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front 1 1. You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR was ____. 4% 3.5% 7% | back 1 D |

front 2 The ______ measure of returns ignores compounding. geometric average arithmetic average IRR dollar-weighted | back 2 B |

front 3 If you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the __________. geometric average return arithmetic average return dollar-weighted return index return | back 3 C |

front 4 Which one of the following measures time-weighted returns and allows for compounding? A. geometric average return | back 4 A |

front 5 5. Rank the following from highest average historical return to lowest average historical return from 1926 to 2013. I. Small stocks II. Long-term bonds III. Large stocks IV. T-bills I, II, III, IV III, IV, II, I I, III, II, IV III, I, II, IV | back 5 C |

front 6 6. Rank the following from highest average historical standard deviation to lowest average historical standard deviation from 1926 to 2013. Small stocks II. Long-term bonds III. Large stocks IV. T-bills III, IV, II, I I, III, II, IV III, I, II, IV | back 6 C |

front 7 You have calculated the historical dollar-weighted return, annual geometric average return, and annual arithmetic average return. If you desire to forecast performance for next year, the best forecast will be given by the ________. dollar-weighted return geometric average return arithmetic average return index return | back 7 C |

front 8 The complete portfolio refers to the investment in _________. the risk-free asset the risky portfolio the risk-free asset and the risky portfolio combined the risky portfolio and the index | back 8 C |

front 9 You have calculated the historical dollar-weighted return, annual geometric average return, and annual arithmetic average return. You always reinvest your dividends and interest earned on the portfolio. Which method provides the best measure of the actual average historical performance of the investments you have chosen? A. dollar-weighted return | back 9 B |

front 10 10. The holding period return on a stock is equal to _________. the capital gain yield over the period plus the inflation rate the capital gain yield over the period plus the dividend yield the current yield plus the dividend yield the dividend yield plus the risk premium | back 10 B |

front 11 Your timing was good last year. You invested more in your portfolio right before prices went up, and you sold right before prices went down. In calculating historical performance measures, which one of the following will be the largest? A. dollar-weighted return | back 11 A |

front 12 12. Published data on past returns earned by mutual funds are required to be ______. dollar-weighted returns geometric returns excess returns index returns | back 12 B |

front 13 13. The arithmetic average of -11%, 15%, and 20% is ________. 15.67% 8% 11.22% | back 13 B |

front 14 14. The geometric average of -12%, 20%, and 25% is _________. 8.42% 11% 9.7% | back 14 C |

front 15 15. The dollar-weighted return is the _________. difference between cash inflows and cash outflows arithmetic average return geometric average return internal rate of return | back 15 D |

front 16 An investment earns 10% the first year, earns 15% the second year, and loses 12% the third year. The total compound return over the 3 years was ______. 41.68% 11.32% 3.64% | back 16 B |

front 17 17. Annual percentage rates can be converted to effective annual rates by means of the following formula: [1 + (APR/n)]n - 1 (APR/n) (periodic rate)(n) | back 17 A |

front 18 18. Suppose you pay $9,700 for a $10,000 par Treasury bill maturing in 3 months. What is the holding-period return for this investment? 3.01% 3.09% 12.42% | back 18 B |

front 19 19. Suppose you pay $9,800 for a $10,000 par Treasury bill maturing in 2 months. What is the annual percentage rate of return for this investment? 2.04% 12 % 12.24% | back 19 C |

front 20 20. Suppose you pay $9,400 for a $10,000 par Treasury bill maturing in 6 months. What is the effective annual rate of return for this investment? 6.38% 12.77% | back 20 C |

front 21 21. You have an APR of 7.5% with continuous compounding. The EAR is _____. 7.5% 7.65% 7.79 % | back 21 C |

front 22 22. You have an EAR of 9%. The equivalent APR with continuous compounding is _____. 8.47% 8.62% 8.88% | back 22 B |

front 23 23. The market risk premium is defined as __________. A. the difference between the return on an index fund and the
return on Treasury bills the difference between the return on the highest-yielding asset and the return on the lowest-yielding asset | back 23 A |

front 24 24. The excess return is the _________. rate of return that can be earned with certainty rate of return in excess of the Treasury-bill rate rate of return to risk aversion index return | back 24 B |

front 25 The rate of return on _____ is known at the beginning of the holding period, while the rate of return on ____ is not known until the end of the holding period. risky assets; Treasury bills Treasury bills; risky assets excess returns; risky assets index assets; bonds | back 25 B |

front 26 26. The reward-to-volatility ratio is given by _________. the slope of the capital allocation line the second derivative of the capital allocation line the point at which the second derivative of the investor's indifference curve reaches zero the portfolio's excess return | back 26 A |

front 27 Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of earning a 10% rate of return, and a 30% chance of losing 6%. What is your expected return on this investment? 12.8% 11% 8.9% | back 27 D |

front 28 Your investment has a 40% chance of earning a 15% rate of return, a 50% chance of earning a 10% rate of return, and a 10% chance of losing 3%. What is the standard deviation of this investment? 5.14% 7.59% 9.29% | back 28 A |

front 29 29. During the 1926-2013 period the geometric mean return on small-firm stocks was ______. 5.31% 5.56% 9.34% 11.82% | back 29 D |

front 30 30. During the 1926-2013 period the geometric mean return on Treasury bonds was _________. 5.07% 5.56% 9.34% 11.43% | back 30 A |

front 31 31. During the 1926-2013 period the Sharpe ratio was greatest for which of the following asset classes? A. small U.S. stocks | back 31 B |

front 32 32. During the 1986-2013 period, the Sharpe ratio was lowest for which of the following asset classes? A. small U.S. stocks | back 32 C |

front 33 33. During the 1926-2013 period which one of the following asset classes provided the lowest real return? Small U.S. stocks Large U.S. stocks Long-term U.S. Treasury bonds Equity world portfolio in U.S. dollars | back 33 C |

front 34 34. Both investors and gamblers take on risk. The difference between an investor and a gambler is that an investor _______. is normally risk neutral requires a risk premium to take on the risk knows he or she will not lose money knows the outcomes at the beginning of the holding period | back 34 B |

front 35 35. Historical returns have generally been __________ for stocks of small firms as (than) for stocks of large firms. the same lower higher none of these options (There is no evidence of a systematic relationship between returns on small-firm stocks and returns on large-firm stocks.) | back 35 C |

front 36 Historically, small-firm stocks have earned higher returns than large-firm stocks. When viewed in the context of an efficient market, this suggests that ___________. small firms are better run than large firms government subsidies available to small firms produce effects that are discernible in stock market statistics small firms are riskier than large firms small firms are not being accurately represented in the data | back 36 C |

front 37 37. In calculating the variance of a portfolio's returns, squaring the deviations from the mean results in: I. Preventing the sum of the deviations from always equaling zero II. Exaggerating the effects of large positive and negative deviations A number for which the unit is percentage of returns I only I and II only I and III only I, II, and III | back 37 B |

front 38 If you are promised a nominal return of 12% on a 1-year investment, and you expect the rate of inflation to be 3%, what real rate do you expect to earn? 5.48% 8.74% 9% | back 38 B |

front 39 If you require a real growth in the purchasing power of your investment of 8%, and you expect the rate of inflation over the next year to be 3%, what is the lowest nominal return that you would be satisfied with? 3% 8% 11% | back 39 D |

front 40 40. One method of forecasting the risk premium is to use the _______. coefficient of variation of analysts' earnings forecasts variations in the risk-free rate over time average historical excess returns for the asset under consideration average abnormal return on the index portfolio | back 40 C |

front 41 Treasury bills are paying a 4% rate of return. A risk-averse investor with a risk aversion of A = 3 should invest entirely in a risky portfolio with a standard deviation of 24% only if the risky portfolio's expected return is at least ______. 8.67% 9.84% 21.28% | back 41 C |

front 42 42. In the mean standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called the _________. capital allocation line indifference curve investor's utility line security market line | back 42 A |

front 43 43. Most studies indicate that investors' risk aversion is in the range _____. 1-3 1.5-4 3-5.2 4-6 | back 43 B |

front 44 44. Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: Asset A E(rA) = 10% σA = 20% Asset B E(rB) = 15% σB = 27% An investor with a risk aversion of A = 3 would find that _________________ on a risk-return basis. only asset A is acceptable only asset B is acceptable neither asset A nor asset B is acceptable | back 44 C |

front 45 Historically, the best asset for the long-term investor wanting to fend off the threats of inflation and taxes while making his money grow has been ____. A. stocks | back 45 A |

front 46 46. The formula is used to calculate the _____________. Sharpe ratio Treynor measure | back 46 A |

front 47 A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe ratio of ____. A. .22 | back 47 C |

front 48 48. Consider a Treasury bill with a rate of return of 5% and the following risky securities: Security A: E(r) = .15; variance = .0400 Security B: E(r) = .10; variance = .0225 Security C: E(r) = .12; variance = .1000 Security D: E(r) = .13; variance = .0625 The investor must develop a complete portfolio by combining the risk-free asset with one of the securities mentioned above. The security the investor should choose as part of her complete portfolio to achieve the best CAL would be _________. security A security B security C | back 48 A |

front 49 You purchased a share of stock for $29. One year later you received $2.25 as dividend and sold the share for $28. Your holding-period return was _________. -3.57% -3.45% 4.31% | back 49 C |

front 50 50. Security A has a higher standard deviation of returns than security B. We would expect that: I. Security A would have a higher risk premium than security B. II. The likely range of returns for security A in any given year would be higher than the likely range of returns for security B. The Sharpe ratio of A will be higher than the Sharpe ratio of B. I only I and II only II and III only I, II, and III | back 50 B |

front 51 The holding-period return on a stock was 25%. Its ending price was $18, and its beginning price was $16. Its cash dividend must have been _________. $.25 $1 $2 | back 51 C |

front 52 52. An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5%, and she puts 30% in a Treasury bill that pays 5%. Her portfolio's expected rate of return and standard deviation are __________ and __________ respectively. 10%; 6.7% 12%; 22.4% 12%; 15.7% | back 52 C |

front 53 The holding-period return on a stock was 32%. Its beginning price was $25, and its cash dividend was $1.50. Its ending price must have been _________. $28.50 $33.20 $31.50 | back 53 C |

front 54 Consider the following two investment alternatives: First, a risky portfolio that pays a 15% rate of return with a probability of 40% or a 5% rate of return with a probability of 60%. Second, a Treasury bill that pays 6%. The risk premium on the risky investment is _________. 1% 3% 6% | back 54 B |

front 55 Consider the following two investment alternatives: First, a risky portfolio that pays a 20% rate of return with a probability of 60% or a 5% rate of return with a probability of 40%. Second, a Treasury bill that pays 6%. If you invest $50,000 in the risky portfolio, your expected profit would be _________. $3,000 $7,000 $7,500 | back 55 B |

front 56 You invest $10,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 15% and a standard deviation of 21% and a Treasury bill with a rate of return of 5%. How much money should be invested in the risky asset to form a portfolio with an expected return of 11%? $6,000 $4,000 $7,000 | back 56 A |

front 57 You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. __________ of your complete portfolio should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 9%. 100% 90% 45% | back 57 C |

front 58 You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. A portfolio that has an expected value in 1 year of $1,100 could be formed if you _________. place 40% of your money in the risky portfolio and the rest in the risk-free asset place 55% of your money in the risky portfolio and the rest in the risk-free asset place 60% of your money in the risky portfolio and the rest in the
risk-free asset | back 58 A |

front 59 You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. The slope of the capital allocation line formed with the risky asset and the risk-free asset is approximately _________. A. 1.040 B. .80 C. .50 | back 59 C |

front 60 You have $500,000 available to invest. The risk-free rate, as well as your borrowing rate, is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should _________. invest $125,000 in the risk-free asset invest $375,000 in the risk-free asset borrow $125,000 | back 60 D |

front 61 The return on the risky portfolio is 15%. The risk-free rate, as well as the investor's borrowing rate, is 10%. The standard deviation of return on the risky portfolio is 20%. If the standard deviation on the complete portfolio is 25%, the expected return on the complete portfolio is _________. 6% 8.75 % 10% | back 61 D |

front 62 You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 11%, you should invest __________ of your complete portfolio in Treasury bills. 19% 25% 36% | back 62 A |

front 63 You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 8%, you should invest approximately __________ in the risky portfolio. This will mean you will also invest approximately __________ and __________ of your complete portfolio in security X and Y, respectively. 0%; 60%; 40% 25%; 45%; 30% 40%; 24%; 16% | back 63 C |

front 64 You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. If you decide to hold 25% of your complete portfolio in the risky portfolio and 75% in the Treasury bills, then the dollar values of your positions in X and Y, respectively, would be __________ and _________. $300; $450 $150; $100 $100; $150 | back 64 B |

front 65 You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. The dollar values of your positions in X, Y, and Treasury bills would be _________, __________, and __________, respectively, if you decide to hold a complete portfolio that has an expected return of 8%. $162; $595; $243 $243; $162; $595 $595; $162; $243 | back 65 B |

front 66 66. You have the following rates of return for a risky portfolio for several recent years: 2011 35.23% 2012 18.67% 2013 −9.87% 2014 23.45% If you invested $1,000 at the beginning of 2011, your investment at the end of 2014 would be worth ___________. $2,176.60 $1,785.56 $1,645.53 | back 66 B |

front 67 67. You have the following rates of return for a risky portfolio for several recent years: 2011 35.23% 2012 18.67% 2013 −9.87% 2014 23.45% The annualized (geometric) average return on this investment is _____. 16.15% 16.87% 21.32% | back 67 D |

front 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 _____. 68.26% 95.44% 99.74% | back 68 B |

front 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 | back 69 B |

front 70 70. From 1926 to 2013 the world stock portfolio offered _____ return and _____ volatility than the portfolio of large U.S. stocks. lower; higher lower; lower higher; lower higher; higher | back 70 B |

front 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? -3.64% -6.36% -6.44% | back 71 C |

front 72 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? 6.58% 8.86% 14.47% | back 72 C |

front 73 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. Your nominal Sharpe ratio is zero. I only I and III only II only I, II, and III | back 73 B |

front 74 74. Which one of the following would be considered a risk-free asset in real terms as opposed to nominal? A. money market fund | back 74 D |

front 75 75. What is the geometric average return of the following quarterly returns: 3%, 5%, 4%, and 7%? 3.72% 4.23% 4.74% | back 75 C |

front 76 76. What is the geometric average return over 1 year if the quarterly returns are 8%, 9%, 5%, and 12%? 8% 8.33 % 8.47% | back 76 C |

front 77 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? 3.92% 4% 4.12% | back 77 A |

front 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 | back 78 C |

front 79 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% 5% 6% | back 79 C |

front 80 80. (p. $$pageTag$$) A loan for a new car costs the borrower .8% per month. What is the EAR? A. .80% | back 80 D |

front 81 81. The CAL provided by combinations of 1-month T-bills and a broad index of common stocks is called the ______. SML CAPM CML total return line | back 81 C |

front 82 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. Passive investors are guaranteed to earn higher rates of return than active investors over sufficiently long time horizons. I only I and II only II and III only I, II, and III | back 82 B |

front 83 83. You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends. what is the geometric average return for the period? A. 2.87% B. .74% C. 2.6% | back 83 C |

front 84 84. You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends. What is the dollar-weighted return over the entire time period? A. 2.87% B..74% C. 2.6% | back 84 B |

front 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? 5% 15% 54.5% | back 85 C |

front 86 86. The normal distribution is completely described by its _______. mean and standard deviation mean and variance mode and standard deviation | back 86 A |

front 87 87. Which measure of downside risk predicts the worst loss that will be suffered with a given probablility? standard deviation variance value at risk | back 87 C |

front 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% | back 88 D |

front 89 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 90 years later in 2015? A. $1,000 | back 89 C |