Module 6 Finance
If you were to use the standard deviation as a measure of investment risk, which of the following has historically been the least risky investment?
US treasury bills
In comparing the deviations of returns, which one of the following assets has historically had the largest standard deviation of annual returns?
large company stocks
Which one of the following assets has historically had the highest average annual return?
large company stocks
Which of the following is NOT an example of market risk or systematic risk?
management risk
The market risk premium is measured by:
market return is less risk free rate
Changes in the general economy, like changes in interest rates or tax laws, represent what type of risk?
market risk
The category of securities with the highest historical risk premium is
small company stocks
The benefits of diversification occur as long as the investments in a portfolio are not perfectly positively correlated.
true
Unique security risk can be eliminated from an investor's portfolio through diversification.
true
Variation in the rate of return of an investment is a measure of the riskiness of that investment.
true
Cecilia bought 100 shares of Minnesota Mining and Manufacturing in June, 1987 for $42 a share for a total investment of $4,200. She sold the shares in June, 1996 for $9,960. What is Cecilia's annual rate of return on her investment?
10%
If you invest 35% of your investment in MicroGap with an expected rate of return of 14 % and the remainder in Amgen with an expected rate of return of 8 %, the expected return on your portfolio is:
10.1%
Core Laboratories stock is expected to pay a $4 annual dividend next year, and the current $60 stock price is expected to rise to $63 over the next year. What is the expected return?
11.67%
If you invest 40% of your investment in GE with an expected rate of return of 10% and the remainder in IBM with an expected rate of return of 16%, the expected return on your portfolio is:
13.6%
True Green Products, Inc., whose common stock is currently selling for $12 per share, is expected to pay a $1.80 dividend, and sell for $14.40 one year from now. What are the dividend yield, growth rate, and total rate of return, respectively?
15%; 20%; 35%
Assume that an investment is forecasted to produce the following returns: a 30% probability of a 12% return a 50% probability of a 16% return a 20% probability of a 19% return What is the expected percentage return this investment will produce?
15.4%
Assume that you have $100,000 invested in a stock that is returning 14%, $150,000 invested in a stock that is returning 18%, and $200,000 invested in a stock that is returning 15%. What is the expected return of your portfolio?
15.78%
Assume that you have $100,000 invested in a stock that is returning 14%, $150,000 invested in a stock that is returning 18%, and $200,000 invested in a stock that is returning 15%. What is the expected return of your portfolio?
15.8%
On May 5 , 2008, Travis decided to purchase 300 shares of Visa (V). The price he paid for (V) was $21.83/share. On May 5, 2017 (V) closed at $92.09/share. Not including dividends, what was Travis': What is the annualized return on this investment?
17.4%
The prices for the National Gasworks Corporation for the second quarter of 2012 are given below. The price of the stock on April 1, 2012 was $130. Find the holding period return for an investor who purchased the stock on April 1, 2012 and sold it the last day of June 2012.
2.1%
On June 5, 2017, Taylor decided to purchase 225 shares of Stanley Black and Decker(SWK). The price she paid for (SWK) was $130.15/share. On June 5, 2020 (SWK) closed at $141.90/share. Not including dividends, what was Taylor's: Dollar Return? ____________ (no decimal places)
2644
If Stock A had a price of $120 at the beginning of the year, $150 at the end of the year and paid a $6 dividend during the year, what would be the annualized holding period return?
30%
On May 5 , 2008, Travis decided to purchase 300 shares of Visa (V). The price he paid for (V) was $21.83/share. On May 5, 2017 (V) closed at $92.09/share. Not including dividends, what was Travis': What was the capital gains return on this investment?
321.9%
Ventas is a real estate investment trust owning nearly 1,300 seniors housing and healthcare properties. On November 10, 2017, Ventas stock closed at $64.91. Over the last 12 months, Ventas has paid $3.10 in dividends. If you had bought Ventas on November 10 what is the current dividend yield for Ventas?
4.78%
On June 5, 2017, Taylor decided to purchase 225 shares of Stanley Black and Decker(SWK). The price she paid for (SWK) was $130.15/share. On June 5, 2020 (SWK) closed at $141.90/share. Not including dividends, what was Taylor's: Holding Period Return: __________% Round to two decimal places
9.03
SPDR S&P Dividend (SDY) is an ETF that invests in highly profitable U.S. dividend stocks. Listed below are returns for SDY:SDY2013 -6.55 %2014 11.61 %2015 30.07 %2016 -0.73 %2017 13.80 % The average rate of return for SDY is:
9.64%
Which of the following statements is MOST correct concerning diversification and risk?
Diversification is mainly achieved by the asset allocation decision, not the selection of individual securities within each asset category.
Most non-diversifiable risk can be eliminated by creating a portfolio of around 30 stocks.
FALSE
Unsystematic risk is also known as:
Firm-specific risk
You are considering buying some stock in Boeing. Which of the following are examples of non-diversifiable risks? I. : Risk resulting from a general decline in the stock market. II. Risk resulting from a possible increase in corporate income taxes. III. Risk resulting from a plane crash due to software problems IV. Risk resulting from a pending lawsuit against Boeing.
I and II
You are considering buying some stock in Continental Grain. Which of the following are examples of non-diversifiable risks? I. Risk resulting from a general decline in the stock market. II. Risk resulting from a possible increase in income taxes. III. Risk resulting from an explosion in a grain elevator owned by Continental. IV. Risk resulting from a pending lawsuit against Continental.
I and II
You are considering investing in Ford Motor Company. Which of the following are examples of diversifiable risk? I. Risk resulting from possibility of a stock market crash. II. Risk resulting from uncertainty regarding a possible strike against Ford. III. Risk resulting from an expensive recall of a Ford product. IV. Risk resulting from interest rates decreasing.
II and III
Investment A has an expected return of 15% per year, while Investment B has an expected return of 12% per year. A rational investor will choose
Investment A if A and B are of equal risk.
SPDR S&P Dividend (SDY) is an ETF that invests in highly profitable U.S. dividend stocks. Listed below are returns for SDY: SDY 2013 -6.55 % 2014 11.61 % 2015 30.07 % 2016 -0.73 % 2017 13.80 % The geometric rate of return for SDY is:
NOT 11.26%
Since 2012, Allstate (ALL) has paid dividends every year at the following amount: 2012 2013 2014 2015 2016$0.88 $1.00 $1.12 $1.20 $1.32 You had purchase Allstate stock because you just started your home and auto insurance with Allstate and thought you would invest in their stock. You purchased 250 shares ALL in early 2012 for $27.74/share. Allstate closed on Friday, April 7, 2017 at $81.11/ share. What has been the total return for your investment in Allstate?
NOT 191%
SPDR S&P Dividend (SDY) is an ETF that invests in highly profitable U.S. dividend stocks. Listed below are returns for SDY: SDY 2013 -6.55 % 2014 11.61 % 2015 30.07 % 2016 -0.73 % 2017 13.80 % The geometric rate of return for SDY is:
NOT 8.13%
As you review two stocks, if Stock A has a standard deviation of 4% and expected returns of 9%, and Stock B has a standard deviation of 3% and returns of 1%, which stock is riskier?
NOT cannot be given from info
You are thinking of adding one of two investments to an already well- diversified portfolio. Security A Security BExpected Return = 14% Expected Return = 16%Standard Deviation= 16% Standard Deviation = 20% If you are a risk-averse investor, which one is the better choice based on coefficient of variation.
NOT security B
As you review two stocks, if Stock A has a standard deviation of 4% and expected returns of 9%, and Stock B has a standard deviation of 3% and returns of 1%, which stock is riskier?
NOT stock B
Which of the following statements is MOST correct concerning diversification and risk?
Risk-averse investors often choose companies from different industries for their portfolios because the correlation of returns is less than if all the companies came from the same industry.
According to the definitions given in the text, if Stock A has a standard deviation of 4% and expected returns of 9%, and Stock B has a standard deviation of 3% and returns of 1%, which stock has a better risk/reward profile?
Stock A
Which of the following statements best defines the term "risk tolerance"?
The degree of uncertainty that an investor can handle in regard to a negative change in the value of his or her portfolio.
Caroline purchased 100 shares in early 2012 for $35.07/share. The Stock paid the following dividends: 2012 2013 2014 2015 2016 $1.02 $1.12 $1.22 $1.32 $1.40 On December 31, 2016 KO closed at $41.46/share. Assuming that all dividends were taking as distributions, what was the total return for KO during this time? a. What was the dividends paid in the following years? b. Total Return = c. How much of KO's return was due to Capital Gains (Loss)? d. How much of KO's return was due to Divi
a. 2012 = $102 2013 = $112 2014 = $122 2015 = $132 2016 = $140 b. 35.56% c. 18.22% d. 17.34%
Suppose you purchased 16 shares of Diamond Company stock for $24.22 per share on May 1, 2016. On September 1 of the same year, you sold 12 shares of the stock for $25.68. Calculate the holding-period dollar gain for the shares you sold, assuming no dividend was distributed, and the holding-period rate of return. a. The holding-period dollar gain for the shares you sold is ______ Enter a negative number if it is a loss. (Round to the nearest cent.) Part 3
a. $17.52 b. 6.03%
Alps Sector Dividend Dogs (SDOG) an ETF, had the following returns: 2013 2014 2015 2016 24.5% 12.6% -4.3% 15.48% a. What is the average return for SDOG? b. What is the geometric return for SDOG? c. What is the standard deviation for SDGO?
a. 12.07% b. 11.57% c. 12.03%
Bob purchases 100 shares of stock at $65 per share. Two years later, Bob sells the 100 shares for $72 per share. In addition, Bob received a dividend of $2 per share in the first year and $3 per share in the second year. •a. What is the total rate of return for Bob for the time that he invested in Disney? b. What was Bob's annualized rate for the two years?
a. 18.46% b. 8.84%
Annual return Yr. 1 5 % - 6 % 12 % 10 % Annual return Yr. 2 10 % 20 % -7 % - 10 % Annual return Yr. 3 15 % 2 % 17 % 20 % Annual return Yr. 4 4 % - 5 % 15 % - 15 % Annual return Yr. 5 10 % a. What is the average return for: b. What is the geometric return for: c. What is the standard deviation for:
a. A. 8.5%, B. 4.2%, 9.25%, 1.25% B. A. 8.41%, B. 3.75%,C. 8.80%, D. 0.24% C. A. 5.07%, B. 10.92%, C. 11.03%, D. 16.52%
You are considering the three securities listed below. Stock A Stock B Stock C 2% -3% 5% 10% 8% 8% 15% 20% 12% a Calculate the average return for each security. Calculate the standard deviation of returns for each security.
a. Stock A: 9% Stock B: 8.3% Stock C: 8.3% b. Stock A: 6.6% Stock B: 11.50 Stock C: 3.5%
Which of the following is not a component of the required rate of return?
appropriate discount rate
Of the following, which differs in meaning from the other three?
asset unique risk
Stock W has an expected return of 12% with a standard deviation of 8%. If returns are normally distributed, then approximately two−thirds of the time the return on stock W will be
between 4% and 20%.
If you were to use the standard deviation as a measure of investment risk, which of the following has historically been the highest risk investment?
common stock of small firms
Of the following different types of securities, which is typically considered most risky?
common stocks of small companies
The monthly (dollar) return equals the stock price at the end of the month minus the stock price at the beginning of the month plus ___________________________.
dividends
A rational investor will always prefer an investment with a lower standard deviation of returns, because such investments are less risky.
false
Company unique risk will be increased with a portfolio consisting of approximately 20 securities.
false
During the past 75 years, corporate bonds have provided investors with higher average annual returns than stocks.
false
Historically, investments with the highest returns have the lowest standard deviations because investors do not like risk.
false
If an investor buys enough stocks, he or she can, through diversification, eliminate all of the market risk inherent in owning stocks, but as a general rule it will not be possible to eliminate all diversifiable risk.
false
Portfolio A has only one stock, while Portfolio B consists of all stocks that trade in the market, each held in proportion to its market value. Because of its diversification, Portfolio B will by definition be riskless.
false
Proper diversification generally results in the elimination of risk.
false
The market rewards the patient investor, for the period between 1926 and 2016, there has never been a time when an investor lost money if she held an all−large−stock portfolio for ten years.
false
The risk-return trade-off implies that the return on a riskless asset must be zero.
false
Historically, investments with the highest returns have the lowest standard deviations because investors do not like risk.
false
• Financial risk occurs because _____________________ do no change when operating income rises or falls.
fixed interest expenses
An all−stock portfolio is more risky than a portfolio consisting of all bonds.
true
Because of differences in the expected returns on different investments, the standard deviation is not always an adequate measure of risk. However, the coefficient of variation adjusts for differences in expected returns and thus allows investors to make better comparisons of investments' stand-alone risk.
true
Diversifying among different kinds of assets is called asset allocation.
true
Small company stocks have historically had higher average annual returns than large company stocks, and also a higher risk premium.
true
