Deck 4: The Trade-Off Between Risk and Return

Question 1

Bavarian Sausage
You bought a share of Bavarian Sausage stock for $46.50 at the beginning of the year. During the year the stock paid a $2.75 dividend and at the end of the year it trades at $52.75.

-Refer to Bavarian Sausage. What is the total return of your stock investment?

A) 5.91%
B) 13.44%
C) 26.69%
D) 19.35%

Answer 1

19.35%

Question 2

Bavarian Sausage
You bought a share of Bavarian Sausage stock for $46.50 at the beginning of the year. During the year the stock paid a $2.75 dividend and at the end of the year it trades at $52.75.

-Refer to Bavarian Sausage. What is the capital gain/loss on your stock investment?

A) 5.91%
B) 13.44%
C) 19.35%
D) 28.24%

Answer 2

13.44%

Question 3

Bavarian Sausage
You bought a share of Bavarian Sausage stock for $46.50 at the beginning of the year. During the year the stock paid a $2.75 dividend and at the end of the year it trades at $52.75.

-Refer to Bavarian Sausage. What is the total dollar return on your investment?

A) $9.00
B) $2.75
C) $6.25
D) $52.75

Answer 3

$9.00

Question 4

Bavarian Sausage
You bought a share of Bavarian Sausage stock for $46.50 at the beginning of the year. During the year the stock paid a $2.75 dividend and at the end of the year it trades at $52.75.

-What is the average return for stock A?

A) 12.6%
B) 13.8%
C) 5.00%
D) 8.26%

Question 5

Bavarian Sausage
You bought a share of Bavarian Sausage stock for $46.50 at the beginning of the year. During the year the stock paid a $2.75 dividend and at the end of the year it trades at $52.75.

-What is the average return of stock B?

A) 13.8%
B) 12.6%
C) 5.00%
D) 8.52%

Question 6

Bavarian Sausage
You bought a share of Bavarian Sausage stock for $46.50 at the beginning of the year. During the year the stock paid a $2.75 dividend and at the end of the year it trades at $52.75.

-What is the average return of stock C?

A) 13.8%
B) 12.6%
C) 5.00%
D) 8.52%

Question 7

Bavarian Sausage stock has an average historical return of 16.3% and a standard deviation of 5.3%. In which range do you expect the returns of Bavarian Sausage 95% of the time.

A) 5.7%:26.9%
B) 5.3%:16.3%
C) 11.00%:21.6%
D) 6.2%:18.5%

Question 8

Bavarian Sausage stock has an average historical return of 16.3% and a standard deviation of 5.3%. In which range do you expect the returns of Bavarian Sausage 68% of the time.

A) 5.7%:26.9%
B) 5.3%:16.3%
C) 11.0%:21.6%
D) 6.2%:18.5%

Question 9

Big Diesel Incorporated
Consider the following historical returns for Big Diesel Incorporated:


-Refer to Big Diesel Incorporated. What is the average return over the five year time period?

A) 6.00%
B) 6.20%
C) 6.40%
D) 6.60%

Question 10

Which statements are TRUE regarding risk and return?
Statement I: Diversification is the process of removing systematic risk from a portfolio.
Statement II: In general, the greater the risk, the greater the return required by an investor.
Statement III: Investors should focus on real returns if they are concerned about the purchasing power of their wealth.

A) Statement I only
B) Statements I and III only
C) Statements II and III only
D) Statements I and II only