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42) Consider the following realized annual returns:
Year-end
S&P 500
Realized
Return
IBM
Realized
Return
1996 23.3% 46.3%
1997 24.7% 26.7%
1998 30.4% 86.9%
1999 9.0% 23.1%
2000 -2.0% 0.2%
2001 -17.3% -3.2%
2002 -24.3% -27.0%
2003 31.2% 27.9%
2004 4.4% -5.1%
2005 7.4% -11.3%
The average annual return on the S&P 500 from 1996 to 2005 is closest to ________.
A) 8.68%
B) 4.34%
C) 5.21%
D) 9.55%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
21
43) Consider the following realized annual returns:
Year-end
S&P 500
Realized
Return
IBM
Realized
Return
1996 23.3% 45.7%
1997 24.7% 26.7%
1998 31.6% 85.0%
1999 9.0% 23.1%
2000 -2.0% 0.2%
2001 -17.3% -3.2%
2002 -24.3% -27.0%
2003 32.8% 26.6%
2004 4.4% -5.1%
2005 7.4% -11.3%
The average annual return on IBM from 1996 to 2005 is closest to ________.
A) 18.48%
B) 16.07%
C) 19.28%
D) 28.93%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
44) The average annual return over the period 1926-2009 for the S&P 500 is 12.0%, and
the standard deviation of returns is 21.3%. Based on these numbers, what is a 95%
conidence interval for 2010 returns?
A) -1.5%, 21.8%
B) -10.7%, 32.8%
C) -30.6%, 54.6%
D) -30.6%, 76.4%
AACSB Objective: Analytic Skills
Author: WC
Question Status: Revised
22
45) The average annual return over the period 1926-2009 for the S&P 500 is 12.8%, and
the standard deviation of returns is 21.4%. Based on these numbers, what is a 67%
conidence interval for 2010 returns?
A) -1.3%, 20.5%
B) -8.6%, 34.2%
C) -25.8%, 54.7%
D) -25.8%, 47.9%
AACSB Objective: Analytic Skills
Author: WC
Question Status: Revised
46) The average annual return over the period 1926-2009 for small stocks is 21.2%, and
the standard deviation of returns is 21.2%. Based on these numbers, what is a 95%
conidence interval for 2010 returns?
A) -10.6%, 31.8%
B) 0%, 42.4%
C) -21.2%, 42.4%
D) -21.2%, 63.6%
AACSB Objective: Analytic Skills
Author: WC
Question Status: Revised
47) McCoy paid a one-time special dividend of $3.40 on October 18, 2010. Suppose you
bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend
was paid for $63.52. What was your realized return from holding McCoy?
A) 4.24%
B) 6.36%
C) 33.91%
D) 42.38%
AACSB Objective: Analytic Skills
Author: WC
Question Status: Revised
23
48) McCoy paid a one-time special dividend of $3.20 on October 18, 2010. Suppose you
bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend
was paid for $62.93. What was your capital gain yield from holding McCoy?
A) 4.07%
B) 6.11%
C) 33.89%
D) 40.70%
AACSB Objective: Analytic Skills
Author: WC
Question Status: Revised
49) What are the two components of realized return from a stock investment?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
50) Which type of investment has historically had the highest volatility?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
51) Which type of investment has historically had the lowest volatility?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
24
52) When looking at investment portfolios historically, was there a pattern between returns
and volatility?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
11.3 The Historical Tradeof between Risk and Return
1) Rational investors may be willing to choose an investment that has additional risk but
does not ofer additional reward.
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
2) Historical evidence on the returns of large portfolios of stock and bonds shows that
investments with higher volatility have rewarded investors with higher returns.
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
3) There is a clear link between the volatility of returns for individual stocks and the
returns for individual stocks.
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
25
4) While ________ seems to be a reasonable measure of risk when evaluating a large
portfolio, the ________ of an individual security does not explain the size of its average
return.
A) volatility, volatility
B) the mean return, standard deviation
C) mode, volatility
D) mode, mean return
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
5) There is an overall relationship between ________ and ________. Larger stocks have a
lower volatility overall.
A) size, risk
B) mean, standard deviation
C) risk aversion, size
D) volatility, mean
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised
6) The excess return is the diference between the average return on a security and the
average return for ________.
A) Treasury bonds
B) a portfolio of securities with similar risk
C) a broad-based market portfolio like the S&P 500 index
D) Treasury bills
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
26
7) Which of the following statements is FALSE?
A) Expected return should rise proportionately with volatility.
B) Investors would not choose to hold a portfolio that is more volatile unless they expected
to earn a higher return.
C) Smaller stocks have lower volatility than larger stocks.
D) The largest stocks are typically more volatile than a portfolio of large stocks.
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
8) Which of the following statements is FALSE?
A) Investments with higher volatility have rewarded investors with higher average returns.
B) Investments with higher volatility should have a higher risk premium and, therefore,
higher returns.
C) Volatility seems to be a reasonable measure of risk when evaluating returns on large
portfolios and the returns of individual securities.
D) Riskier investments must ofer investors higher average returns to compensate them for
the extra risk they are taking on.
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
27
9) Consider the following average annual returns:
Investment Average Return
Small Stocks 23.5%
S&P 500 13.1%
Corporate Bonds 7.3%
Treasure Bonds 6.1%
Treasury Bills 4.0%
What is the excess return for the portfolio of small stocks?
A) 11.7%
B) 16.6%
C) 19.5%
D) 17.6%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
28
10) Consider the following average annual returns:
Investment Average Return
Small Stocks 23.7%
S&P 500 13.8%
Corporate Bonds 7.9%
Treasure Bonds 6.5%
Treasury Bills 4.5%
What is the excess return for the S&P 500?
A) 11.5%
B) 16.3%
C) 0%
D) 9.3%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition
29
11) Consider the following average annual returns:
Investment Average Return
Small Stocks 23.8%
S&P 500 13.1%
Corporate Bonds 7.5%
Treasure Bonds 6.8%
Treasury Bills 4.9%
What is the excess return for corporate bonds?
A) 2.6%
B) 1.3%
C) 5.2%
D) 0%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition
30
