978-0133507676 Chapter 11 Part 3

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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

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

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

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

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

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

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

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

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

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