Question 1

Use the table for the question(s) below.
Consider the following Price and Dividend data for J. P. Morgan Chase:
 
-Assume that you purchased J.P.Morgan Chase stock at the closing price on December 31,2008 and sold it at the closing price on December 30,2009.Calculate your realized annual return is for the year 2005.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The Product of (1 + returns)-...

Question 2

The excess return if the difference between the average return on a security and the average return for:

Accepted Answer

A)   Treasury Bonds.
B)   a portfolio of securities with similar risk.
C)   a broad based market portfolio like the S&P 500 index.
D)   Treasury Bills.E) B) and D)
F) B) and C)

Question 3

Which of the following investments offered the highest overall return over the past eighty years?

Accepted Answer

A)   Treasury Bills
B)   S&P 500
C)   Small stocks
D)   Corporate bondsE) A) and C)
F) A) and B)

Question 4

Which of the following statements is FALSE?

Accepted Answer

A)   Beta differs from volatility.
B)   The risk premium investors can earn by holding the market portfolio is the difference between the market portfolio's expected return and the risk-free interest rate.
C)   Stocks in cyclical industries, in which revenues tend to vary greatly over the business cycle, are likely to be more sensitive to systematic risk and have higher betas than stocks in less sensitive industries.
D)   If we assume that the market portfolio (or the S&P 500)  is efficient, then changes in the value of the market portfolio represent unsystematic shocks to the economy.E) All of the above
F) C) and D)

Question 5

Which of the following statements is FALSE?

Accepted Answer

A)   We measure the degree of estimation error statistically through the standard error of the estimate.
B)   When focusing on the returns of a single security, its common practice to assume that all dividends are immediately invested at the risk-free rate.
C)   We estimate the standard deviation or volatility as the square root of the variance.
D)   We estimate the variance by computing the average squared deviation from the average realized return.E) B) and D)
F) A) and B)

Question 6

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:

Accepted Answer

A)   Rannual = 1,R2,R3,and R4 each quarter,then the annual realized return is calculated as: 
A)   Rannual =   
B)   Rannual = (1 + R1) (1 + R2) (1 + R3) (1 + R4)  
C)   Rannual = (1 + R1) (1 + R2) (1 + R3) (1 + R4)  - 1 
D)   Rannual = R1 + R2 + R3 + R4" class="answers-bank-image d-inline" rel="preload" >
B)   Rannual = (1 + R1) (1 + R2) (1 + R3) (1 + R4) 
C)   Rannual = (1 + R1) (1 + R2) (1 + R3) (1 + R4)  - 1
D)   Rannual = R1 + R2 + R3 + R4E) All of the above
F) B) and D)

Question 7

Use the following information to answer the question(s)  below.
Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down. Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down. Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down.
-The beta for security "Z" is closest to:

Accepted Answer

A)   -1.00
B)   -0.25
C)   0.00
D)   0.25E) A) and D)
F) A) and C)

Question 8

Which of the following statements is FALSE?

Accepted Answer

A)   Investments with higher volatility have rewarded investors with higher average returns.
B)   Investments with higher volatility should have a higher risk premium and therefore higher returns.
C)   Volatility seems to be a reasonable measure of risk when evaluating returns on large portfolios and the returns of individual securities.
D)   Riskier investments must offer investors higher average returns to compensate them for the extra risk they are taking on.E) A) and D)
F) A) and C)

Question 9

The expected return on security with a beta of 0 is closest to:

Accepted Answer

A)   -4.0%
B)   0.0%
C)   3.2%
D)   4.0%E) A) and D)
F) B) and C)

Question 10

Suppose that you want to use the 10 year historical average return on the Index to forecast the expected future return on the Index.The 95% confidence interval for your estimate of the expect return is closest to:

Accepted Answer

A)   -9.6% to 27.3%
B)   6.8% to 10.7%
C)   -3.5% to 21.1%
D)   4.9% to 12.7%E) All of the above
F) B) and D)

Question 11

Use the following information to answer the question(s)  below.
Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down. Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down. Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down.
-The beta for security "X" is closest to:

Accepted Answer

A)   0
B)   0.80
C)   1.00
D)   1.25E) A) and D)
F) None of the above

Question 12

Use the following information to answer the problems below.
Consider two banks. Bank A has 1000 loans outstanding each for $100,000, that it expects to be fully repaid today. Each of Bank A's loans have a 6% probability of default, in which case the bank will receive $0 for each of the defaulting loans. Bank B has 100 loans of $1 million outstanding, which it also expects to be fully repaid today. Each of Bank B's loans have a 5% probability of default, in which case the bank will receive $0 for each of the defaulting loans. The chance of default is independent across all the loans.
-The expected overall payoff to Bank A is:

Accepted Answer

A)   $5,000,000
B)   $6,000,000
C)   $94,000,000
D)   $95,000,000E) A) and B)
F) C) and D)

Question 13

The variance of the returns on the Index from 2000 to 2009 is closest to:

Accepted Answer

A)   .0450
B)   .3400
C)   .1935
D)   .0375E) B) and D)
F) All of the above

Question 14

Which of the following statements is FALSE?

Accepted Answer

A)   The variance increases with the magnitude of the deviations from the mean.
B)   The variance is the expected squared deviation from the mean.
C)   Two common measures of the risk of a probability distribution are its variance and standard deviation.
D)   If the return is riskless and never deviates from its mean, the variance is equal to one.E) A) and B)
F) B) and C)

Question 15

What is the market portfolio?

Accepted Answer

The portfolio that contains al...

Question 16

Which of the following types of risk doesn't belong?

Accepted Answer

A)   Idiosyncratic risk
B)   Undiversifiable risk
C)   Market risk
D)   Systematic riskE) B) and C)
F) A) and C)

Question 17

The risk-free rate is closest to:

Accepted Answer

A)   0%
B)   4%
C)   8%
D)   16%E) A) and D)
F) B) and D)

Question 18

Which of the following statements is FALSE?

Accepted Answer

A)   Fluctuations of a stock's returns that are due to firm-specific news are common risks.
B)   The volatility in a large portfolio will decline until only the systematic risk remains.
C)   When we combine many stocks in a large portfolio, the firm-specific risks for each stock will average out and be diversified.
D)   The risk premium of a security is determined by its systematic risk and does not depend on its diversifiable risk.E) All of the above
F) A) and D)

Question 19

Which of the following statements is FALSE?

Accepted Answer

A)   The compounded geometric average return is most often used for comparative purposes.
B)   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.
C)   The geometric average return will always be above the arithmetic average return and the difference grows with the volatility of the annual returns.
D)   The geometric average return is a better description of the long-run historical performance of an investment.E) A) and B)
F) A) and C)

Question 20

Suppose that Luther's beta is 0.9.If the market risk premium is 8% and the risk-free interest rate is 4%,then then expected return for Luther stock is?

Accepted Answer

A)   7.6%
B)   11.6%
C)   11.2%
D)   12.9%E) A) and D)
F) None of the above

Exam 10: Capital Markets and the Pricing of Risk

Which of the following investments offered the highest overall return over the past eighty years?

Correct Answer
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The variance of the returns on the Index from 2000 to 2009 is closest to:

Correct Answer
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Which of the following statements is FALSE?

Correct Answer
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Which of the following statements is FALSE?

Correct Answer
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Suppose that Luther's beta is 0.9.If the market risk premium is 8% and the risk-free interest rate is 4%,then then expected return for Luther stock is?

Correct Answer
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Which of the following types of risk doesn't belong?

Correct Answer
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The excess return if the difference between the average return on a security and the average return for:

Correct Answer
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Which of the following statements is FALSE?

Correct Answer
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What is the market portfolio?

Correct Answer
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The portfolio that contains al...
View Answer

Which of the following statements is FALSE?

Correct Answer
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Suppose that you want to use the 10 year historical average return on the Index to forecast the expected future return on the Index.The 95% confidence interval for your estimate of the expect return is closest to:

Correct Answer
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The expected return on security with a beta of 0 is closest to:

Correct Answer
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Correct Answer
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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:

Correct Answer
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Correct Answer
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Which of the following statements is FALSE?

Correct Answer
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Which of the following statements is FALSE?

Correct Answer
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Correct Answer
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The Product of (1 + returns)-...
View Answer

Correct Answer
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The risk-free rate is closest to:

Correct Answer
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Exam 10: Capital Markets and the Pricing of Risk

Which of the following investments offered the highest overall return over the past eighty years?

Correct AnswerverifiedShow Answer

The variance of the returns on the Index from 2000 to 2009 is closest to:

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Suppose that Luther's beta is 0.9.If the market risk premium is 8% and the risk-free interest rate is 4%,then then expected return for Luther stock is?

Correct AnswerverifiedShow Answer

Which of the following types of risk doesn't belong?

Correct AnswerverifiedShow Answer

The excess return if the difference between the average return on a security and the average return for:

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

What is the market portfolio?

Correct AnswerverifiedThe portfolio that contains al...View AnswerShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Suppose that you want to use the 10 year historical average return on the Index to forecast the expected future return on the Index.The 95% confidence interval for your estimate of the expect return is closest to:

Correct AnswerverifiedShow Answer

The expected return on security with a beta of 0 is closest to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Correct Answerverified The Product of (1 + returns)-...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The risk-free rate is closest to:

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The portfolio that contains al...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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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:

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The Product of (1 + returns)-...
View Answer

Correct Answer
verified

Correct Answer
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