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Exam 5: Risk and Return: Past and Prologue

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Question 21

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Suppose you pay $9,400 for a $10,000 par Treasury bill maturing in six months.What is the effective annual rate of return for this investment?

A) 6.38%
B) 12.77%
C) 13.17%
D) 14.25%

E) A) and C)
F) None of the above

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Question 22

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You have an APR of 7.5% with continuous compounding.The EAR is _____.

A) 7.50%
B) 7.65%
C) 7.79 %
D) 8.25%

E) A) and D)
F) B) and D)

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Question 23

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In the mean-standard deviation graph,the line that connects the risk-free rate and the optimal risky portfolio,P,is called _________.

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 _________.

The arithmetic average of -11%,15% and 20% is ________.

During the 1926 to 2008 period the geometric mean return on Treasury bills was _________.

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 2 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.

If 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?

The ______ measure of returns ignores compounding.

The reward/variability ratio is given by _________.

The excess return is the _________.

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.

During the 1926 to 2008 period the Sharpe ratio was greatest for which of the following asset classes?

You have the following rates of return for a risky portfolio for several recent years: -If you invested $1,000 at the beginning of 2005 your investment at the end of 2008 would be worth ___________.

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?

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?

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?

Which of the following are correct arguments supporting passive investment strategies? 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

Published data on past returns earned by mutual funds are required to be ______.

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 one year of $1,100 could be formed if you _________.