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95. One common reason for reporting standard deviations rather than variances is that
standard deviations:
96. When viewing the long-term trend of the price volatility of U.S. stocks, it is readily
apparent that volatility has:
97. If a stock's returns are volatile, then the stock:
98. Perhaps the best way to reduce macro risk in a stock portfolio is to invest in stocks that:
99. Which one of the following firms is likely to exhibit the
least
macro risk exposure?
100. Investment risk can best be described as the:
101. By reviewing the historical performance of the stock market, we can:
102. What is the difference between unique risk and market risk to the holder of a diversified
portfolio?
103. Calculate the nominal and real returns as well as the nominal and real risk premiums for
the following corporate bond investment: Purchased for $840 one year ago, 4% coupon rate, sold
104. Contrast the Dow Jones Industrial Average and the Standard and Poor's Composite
Index.
105. Justify the historic ranking of returns for the following three categories of investment,
listed from highest to lowest return: common stocks, long-term Treasury bonds, and Treasury
bills.
106. How much is an investor's tolerance for risk worth over a long horizon? Calculate the
difference in accumulation in real terms for an investor who initially invests $25,000 and ignores
it for 20 years in either a long-term Treasury bond portfolio or a portfolio of diversified common
stocks. Assume the historic real returns of 2.1% annually for bonds and 9.3% for common stocks.
107. Calculate the nominal return, real return, nominal risk premium, and real risk premium for
the following common stock investment: (Show your work)
108. Calculate the expected return, variance, and standard deviation for a portfolio of four
equally-weighted stocks with returns of 16.4%, -9.2%, 7.9%, and 22.0%. (Show your work)
109. If the stock market return in 2014 turns out to be 18%, what will happen to our estimate
of the "normal" risk premium? Does this make sense?
110. Calculate the expected return, variance, and standard deviation for an equally weighted
portfolio of Stocks A and B given the following:
111. Discuss the concept of a "negative risk asset."
112. Discuss the statement, "Only market risk matters to a diversified investor."
113. How can you estimate the opportunity cost of capital for an "average-risk" project?
114. When you compute standard deviation, what type of risk are you measuring?
115. Assume you have a diversified portfolio that has produced a 12% rate of return over the
past year. If you were to review the annual returns of the individual securities within that
portfolio, what are you most apt to discover?
