Question 1

Riskier investments have traditionally had lower returns than less risky investments have had.

Accepted Answer

A) True 
 B)False

Question 2

Over the period 1995-2015, which pair of investments does not perfectly fit the "higher risk, higher return" pattern?

Accepted Answer

A)   Government bonds, treasury bills
B)   U.S. equities, corporate bonds
C)   U.S. Equities, international equities
D)   Corporate bonds, international equities

Question 3

Once market inefficiencies become known, they will be exploited by traders until they disappear.

Accepted Answer

A) True 
 B)False

Question 4

You are considering investing in a project with the following possible outcomes: Probability of Investment
States Occurrence Returns
State 1: Economic boom 15% 16%
State 2: Economic growth 45% 12%
State 3: Economic decline 25% 5%
State 4: Depression 15% -5%
Calculate the expected rate of return for this investment.

Accepted Answer

A)   9.8%
B)   7.0%
C)   8.3%
D)   6.3%

Question 5

The risk-return tradeoff tells us that expected returns should be higher on investments that have higher risk.

Accepted Answer

A) True 
 B)False

Question 6

During the period 1995 to 2015, gold has underperformed both REITS and Equities.

Accepted Answer

A) True 
 B)False

Question 7

The arithmetic average rate of return takes compounding into effect.

Accepted Answer

A) True 
 B)False

Question 8

What is the arithmetic average return on her stock if she sells it five years from today?

Accepted Answer

A)   1.92%
B)   3.98%
C)   6.47%
D)   7.11%

Question 9

Treasury Bills have less default risk than do Government Bonds.

Accepted Answer

A) True 
 B)False

Question 10

Each of the following would tend to weaken the semi-strong form Efficient Market Hypothesis EXCEPT:

Accepted Answer

A)   There is publicly available information that Boeing Aircraft has procured a contract to build 25 planes for the U.S. Government and the price of Boeing quickly goes up.
B)   ACG, Inc. performed well for the past six months, but they just lost a major distribution contract, but the price of ACG stock continues to go up.
C)   Louisville Slugger, Inc., gets a contract to supply bats for Little League play, a contract it never had before, and stock price remains stable.
D)   Muguet Company consistently underperforms the market in October, but outperforms the market in May.

Question 11

Risky investments have the potential for higher returns, but also larger losses.

Accepted Answer

A) True 
 B)False

Question 12

Using the following information for McDonovan, Inc.'s stock, calculate their expected return and standard deviation.
State Probability Return
Boom 20% 40%
Normal 60% 15%
Recession 20% (20%)

Accepted Answer

Ki = <img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> = (.20)(40%) + (.60)(15%...

Question 13

An emerging market is

Accepted Answer

A)   a market for small, but rapidly growing companies.
B)   market for companies coming out from bankruptcy proceedings.
C)   market for promising, but untested technologies
D)   a market located in an economy with low to middle per capita income.

Question 14

The difference between returns on stocks and government bonds is known as

Accepted Answer

A)   the equity risk premium.
B)   the risk and return tradeoff.
C)   the maturity premium.
D)   the risk/reward paradox.

Question 15

Investment variances may be either positive or negative.

Accepted Answer

A) True 
 B)False

Question 16

Even though an investor expects a positive rate of return, it is possible that the actual return will be negative.

Accepted Answer

A) True 
 B)False

Question 17

You purchased the stock of Sargent Motors at a price of $75.75 one year ago today. If you sell the stock today for $89.00, what is your rate of return?

Accepted Answer

A)   35.00%
B)   12.50%
C)   17.50%
D)   25.00%

Question 18

What is the arithmetic average return of Roddy Richard's investment?

Accepted Answer

A)   2.42%
B)   3.96%
C)   5.18%
D)   15.1%

Question 19

What is the geometric average return on her stock if she sells it five years from today?

Accepted Answer

A)   -2.33%
B)   .59%
C)   3.67%
D)   4.88%

Question 20

If markets are efficient, stock prices go up when there is positive information about a company, and go down when there is negative information about the company.

Accepted Answer

A) True 
 B)False

Exam 7: An Introduction to Risk and Return-History of Financial Market Returns

Using the following information for McDonovan, Inc.'s stock, calculate their expected return and standard deviation. State Probability Return Boom 20% 40% Normal 60% 15% Recession 20% (20%)

Correct Answer
verified
Ki = = (.20)(40%) + (.60)(15%...
View Answer

You purchased the stock of Sargent Motors at a price of $75.75 one year ago today. If you sell the stock today for $89.00, what is your rate of return?

Correct Answer
verified

Correct Answer
verified

What is the arithmetic average return on her stock if she sells it five years from today?

Correct Answer
verified

Even though an investor expects a positive rate of return, it is possible that the actual return will be negative.

Correct Answer
verified

Treasury Bills have less default risk than do Government Bonds.

Correct Answer
verified

During the period 1995 to 2015, gold has underperformed both REITS and Equities.

Correct Answer
verified

Risky investments have the potential for higher returns, but also larger losses.

Correct Answer
verified

The arithmetic average rate of return takes compounding into effect.

Correct Answer
verified

What is the geometric average return on her stock if she sells it five years from today?

Correct Answer
verified

The difference between returns on stocks and government bonds is known as

Correct Answer
verified

Once market inefficiencies become known, they will be exploited by traders until they disappear.

Correct Answer
verified

Over the period 1995-2015, which pair of investments does not perfectly fit the "higher risk, higher return" pattern?

Correct Answer
verified

What is the arithmetic average return of Roddy Richard's investment?

Correct Answer
verified

If markets are efficient, stock prices go up when there is positive information about a company, and go down when there is negative information about the company.

Correct Answer
verified

Each of the following would tend to weaken the semi-strong form Efficient Market Hypothesis EXCEPT:

Correct Answer
verified

The risk-return tradeoff tells us that expected returns should be higher on investments that have higher risk.

Correct Answer
verified

An emerging market is

Correct Answer
verified

Riskier investments have traditionally had lower returns than less risky investments have had.

Correct Answer
verified

Investment variances may be either positive or negative.

Correct Answer
verified

Exam 7: An Introduction to Risk and Return-History of Financial Market Returns

Using the following information for McDonovan, Inc.'s stock, calculate their expected return and standard deviation. State Probability Return Boom 20% 40% Normal 60% 15% Recession 20% (20%)

Correct AnswerverifiedKi = = (.20)(40%) + (.60)(15%...View AnswerShow Answer

You purchased the stock of Sargent Motors at a price of $75.75 one year ago today. If you sell the stock today for $89.00, what is your rate of return?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the arithmetic average return on her stock if she sells it five years from today?

Correct AnswerverifiedShow Answer

Even though an investor expects a positive rate of return, it is possible that the actual return will be negative.

Correct AnswerverifiedShow Answer

Treasury Bills have less default risk than do Government Bonds.

Correct AnswerverifiedShow Answer

During the period 1995 to 2015, gold has underperformed both REITS and Equities.

Correct AnswerverifiedShow Answer

Risky investments have the potential for higher returns, but also larger losses.

Correct AnswerverifiedShow Answer

The arithmetic average rate of return takes compounding into effect.

Correct AnswerverifiedShow Answer

What is the geometric average return on her stock if she sells it five years from today?

Correct AnswerverifiedShow Answer

The difference between returns on stocks and government bonds is known as

Correct AnswerverifiedShow Answer

Once market inefficiencies become known, they will be exploited by traders until they disappear.

Correct AnswerverifiedShow Answer

Over the period 1995-2015, which pair of investments does not perfectly fit the "higher risk, higher return" pattern?

Correct AnswerverifiedShow Answer

What is the arithmetic average return of Roddy Richard's investment?

Correct AnswerverifiedShow Answer

If markets are efficient, stock prices go up when there is positive information about a company, and go down when there is negative information about the company.

Correct AnswerverifiedShow Answer

Each of the following would tend to weaken the semi-strong form Efficient Market Hypothesis EXCEPT:

Correct AnswerverifiedShow Answer

The risk-return tradeoff tells us that expected returns should be higher on investments that have higher risk.

Correct AnswerverifiedShow Answer

An emerging market is

Correct AnswerverifiedShow Answer

Riskier investments have traditionally had lower returns than less risky investments have had.

Correct AnswerverifiedShow Answer

Investment variances may be either positive or negative.

Correct AnswerverifiedShow Answer

Correct Answer
verified
Ki = = (.20)(40%) + (.60)(15%...
View Answer

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