviation of returns for Ford?

A) 24.65%

B) 32.86%

C) 27.39%

D) 30.12%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

27) The standard deviation of returns of ________.

I. small stocks is higher than that of large stocks

II. large stocks is lower than that of corporate bonds

III. corporate bonds is higher than that of Treasury bills

Which statement is true?

A) I and III

B) I, II, and III

C) I and II

D) I only

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

28) Treasury bill returns are 4%, 3%, 2%, and 5% over four years. The standard deviation

of returns of Treasury bills is ________.

A) 1.55%

B) 1.03%

C) 0.90%

D) 1.29%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

29) If asset A’s return is exactly two times asset B’s return, then following risk return

tradeof, the standard deviation of asset A should be ________ times the standard deviation

of asset B.

A) 3

B) 2

C) 1

D) 4

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

30) If the returns on a stock index can be characterized by a normal distribution with mean

12%, the probability that returns will be lower than 12% over the next period equals

________.

A) 50%

B) 25%

C) 46%

D) 33%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

31) The probability mass between two standard deviations around the mean for a normal

distribution is ________.

A) 66%

B) 90%

C) 75%

D) 95%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

32) The Ishares Bond Index fund (TLT) has a mean and annual standard deviation of

returns of 5% and 10%, respectively. What is the 66% conidence interval for the returns on

TLT?

A) -7%, 10%

B) 5%, 10%

C) -5%, 15%

D) -10%, 10%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

33) The average annual return for the S&P 500 from 1886 to 2006 is 5%, with a standard

deviation of 15%. Based on these numbers, what is a 95% conidence interval for 2007’s

returns?

A) -12.5%, 17.5%

B) -15%, 25%

C) -25%, 35%

D) -25%, 25%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

34) The average annual return for the S&P 500 from 1886 to 2006 is 15%, with a standard

deviation of 25%. Based on these numbers, what is a 95% conidence interval for 2007’s

returns?

A) -35%, 65%

B) -17.5%, 32.5%

C) -25%, 55%

D) -20%, 50%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

35) The average annual return for the S&P 500 from 1886 to 2006 is 9.5%, with a standard

deviation of 18%. Based on these numbers, what is a 95% conidence interval for 2007’s

returns?

A) -13.25%, 22.75%

B) -16.5%, 35.5%

C) -26.5%, 45.5%

D) -11.5%, 30.5%

AACSB Objective: Analytic Skills

Author: KB

Question Status: Revised

36) Which of the following statements is FALSE?

A) The geometric average return is a better description of the long-run historical

performance of an investment.

B) The geometric average return will always be above the arithmetic average return, and

the diference grows with the volatility of the annual returns.

C) The compounded geometric average return is most often used for comparative purposes.

D) We should use the arithmetic average return when we are trying to estimate an

investment’s expected return over a future horizon based on its past performance.

AACSB Objective: Relective Thinking Skills

Author: JN

Question Status: Revised

37) If a stock pays dividends at the end of each quarter, with realized returns of R1, R2, R3,

and R4 each quarter, then the annual realized return is calculated as ________.

A) Rannual = (1 + R1) (1 + R2) (1 + R3)( 1 + R4) – 1

B) Rannual = R1 + R2 + R3 + R4

C) Rannual = (1 + R1) (1 + R2)( 1 + R3)( 1 + R4)

D) Rannual =

AACSB Objective: Analytic Skills

Author: JN

Question Status: Revised

38) Consider the following price and dividend data for Quicksilver Inc.:

Date Price ($) Dividend ($)

December 31,

2004 $14.88

January 26, 2005 $13.61 $0.11

April 28, 2005 $9.14 $0.11

July 29, 2005 $10.74 $0.11

October 28, 2005 $8.02 $0.11

December 30,

2005 $7.72

Assume that you purchased Quicksilver’s stock at the closing price on December 31, 2004

and sold it after the dividend had been paid at the closing price on January 26, 2005. Your

dividend yield for this period is closest to ________.

A) -7.80%

B) -8.53%

C) 0.74%

D) 0.81%

AACSB Objective: Analytic Skills

Author: JN

Question Status: Revised

39) Consider the following price and dividend data for Quicksilver Inc.:

Date Price ($) Dividend ($)

December 31,

2004 $14.01

January 26, 2005 $13.47 $0.13

April 28, 2005 $9.14 $0.13

July 29, 2005 $10.74 $0.13

October 28, 2005 $8.02 $0.13

December 30,

2005 $7.72

Assume that you purchased Quicksilver’s stock at the closing price on December 31, 2004

and sold it after the dividend had been paid at the closing price on January 26, 2005. Your

capital gains rate (yield) for this period is closest to ________.

A) 0.93%

B) 1.02%

C) -3.85%

D) -2.93%

AACSB Objective: Analytic Skills

Author: JN

Question Status: Revised

40) Consider the following price and dividend data for Quicksilver Inc.:

Date Price ($) Dividend ($)

December 31,

2004 $14.50

January 26, 2005 $13.78 $0.14

April 28, 2005 $9.14 $0.14

July 29, 2005 $10.74 $0.14

October 28, 2005 $8.02 $0.14

December 30,

2005 $7.72

Assume that you purchased Quicksilver’s stock at the closing price on December 31, 2004

and sold it after the dividend had been paid at the closing price on January 26, 2005. Your

total return rate (yield) for this period is closest to ________.

A) 0.97%

B) -4.00%

C) -4.97%

D) 1.06%

AACSB Objective: Analytic Skills

Author: JN

Question Status: Revised

41) Consider the following price and dividend data for Quicksilver Inc.:

Date Price ($) Dividend ($)

December 31,

2004 $14.87

January 26, 2005 $13.79 $0.14

April 28, 2005 $9.14 $0.14

July 29, 2005 $10.74 $0.14

October 28, 2005 $8.02 $0.14

December 30,

2005 $7.72

Assume that you purchased Quicksilver’s stock at the closing price on December 31, 2004

and sold it at the closing price on December 30, 2005. Your realized annual return for the

year 2005 is closest to ________.

A) -47.4%

B) -45.1%

C) -42.9%

D) -40.6%

AACSB Objective: Analytic Skills

Author: JN

Question Status: Revised