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68) A security with normally distributed returns has an annual expected return of 18% and
standard deviation of 23%. The probability of getting a return between -28% and 64% in any one
year is ________.
A) 68.26%
B) 95.44%
C) 99.74%
D) 100%
69) The Manhawkin Fund has an expected return of 16% and a standard deviation of 20%. The
risk-free rate is 4%. What is the reward-to-volatility ratio for the Manhawkin Fund?
A) .8
B) .6
C) 9
D) 1
70) From 1926 to 2013 the world stock portfolio offered ________ return and ________
volatility than the portfolio of large U.S. stocks.
A) lower; higher
B) lower; lower
C) higher; lower
D) higher; higher
71) The price of a stock is $55 at the beginning of the year and $50 at the end of the year. If the
stock paid a $3 dividend and inflation was 3%, what is the real holding-period return for the
year?
A) -3.64%
B) -6.36%
C) -6.44%
D) -11.74%
72) The price of a stock is $38 at the beginning of the year and $41 at the end of the year. If the
stock paid a $2.50 dividend, what is the holding-period return for the year?
A) 6.58%
B) 8.86%
C) 14.47%
D) 18.66%
73) You invest all of your money in 1-year T-bills. Which of the following statements is (are)
correct?
I. Your nominal return on the T-bills is riskless.
II. Your real return on the T-bills is riskless.
III. Your nominal Sharpe ratio is zero.
A) I only
B) I and III only
C) II only
D) I, II, and III
74) Which one of the following would be considered a risk-free asset in real terms as opposed to
nominal?
A) money market fund
B) U.S. T-bill
C) short-term corporate bonds
D) U.S. T-bill whose return was indexed to inflation
75) What is the geometric average return of the following quarterly returns: 3%, 5%, 4%, and
7%?
A) 3.72%
B) 4.23%
C) 4.74%
D) 4.90%
76) What is the geometric average return over 1 year if the quarterly returns are 8%, 9%, 5%,
and 12%?
A) 8%
B) 8.33 %
C) 8.47%
D) 8.5 %
77) If the nominal rate of return on investment is 6% and inflation is 2% over a holding period,
what is the real rate of return on this investment?
A) 3.92%
B) 4%
C) 4.12%
D) 6%
78) According to historical data, over the long run which of the following assets has the best
chance to provide the best after-inflation, after-tax rate of return?
A) long-term Treasury bonds
B) corporate bonds
C) common stocks
D) preferred stocks
79) The buyer of a new home is quoted a mortgage rate of .5% per month. What is the APR on
the loan?
A) .50%
B) 5%
C) 6%
D) 6.5%
80) A loan for a new car costs the borrower .8% per month. What is the EAR?
A) .80%
B) 6.87%
C) 9.6%
D) 10.03%
81) The CAL provided by combinations of 1-month T-bills and a broad index of common stocks
is called the ________.
A) SML
B) CAPM
C) CML
D) total return line
82) Which of the following arguments supporting passive investment strategies is (are) correct?
I. Active trading strategies may not guarantee higher returns but guarantee higher costs.
II. Passive investors can free-ride on the activity of knowledge investors whose trades force
prices to reflect currently available information.
III. Passive investors are guaranteed to earn higher rates of return than active investors over
sufficiently long time horizons.
A) I only
B) I and II only
C) II and III only
D) I, II, and III
83) You have the following rates of return for a risky portfolio for several recent years. Assume
that the stock pays no dividends.
Year
Beginning of Year
Price
# of Shares Bought or Sold
2014
$
50.00
100 bought
2015
$
55.00
50 bought
2016
$
51.00
75 sold
2017
$
54.00
75 sold
What is the geometric average return for the period?
A) 2.87%
B) .74%
C) 2.6%
D) 2.21%
84) You have the following rates of return for a risky portfolio for several recent years. Assume
that the stock pays no dividends.
Year
Beginning of Year
Price
# of Shares Bought or Sold
2014
$
50.00
100 bought
2015
$
55.00
50 bought
2016
$
51.00
75 sold
2017
$
54.00
75 sold
What is the dollar-weighted return over the entire time period?
A) 2.87%
B) .74%
C) 2.6%
D) 2.21%
85) If you believe you have a 60% chance of doubling your money, a 30% chance of gaining
15%, and a 10% chance of losing your entire investment, what is your expected return?
A) 5%
B) 15%
C) 54.5%
D) 114.5%
86) The normal distribution is completely described by its ________.
A) mean and standard deviation
B) mean
C) mode and standard deviation
D) median and variance
87) Which measure of downside risk predicts the worst loss that will be suffered with a given
probability?
A) standard deviation
B) variance
C) value at risk
D) Sharpe ratio
88) What is the VaR of a $10 million portfolio with normally distributed returns at the 5% VaR?
Assume the expected return is 13% and the standard deviation is 20%.
A) 13%
B) -13%
C) 19.90%
D) -19.90%
89) Your great aunt Zella invested $100 in 1925 in a portfolio of large U.S. stocks that earned a
compound return of 10% annually.If she left that money to you, how much would be in the
account 92 years later in 2017?
A) $1,000
B) $9,900
C) $642,875.74
D) $5,843,325
