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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
11
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
12
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
13
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
14
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
15
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
16
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 $7.72
Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004
and sold it after the dividend had been paid at the closing price on January 26, 2005. Your
dividend yield for this period is closest to ________.
A) -7.80%
B) -8.53%
C) 0.74%
D) 0.81%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
17
39) Consider the following price and dividend data for Quicksilver Inc.:
Date Price ($) 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 $7.72
Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004
and sold it after the dividend had been paid at the closing price on January 26, 2005. Your
capital gains rate (yield) for this period is closest to ________.
A) 0.93%
B) 1.02%
C) -3.85%
D) -2.93%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
18
40) Consider the following price and dividend data for Quicksilver Inc.:
Date Price ($) 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 $7.72
Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004
and sold it after the dividend had been paid at the closing price on January 26, 2005. Your
total return rate (yield) for this period is closest to ________.
A) 0.97%
B) -4.00%
C) -4.97%
D) 1.06%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
19
41) Consider the following price and dividend data for Quicksilver Inc.:
Date Price ($) 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
20
