Question 1

The S&P TSX Composite index delivered annual returns of 10.55%,-8.32%,21.08% and 9.10% from 2014 to 2017.What is a 95% confidence interval for the 2014 return?

Accepted Answer

The 95% confidence interval for the 2014 return is calculated using the given returns and their standard deviation. The interval that includes the 2014 return of 10.55% is -4.08% to 20.28%.

Question 2

The S&P TSX Composite index delivered annual returns of 10.55%,-8.32%,21.08% and 9.10% from 2014 to 2017.What is the standard deviation of the index returns over these four years?

Accepted Answer

The answer of The S&P TSX Composite index delivered annual...

Question 3

Your investment over one year had a realized return of 7% and a dividend of $1.25.If the sale price was $36 per share,what was the cost of the investment?

Accepted Answer

The answer of Your investment over one year had a...

Question 4

Lululemon Athletica stock had a realized return of 7%,-2%,-3%,and -8% over four successive quarters.What is your annual realized return if you bought Lululemon at the beginning of the year and sold it at the end of the year?

Accepted Answer

To calculate the annual realized return, we need to find the average of the quarterly returns.

Average quarterly return = (7% - 2% - 3% - 8%) / 4 = -1.5%

Now, to find the annual realized return, we need to compound this quarterly return over four quarters:

Annual realized return = (1 + (-1.5%))^4 - 1 = -6.4%

Therefore, the answer is D, -6.4%.

Question 5

The S&P TSX Composite index delivered annual returns of 10.55%,-8.32%,21.08% and 9.10% from 2014 to 2017.If you invested $10,000 in the index at the beginning of 2010,what amount would your investment have been worth at the end of 2013?

Accepted Answer

To find the value at the end of 2013, we need to reverse calculate from the end of 2017 using the given annual returns. Starting with $10,000 at the beginning of 2014, apply each year's return in reverse: 2017 (9.10%), 2016 (21.08%), 2015 (-8.32%), and 2014 (10.55%). The value at the end of 2013 is approximately $13,388.

Question 6

Ford Motor Company had realized returns of 10%,20%,20%,and 10% over four quarters.What is the quarterly standard deviation of returns for Ford calculated from this sample?

Accepted Answer

The quarterly standard deviation of returns for Ford can be calculated using the formula:σ = √(Σ(x - μ)² / (n - 1))where:σ is the standard deviationx is the return for each quarterμ is the mean returnn is the number of quartersIn this case, the mean return is (10% + 20% + 20% + 10%) / 4 = 15%. The variance is:σ² = (Σ(x - μ)² / (n - 1))= ((10% - 15%)² + (20% - 15%)² + (20% - 15%)² + (10% - 15%)²) / (4 - 1)= 32.5%Therefore, the quarterly standard deviation of returns for Ford is:σ = √(σ²) = √(32.5%) = 5.77%The correct answer is A.

Question 7

You purchased Enron stock at a price of $30 per share.Its price was $20 after six months and the company declared bankruptcy at the end of the next six months.The realized return over the last year is:

Accepted Answer

The realized return is -100% because the investment became worthless after the company declared bankruptcy, meaning the entire investment was lost.

Question 8

The S&P TSX Composite index delivered annual returns of 10.55%,-8.32%,21.08% and 9.10% from 2014 to 2017.What was the average compound annual return per year?

Accepted Answer

To calculate the compound annual return, we use the formula:

[(1+r1) × (1+r2) × (1+r3) × (1+r4)]^(1/4) - 1

Where r1, r2, r3 and r4 are the annual returns for each year.

Using the numbers given in the question, we get:

[(1+0.1055) × (1-0.0832) × (1+0.2108) × (1+0.0910)]^(1/4) - 1
= 1.076 - 1
= 0.076 or 7.6%

Therefore, the average compound annual return per year is 7.6%, which is closest to option C).

Question 9

Your investment over one year had a realized return of 9% and a dividend yield of 6%.If the sale price was $45 per share,what was the cost of the investment?

Accepted Answer

Let's assume that the cost of the investment is $x.
Now, as per the question, the realized return is 9% and the dividend yield is 6%, hence the total return would be:
Total Return = Realized Return + Dividend Yield
Total Return = 9% + 6%
Total Return = 15%
We know that:
Total Return = (Sale Price - Cost Price) / Cost Price * 100
15% = (45 - x) / x * 100
1500 = 4500 - 100x
100x = 3000
x = $30
Therefore, the cost of the investment is $30 per share.
Now, we need to find out the answer in terms of choice letter, hence the answer is B) $43.69.

Question 10

Tesla Motors stock had a realized return of 18%,4%,-12%,and -6% over four successive quarters.What is your annual realized return if you bought Tesla at the beginning of the year and sold it at the end of the year?

Accepted Answer

The annual realized return is the sum of the returns over the four quarters, which is 18% + 4% - 12% - 6% = 4%.

Question 11

Ivanhoe Energy Inc had realized returns of 5.5%,-3.6%,8%,and 7.5% over four quarters.What is the quarterly standard deviation of returns for Ivanhoe?

Accepted Answer

The answer of Ivanhoe Energy Inc had realized returns of...

Question 12

The standard deviation of returns of: I.small capitalization stocks is higher than that of large capitalization stocks.
 Which statement is TRUE?

Accepted Answer

The answer of The standard deviation of returns of: I.small...

Question 13

The geometric average annual return for a large capitalization stock portfolio is 12% for ten years and 5% per year for the next five years.The geometric average annual return for the entire 15-year period is:

Accepted Answer

Using the formula for geometric mean, we have:

(1 + 0.12)^10 * (1 + 0.05)^5 = (1 + g)^15

Solving for g, we get:

g = [(1 + 0.12)^10 * (1 + 0.05)^5]^(1/15) - 1 = 0.0962 or 9.62%

Therefore, the answer is B, with a geometric average annual return of 9.62% for the entire 15-year period.

Question 14

You purchase a 30-year,zero-coupon bond for a price of $20.The bond will pay back $100 after 30 years and make no interim payments.The annual compounded return (geometric average return)on this investment is:

Accepted Answer

The answer of You purchase a 30-year,zero-coupon bond for a...

Question 15

Bombardier Inc had realized returns of -3%,-2%,-5%,and -7% over four quarters.What is the quarterly standard deviation of returns for Bombardier?

Accepted Answer

The answer of Bombardier Inc had realized returns of -3%,-2%,-5%,and...

Question 16

Suppose that a stock gave a realized return of 20% over a two-year time period and a 10% return over the third year.The geometric average annual return is:

Accepted Answer

The answer of Suppose that a stock gave a realized...

Question 17

Amazon.com stock prices gave a realized return of 5%,-5%,10%,and -10% over four successive quarters.What is the annual realized return for Amazon.com for the year?

Accepted Answer

The annual realized return can be calculated by multiplying the returns of each quarter, considering each return as a growth factor (1 + return), and then subtracting 1 to convert back to a percentage. So, the calculation is as follows: (1 + 0.05) * (1 - 0.05) * (1 + 0.10) * (1 - 0.10) - 1 = (1.05 * 0.95 * 1.10 * 0.90) - 1 ≈ 0.9875 - 1 = -0.0125 or -1.25%.

Question 18

IGM Realty had a price of $30,$30,$35,$33,and $25 at the end of the last five quarters.If IGM pays a dividend of $2 at the end of each quarter,what is the annual realized return on IGM?

Accepted Answer

The answer of IGM Realty had a price of $30,$30,$35,$33,and...

Question 19

Suppose the quarterly arithmetic average return for a stock is 5% per quarter and the stock gives a return of 10% each over the next two quarters.The arithmetic average return over the six quarters is:

Accepted Answer

The arithmetic average return over six quarters is calculated by summing all the quarterly returns and then dividing by the number of quarters. For the first four quarters, the total return is 4 quarters * 5% = 20%. For the next two quarters, the total return is 2 quarters * 10% = 20%. So, the total return over six quarters is 40%, and the average return per quarter is 40% / 6 quarters = 6.67%.

Question 20

The S&P TSX Composite index delivered a return of 14.48%,24.13%,17.26% and 9.83% over four successive years.What is the arithmetic average annual return per year?

Accepted Answer

The arithmetic average annual return is calculated by summing up all the annual returns and dividing by the number of years: (14.48% + 24.13% + 17.26% + 9.83%) / 4 = 16.43%.

Quiz 10: Risk and Return in Capital Markets