Fin 6

Variation in the rate of return of an investment is a measure of the riskiness of that investment.

True

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 large firms

Changes in the general economy, like changes in interest rates or tax laws, represent what type of risk?

market risk

The total risk of a portfolio can be measured by its ________________.

variance or the standard deviation of its returns

If Cintas had a price of $92 at the beginning of the year, $83 at the end of the year and paid a $3 dividend during the year, what would be the annualized holding period return?

-6.52%

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%

A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a ____ return.

17.5%

Joshua purchases 100 shares of Occidental Petroleum (OXY) stock on November 14, 2014 at $68.45 per share. Three years later on October 25, 2017, Joshua sells the 100 shares for $61.20 per share. In addition, Joshua received a dividend of Year 1 $ 2.94 per share Year 2 $ 3.01 per share Year 3 $ 3.05 per share What is the total rate of return for Joshua for the time that he invested in Occidental Petroleum?

2.56%

Bob purchases 100 shares of Disney (DIS) stock on October 26th, 2015 at $107.96 per share. Three years later on October 25, 2018, Bob sells the 100 shares for $113.28 per share. In addition, Bob received a dividend of Year 1 $1.42 per share Year 2 $1.56 per share Year 3 $1.68 per share What was Bob's annualized rate for the three years for Disney?

2.97%

Since 2012, Allstate (ALL) has paid dividends every year at the following amount: 2012 $0.88 2013 $1.00 2014 $1.12 2015 $1.20 2016 $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 your annualized growth from your investment in Allstate?

25.3%

Nordstrom, Inc., whose common stock is currently selling for $40 per share, is expected to pay a $1.48 dividend, and sell for $51.40 one year from now. What are the dividend yield, growth rate, and total rate of return, respectively?

3.7%; 28.5%; 32.2%

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 %

Caroline purchased 100 shares of Coca-Cola (K) in early 2012 for $35.07/share. KO paid the following dividends: 2012 $1.02 2013 $1.12 2014 $1.22 2015 $1.32 2016 $1.40 On December 31, 2016 KO closed at $41.46/share. What has been the annualized growth in dividends for Coca-Cola?

8.2%

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

Joshua purchases 100 shares of McDonalds (MCD) stock on April 13, 2015 at $83.98 per share. Three years later on April 13, Joshua sells the 100 shares for $152.12 per share. In addition, Joshua received a dividend of

94.06

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?

B. 17.4 %

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 standard deviation of the.returns for SDY is:

C. 14.21 %

You are thinking of adding one of two investments to an already well- diversified portfolio. Security A Expected Return = 14% Standard Deviation= 16% Security B Expected Return = 16% Standard Deviation = 20% If you are a risk-averse investor, which one is the better choice based on coefficient of variation.

C. Security A

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?

C. U.S. Treasury bills

WisdomTree U.S. Total Earnings Fund (EXT) returns for the past 5 years have been: 2013 34.95% 2014 13.11% 2015 -2.30% 2016 14.51% 2017 21.94 % What is the standard deviation?

D. 13.60 %

SPDR S&P Dividend (SDY) is an ETF that invests in highly profitable U.S. dividend stocks. Listed below are returns for SDY: 2013 -6.55% 2014 11.61% 2015 30.07% 2016 -0.73% 2017 13.80% The geometric rate of return for SDY is:

D. 8.91 %

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.

A rational investor will always prefer an investment with a lower standard deviation of returns, because such investments are less risky.

False

Average rate of return of an investment is a measure of the riskiness of that investment.

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

The risk-return trade-off implies that the return on a riskless asset must be zero.

False

You are considering investing in Johnson & Johnson . Which of the following are examples of diversifiable risk? I. Risk associated with accounting irregularities resulting in a major restatement of company earnings downward. II. Risk resulting from uncertainty regarding a class action due to a product. III. Risk associated with a fear of a widespread epidemic. IV. Risk resulting from an expensive product recall.

I,II and IV

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.

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?

Stock A

The market rewards the patient investor, for between 1926 and 2020, there has never been a time when an investor lost money if she held an all-stock portfolio for ten years.

True

Of the following, which differs in meaning from the other three?

asset-unique risk

Unsystematic risk is also known as:

firm-specific risk

Financial risk occurs because _____________________ do no change when operating income rises or falls.

fixed interest expenses

Which one of the following assets has historically had the highest average annual return?

large company stocks

The category of securities with the highest historical risk premium is

mid company stocks

The square root of the variance is also known as _____________________.

standard deviation

Portfolio risk is comprised of:

systematic and unsystematic risk