Question 1

A year ago,you invested $1,000 in a savings account that pays an annual interest rate of 4.3%.What is your approximate annual real rate of return if the rate of inflation was 3% over the year?
A)4.3%.
B)-1.3%.
C)7.3%.
D)3%.
E)none of the above.

Accepted Answer

The answer of A year ago,you invested $1,000 in a...

Question 2

If the annual real rate of interest is 4% and the expected inflation rate is 3%,the nominal rate of interest would be approximately
A)4%.
B)3%.
C)1%.
D)5%.
E)none of the above.

Accepted Answer

The answer of If the annual real rate of interest...

Question 3

You have been given this probability distribution for the holding-period return for a stock: $\begin{array}{lll}
\underline{\text { State of the Economy} } &\underline{ \text { Probability} } & \underline{\text { HPR } }\
\text { Boom } & .40 & 22\% \
\text { Normal growth } & .35 & 11\%\
\text { Recession } & .25 & -9 \%
\end{array}$

-What is the expected standard deviation for the stock?
A)2.07%
B)9.96%
C)7.04%
D)1.44%
E)None of the above

Accepted Answer

The answer of You have been given this probability distribution...

Question 4

You have been given this probability distribution for the holding-period return for GM stock: $\begin{array}{lll}
\underline{\text { State of the Economy} } &\underline{ \text { Probability} } & \underline{\text { HPR } }\
\text { Boom } & .40 & 30\% \
\text { Normal growth } & .40& 11\%\
\text { Recession } & .20 & -10 \%
\end{array}$

-What is the expected holding-period return for GM stock?
A)10.4%
B)11.4%
C)12.4%
D)13.4%
E)14.4%

Accepted Answer

The answer of You have been given this probability distribution...

Question 5

You have been given this probability distribution for the holding-period return for a stock: $\begin{array}{lll}
\underline{\text { State of the Economy} } &\underline{ \text { Probability} } & \underline{\text { HPR } }\
\text { Boom } & .40 & 22\% \
\text { Normal growth } & .35 & 11\%\
\text { Recession } & .25 & -9 \%
\end{array}$

-What is the expected holding-period return for the stock?
A)11.67%
B)8.33%
C)9.56%
D)12.4%
E)None of the above

Accepted Answer

The answer of You have been given this probability distribution...

Question 6

Which of the following measures of risk best highlights the potential loss from extreme negative returns?
A)Standard deviation
B)Variance
C)Upper partial standard deviation
D)Value at Risk (VaR)
E)None of the above

Accepted Answer

Value at Risk (VaR) is a measure that estimates the potential loss in value of an investment over a given time period at a specified confidence level. It highlights the potential loss from extreme negative returns, which makes it the best choice for this scenario. Standard deviation and variance only measure the dispersion of returns around the mean, while upper partial standard deviation only considers the potential loss above a specified threshold, but does not account for extreme events.

Question 7

If the annual real rate of interest is 3.5% and the expected inflation rate is 3.5%,the nominal rate of interest would be approximately
A)0%.
B)3.5%.
C)12.25%.
D)7%.
E)none of the above.

Accepted Answer

The nominal interest rate can be approximated by adding the real interest rate and the expected inflation rate. Therefore, 3.5% (real rate) + 3.5% (inflation rate) = 7%.

Question 8

If the annual real rate of interest is 2.5% and the expected inflation rate is 3.4%,the nominal rate of interest would be approximately
A)4.9%.
B)0.9%.
C)-0.9%.
D)7%.
E)none of the above.

Accepted Answer

The answer of If the annual real rate of interest...

Question 9

A year ago,you invested $2,500 in a savings account that pays an annual interest rate of 2.5%.What is your approximate annual real rate of return if the rate of inflation was 3.4% over the year?
A)0.9%.
B)-0.9%.
C)5.9%.
D)3.4%.
E)none of the above.

Accepted Answer

The real rate of return is calculated as the nominal rate of return minus the rate of inflation. So, the approximate annual real rate of return is:
2.5% - 3.4% = -0.9%
Since the real rate of return is negative, it means that the purchasing power of your investment decreased over the year after taking inflation into account.

Question 10

You have been given this probability distribution for the holding-period return for GM stock: $\begin{array}{lll}
\underline{\text { State of the Economy} } &\underline{ \text { Probability} } & \underline{\text { HPR } }\
\text { Boom } & .40 & 30\% \
\text { Normal growth } & .40& 11\%\
\text { Recession } & .20 & -10 \%
\end{array}$

-What is the expected variance for GM stock?
A)200.00%
B)221.04%
C)246.37%
D)14.87%
E)16.13%

Accepted Answer

The answer of You have been given this probability distribution...

Question 11

You purchased a share of stock for $65.One year later you received $2.37 as a dividend and sold the share for $63.What was your holding-period return?
A)0.57%
B)-0.2550%
C)-0.89%
D)1.63%
E)none of the above

Accepted Answer

The holding-period return is calculated as follows:Holding-period return = (Dividend + Capital gain) / Initial investmentDividend = $2.37Capital gain = $63 - $65 = -$2Initial investment = $65Holding-period return = ($2.37 - $2) / $65 = 0.57%

Question 12

A year ago,you invested $2,500 in a savings account that pays an annual interest rate of 2.5%.What is your approximate annual real rate of return if the rate of inflation was 1.6% over the year?
A)4.1%.
B)2.5%.
C)2.9%.
D)1.6%.
E)none of the above.

Accepted Answer

The answer of A year ago,you invested $2,500 in a...

Question 13

You purchased a share of stock for $120.One year later you received $1.82 as a dividend and sold the share for $136.What was your holding-period return?
A)15.67%
B)22.12%
C)18.85%
D)13.24%
E)none of the above

Accepted Answer

The answer of You purchased a share of stock for...

Question 14

You purchased a share of stock for $12.One year later you received $0.25 as a dividend and sold the share for $12.92.What was your holding-period return?
A)9.75%
B)10.65%
C)11.75%
D)11.25%
E)none of the above

Accepted Answer

The answer of You purchased a share of stock for...

Question 15

Over the past year you earned a nominal rate of interest of 3.6 percent on your money.The inflation rate was 3.1 percent over the same period.The exact actual growth rate of your purchasing power was
A)3.6%.
B)3.1%.
C)0.48%.
D)6.7%.
E)none of the above

Accepted Answer

To find the actual growth rate of purchasing power, we need to adjust the nominal rate of interest for inflation. This is done using the real interest rate formula:

Real interest rate = Nominal interest rate - Inflation rate

Plugging in the given values, we get:

Real interest rate = 3.6% - 3.1% = 0.5%

This means that your purchasing power grew by 0.5% over the past year. However, we also need to account for compounding. If the interest was compounded annually, then the actual growth rate of your purchasing power would be:

(1 + Real interest rate) ^ (number of compounding periods) - 1

Assuming annual compounding, this gives:

(1 + 0.5%)^1 - 1 = 0.48%

Therefore, choice C is the correct answer.

Question 16

If the annual real rate of interest is 3.5% and the expected inflation rate is 2.5%,the nominal rate of interest would be approximately
A)3.5%.
B)2.5%.
C)1%.
D)6.8%.
E)none of the above.

Accepted Answer

The answer of If the annual real rate of interest...

Question 17

You have been given this probability distribution for the holding-period return for GM stock: $\begin{array}{lll}
\underline{\text { State of the Economy} } &\underline{ \text { Probability} } & \underline{\text { HPR } }\
\text { Boom } & .40 & 30\% \
\text { Normal growth } & .40& 11\%\
\text { Recession } & .20 & -10 \%
\end{array}$

-What is the expected standard deviation for GM stock?
A)16.91%
B)16.13%
C)13.79%
D)15.25%
E)14.87%

Accepted Answer

The answer of You have been given this probability distribution...

Question 18

A year ago,you invested $12,000 in an investment that produced a return of 16%.What is your approximate annual real rate of return if the rate of inflation was 2% over the year?
A)18%.
B)2%.
C)16%.
D)15%.
E)none of the above.

Accepted Answer

The answer of A year ago,you invested $12,000 in an...

Question 19

You have been given this probability distribution for the holding-period return for a stock: $\begin{array}{lll}
\underline{\text { State of the Economy} } &\underline{ \text { Probability} } & \underline{\text { HPR } }\
\text { Boom } & .40 & 22\% \
\text { Normal growth } & .35 & 11\%\
\text { Recession } & .25 & -9 \%
\end{array}$

-What is the expected variance for the stock?
A)142.07%
B)189.96%
C)177.04%
D)128.17%
E)None of the above

Accepted Answer

The expected variance is calculated using the formula: $\sum (p_i \times (r_i - \text{expected return})^2)$. First, calculate the expected return: $0.4 \times 0.22 + 0.35 \times 0.11 + 0.25 \times (-0.09) = 0.1045$. Then, calculate the variance: $0.4 \times (0.22 - 0.1045)^2 + 0.35 \times (0.11 - 0.1045)^2 + 0.25 \times (-0.09 - 0.1045)^2 = 0.0149$ or 1.49%. None of the given options match this result.

Question 20

You purchased a share of CSCO stock for $20.One year later you received $2 as a dividend and sold the share for $31.What was your holding-period return?
A)45%
B)50%
C)60%
D)40%
E)none of the above

Accepted Answer

The answer of You purchased a share of CSCO stock...

Quiz 5: Introduction to Risk,return,and the Historical Record

A year ago,you invested $1,000 in a savings account that pays an annual interest rate of 4.3%.What is your approximate annual real rate of return if the rate of inflation was 3% over the year?

If the annual real rate of interest is 4% and the expected inflation rate is 3%,the nominal rate of interest would be approximately

Which of the following measures of risk best highlights the potential loss from extreme negative returns?

If the annual real rate of interest is 3.5% and the expected inflation rate is 3.5%,the nominal rate of interest would be approximately

If the annual real rate of interest is 2.5% and the expected inflation rate is 3.4%,the nominal rate of interest would be approximately

A year ago,you invested $2,500 in a savings account that pays an annual interest rate of 2.5%.What is your approximate annual real rate of return if the rate of inflation was 3.4% over the year?

You purchased a share of stock for $65.One year later you received $2.37 as a dividend and sold the share for $63.What was your holding-period return?

A year ago,you invested $2,500 in a savings account that pays an annual interest rate of 2.5%.What is your approximate annual real rate of return if the rate of inflation was 1.6% over the year?

You purchased a share of stock for $120.One year later you received $1.82 as a dividend and sold the share for $136.What was your holding-period return?

You purchased a share of stock for $12.One year later you received $0.25 as a dividend and sold the share for $12.92.What was your holding-period return?

Over the past year you earned a nominal rate of interest of 3.6 percent on your money.The inflation rate was 3.1 percent over the same period.The exact actual growth rate of your purchasing power was

If the annual real rate of interest is 3.5% and the expected inflation rate is 2.5%,the nominal rate of interest would be approximately

A year ago,you invested $12,000 in an investment that produced a return of 16%.What is your approximate annual real rate of return if the rate of inflation was 2% over the year?

You purchased a share of CSCO stock for $20.One year later you received $2 as a dividend and sold the share for $31.What was your holding-period return?