Ch. 5 Test

Annual percentage rates can be converted to effective annual rates by means of the following formula:

[1 + (APR/n)]^n - 1

You have the following rates of return for a risky portfolio for several recent years: 2011 35.23% 2012 18.67% 2013 −9.87% 2014 23.45% If you invested $1,000 at the beginning of 2011, your investment at the end of 2014 would be worth ___________.

$1,785.56

A loan for a new car costs the borrower .8% per month. What is the EAR?

10.03%

You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR was ____.

11%

An investment earns 10% the first year, earns 15% the second year, and loses 12% the third year. The total compound return over the 3 years was ______.

11.32%

Suppose you pay $9,800 for a $10,000 par Treasury bill maturing in 2 months. What is the annual percentage rate of return for this investment?

12.24%

Treasury bills are paying a 4% rate of return. A risk-averse investor with a risk aversion of A = 3 should invest entirely in a risky portfolio with a standard deviation of 24% only if the risky portfolio's expected return is at least ______.

21.28%

You purchased a share of stock for $29. One year later you received $2.25 as dividend and sold the share for $28. Your holding-period return was _________.

4.31%

What is the geometric average return of the following quarterly returns: 3%, 5%, 4%, and 7%?

4.74%

If you believe you have a 60% chance of doubling your money, a 30% chance of gaining 15%, and a 10% chance of losing your entire investment, what is your expected return?

54.5%

The buyer of a new home is quoted a mortgage rate of .5% per month. What is the APR on the loan?

6%

The arithmetic average of -11%, 15%, and 20% is ________.

8%

If you are promised a nominal return of 12% on a 1-year investment, and you expect the rate of inflation to be 3%, what real rate do you expect to earn?

8.74%

The geometric average of -12%, 20%, and 25% is _________.

9.7%

A security with normally distributed returns has an annual expected return of 18% and standard deviation of 23%. The probability of getting a return between -28% and 64% in any one year is _____.

95.44%

You invest all of your money in 1-year T-bills. Which of the following statements is (are) correct?

I and III only

The formula (E(rp)-rf)/Qp

Sharpe ratio