Finance Ch 12-13 Quiz

Average return = (6 + 13 + 11 + -8 + 3)/5 = 5% Variance = {(6-5)2 + (13 - 5)2 + (11 - 5)2 + (-8 - 5)2 + (3 - 5)2}/(5 - 1) = 274/4 = 68.5 %% = 0.00685 Standard Deviation = √68.5 = 8.28%

A stock had annual returns of 6 percent, 13 percent, 11 percent, -8 percent, and 3 percent for the past five years, respectively. What is the standard deviation of returns for this stock?

Risk Premium

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. What term refers to the difference between these two rates of return?

Total dollar return per share= 0.64 + (43.30 - 49.65) = - 5.71 Total percentage return = 0 - 5.71/49.65 = - 11.50%

One year ago, you purchased 100 shares of Best Wings stock at a price of $49.65 a share. The company pays an annual dividend of $.64 per share. Today, you sold for the shares for $43.30 a share. What is your total percentage return on this investment?

Volatility

Standard deviation is a measure of which one of the following?

Geometric

The average compound return earned per year over a multiyear period is called the _____ average return.

The return of a risky security minus the risk free rate.

The excess return is computed as the

The average squared difference between the actual returns and the arithmetic average return.

What is the definition of the variance of an investment's annual returns over a number of years?