Question 1

The Ishares Bond Index fund (TLT) has a mean and annual standard deviation of returns of 5% and 10%, respectively. What is the 66% confidence interval for the returns on TLT?
A) -7%, 10%
B) 5%, 10%
C) -5%, 15%
D) -10%, 10%

Accepted Answer

C) 66% confidence interval = from mean - standard deviation to mean + standard deviation; 11ea84dc_f53a_1f9e_9a63_4f2fa24e190f_TB1316_00_TB1316_00

Question 2

McCoy paid a one-time special dividend of $3.40 on October 18, 2010. Suppose you bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend was paid for $63.52. What was your realized return from holding McCoy?
A) 4.24%
B) 6.36%
C) 33.91%
D) 42.38%

Accepted Answer

D) ($3.40 + $63.52 - $47.00) / $47.00 = 42.38%

Question 3

Which type of investment has historically had the lowest volatility?

Accepted Answer

The answer of Which type of investment has historically had...

Question 4

Consider the following price and dividend data for Quicksilver Inc.:  Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it at the closing price on December 30, 2005. Your realized annual return for the year 2005 is closest to ________.
A) -47.4%
B) -45.1%
C) -42.9%
D) -40.6%

Accepted Answer

B)
 11ea84dc_f53b_0a05_9a63_d1be11f62c94_TB1316_00_TB1316_00 The last column in the table contains the cumulative product of (1 + returns)

Question 5

The average annual return for the S&P 500 from 1886 to 2006 is 5%, with a standard deviation of 15%. Based on these numbers, what is a 95% confidence interval for 2007's returns?
A) -12.5%, 17.5%
B) -15%, 25%
C) -25%, 35%
D) -25%, 25%

Accepted Answer

C) 5% - (2 × 15%) = -25%; 5% + (2 × 15%) = 35%

Question 6

Consider the following price and dividend data for Quicksilver Inc.:  Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it after the dividend had been paid at the closing price on January 26, 2005. Your dividend yield for this period is closest to ________.
A) -7.80%
B) -8.53%
C) 0.74%
D) 0.81%

Accepted Answer

C) div / P₀ = $0.11 / $14.88 = 0.007 or 0.7%

Question 7

Consider the following realized annual returns:  The average annual return on the S&P 500 from 1996 to 2005 is closest to ________.
A) 8.68%
B) 4.34%
C) 5.21%
D) 9.55%

Accepted Answer

A) R_annual= 11ea84dc_f53b_5827_9a63_abb8095e02f8_TB1316_11_TB1316_11 = 11ea84dc_f53b_5828_9a63_15fb9ba59d30_TB1316_11_TB1316_11 = 11ea84dc_f53b_5829_9a63_998ce4d582f3_TB1316_11_TB1316_11 = 8.68%

Question 8

The average annual return over the period 1926-2009 for the S&P 500 is 12.8%, and the standard deviation of returns is 21.4%. Based on these numbers, what is a 67% confidence interval for 2010 returns?
A) -1.3%, 20.5%
B) -8.6%, 34.2%
C) -25.8%, 54.7%
D) -25.8%, 47.9%

Accepted Answer

B) 11ea84dc_f53b_cd5f_9a63_cf84e8032745_TB1316_00_TB1316_00

Question 9

The average annual return for the S&P 500 from 1886 to 2006 is 9.5%, with a standard deviation of 18%. Based on these numbers, what is a 95% confidence interval for 2007's returns?
A) -13.25%, 22.75%
B) -16.5%, 35.5%
C) -26.5%, 45.5%
D) -11.5%, 30.5%

Accepted Answer

C) 9.5% - (2 × 18%) = -26.5%; 9.5% + (2 × 18%) = 45.5%

Question 10

Consider the following price and dividend data for Quicksilver Inc.:  Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it after the dividend had been paid at the closing price on January 26, 2005. Your total return rate (yield) for this period is closest to ________.
A) 0.97%
B) -4.00%
C) -4.97%
D) 1.06%

Accepted Answer

B) 11ea84dc_f53a_e2f3_9a63_abc7bcc06204_TB1316_00_TB1316_00 or -4%

Question 11

McCoy paid a one-time special dividend of $3.20 on October 18, 2010. Suppose you bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend was paid for $62.93. What was your capital gain yield from holding McCoy?
A) 4.07%
B) 6.11%
C) 33.89%
D) 40.70%

Accepted Answer

C) ($62.93 - $47.00) / $47.00 = 33.89%

Question 12

The average annual return for the S&P 500 from 1886 to 2006 is 15%, with a standard deviation of 25%. Based on these numbers, what is a 95% confidence interval for 2007's returns?
A) -35%, 65%
B) -17.5%, 32.5%
C) -25%, 55%
D) -20%, 50%

Accepted Answer

A) 15% - (2 × 25%) = -35%; 15% + (2 × 25%) = 65%

Question 13

The average annual return over the period 1926-2009 for small stocks is 21.2%, and the standard deviation of returns is 21.2%. Based on these numbers, what is a 95% confidence interval for 2010 returns?
A) -10.6%, 31.8%
B) 0%, 42.4%
C) -21.2%, 42.4%
D) -21.2%, 63.6%

Accepted Answer

D) 11ea84dc_f53b_cd60_9a63_4d1109419127_TB1316_00_TB1316_00

Question 14

Which of the following statements is FALSE?
A) The geometric average return is a better description of the long-run historical performance of an investment.
B) The geometric average return will always be above the arithmetic average return, and the difference grows with the volatility of the annual returns.
C) The compounded geometric average return is most often used for comparative purposes.
D) We should use the arithmetic average return when we are trying to estimate an investment's expected return over a future horizon based on its past performance.

Accepted Answer

B) The geometric average return will always be below the arithmetic average return, and the difference grows with the volatility of the annual returns.

Question 15

The average annual return over the period 1926-2009 for the S&P 500 is 12.0%, and the standard deviation of returns is 21.3%. Based on these numbers, what is a 95% confidence interval for 2010 returns?
A) -1.5%, 21.8%
B) -10.7%, 32.8%
C) -30.6%, 54.6%
D) -30.6%, 76.4%

Accepted Answer

C) 11ea84dc_f53b_a64e_9a63_453861eeab1d_TB1316_00_TB1316_00

Question 16

If a stock pays dividends at the end of each quarter, with realized returns of R₁, R₂, R₃, and R₄ each quarter, then the annual realized return is calculated as ________. A) R_annual= (1 + R₁) (1 + R₂) (1 + R₃)( 1 + R₄) - 1 B) R_annual= R₁ + R₂ + R₃ + R₄ C) R_annual= (1 + R₁) (1 + R₂)( 1 + R₃)( 1 + R₄) D) R_annual=

Accepted Answer

The annual realized return is calculated by compounding the quarterly returns using the formula (1 + R1) x (1 + R2) x (1 + R3) x (1 + R4) - 1, where R1, R2, R3, and R4 are the quarterly returns. Therefore, the correct choice is A.

Question 17

Which type of investment has historically had the highest volatility?

Accepted Answer

The answer of Which type of investment has historically had...

Question 18

Consider the following price and dividend data for Quicksilver Inc.:  Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it after the dividend had been paid at the closing price on January 26, 2005. Your capital gains rate (yield) for this period is closest to ________.
A) 0.93%
B) 1.02%
C) -3.85%
D) -2.93%

Accepted Answer

C) (P₁ - P₀) / P₀= ($13.47 - $14.01) / $14.01 = -0.0385 or -3.85%

Question 19

What are the two components of realized return from a stock investment?

Accepted Answer

The answer of What are the two components of realized...

Question 20

Consider the following realized annual returns:  The average annual return on IBM from 1996 to 2005 is closest to ________.
A) 18.48%
B) 16.07%
C) 19.28%
D) 28.93%

Accepted Answer

B) R_annual= 11ea84dc_f53b_7f3b_9a63_230bc03225de_TB1316_11_TB1316_11 = 11ea84dc_f53b_a64c_9a63_53177505987c_TB1316_11_TB1316_11 = 11ea84dc_f53b_a64d_9a63_811a6b7a82d6_TB1316_11_TB1316_11 = 16.07%

Quiz 11: Risk and Return in Capital Markets

The Ishares Bond Index fund (TLT) has a mean and annual standard deviation of returns of 5% and 10%, respectively. What is the 66% confidence interval for the returns on TLT?

McCoy paid a one-time special dividend of $3.40 on October 18, 2010. Suppose you bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend was paid for $63.52. What was your realized return from holding McCoy?

Which type of investment has historically had the lowest volatility?

Consider the following price and dividend data for Quicksilver Inc.: Assume that you purchased Quicksilver's stock at the closing price on December 31, 2004 and sold it at the closing price on December 30, 2005. Your realized annual return for the year 2005 is closest to ________.

The average annual return for the S&P 500 from 1886 to 2006 is 5%, with a standard deviation of 15%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

Consider the following realized annual returns: The average annual return on the S&P 500 from 1996 to 2005 is closest to ________.

The average annual return over the period 1926-2009 for the S&P 500 is 12.8%, and the standard deviation of returns is 21.4%. Based on these numbers, what is a 67% confidence interval for 2010 returns?

The average annual return for the S&P 500 from 1886 to 2006 is 9.5%, with a standard deviation of 18%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

McCoy paid a one-time special dividend of $3.20 on October 18, 2010. Suppose you bought McCoy stock for $47.00 on July 18, 2010, and sold it immediately after the dividend was paid for $62.93. What was your capital gain yield from holding McCoy?

The average annual return for the S&P 500 from 1886 to 2006 is 15%, with a standard deviation of 25%. Based on these numbers, what is a 95% confidence interval for 2007's returns?

The average annual return over the period 1926-2009 for small stocks is 21.2%, and the standard deviation of returns is 21.2%. Based on these numbers, what is a 95% confidence interval for 2010 returns?

Which of the following statements is FALSE?

The average annual return over the period 1926-2009 for the S&P 500 is 12.0%, and the standard deviation of returns is 21.3%. Based on these numbers, what is a 95% confidence interval for 2010 returns?

If a stock pays dividends at the end of each quarter, with realized returns of R1, R2, R3, and R4 each quarter, then the annual realized return is calculated as ________.

Which type of investment has historically had the highest volatility?

What are the two components of realized return from a stock investment?

Consider the following realized annual returns: The average annual return on IBM from 1996 to 2005 is closest to ________.

If a stock pays dividends at the end of each quarter, with realized returns of R₁, R₂, R₃, and R₄ each quarter, then the annual realized return is calculated as ________.