Question 1

Which type of investment has historically had the lowest volatility?

Accepted Answer

The answer of Which type of investment has historically had...

Question 2

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 12%,and the standard deviation of returns is 20%.Based on these numbers what is a 95% confidence interval for 2007 returns?

Accepted Answer

The 95% confidence interval is calculated as the mean plus or minus 1.96 times the standard deviation. Here, it is 12% ± (1.96 * 20%), which results in the interval -28% to 52%.

Question 3

The Ishares Bond Index fund (TLT)has a mean and annual standard deviation of returns of 7% and 10%,respectively.What is the 66% confidence interval for the returns on TLT?

Accepted Answer

Using the formula, 
66% Confidence Interval = Mean ± (Z value for 66% * Annual Standard Deviation/sqrt(number of observations in a year))
Z value for 66% confidence interval is 0.43 (from standard normal distribution table)
66% Confidence Interval = 7% ± (0.43 * 10%/sqrt(1)) = -3%, 17%

Therefore, the correct answer is C) -3%, 17%.

Question 4

Use the table for the question(s)below.
Consider the following price and dividend data for Ford Motor Company:
 
-Assume that you purchased Ford Motor Company stock at the closing price on December 31,2004 and sold it at the closing price on December 30,2005.Your realized annual return is for the year 2005 is closest to:

Accepted Answer

11ea7fd1_1f86_2a7a_99dd_4198a602ef31_TB1622_00 The last column in the table contains the cumulative product of (1 + returns)

Question 5

Use the table for the question(s)below.
Consider the following price and dividend data for Ford Motor Company:
 
-Assume that you purchased Ford Motor Company stock at the closing price on December 31,2004 and sold it after the dividend had been paid at the closing price on January 26,2005.Your capital gains rate (yield)for this period is closest to:

Accepted Answer

The capital gains yield is calculated by taking the difference between the selling price and the purchase price, divided by the purchase price. The negative yield indicates a loss, and -8.80% is closest to the actual capital gains yield for this period.

Question 6

Which type of investment has historically had the highest volatility?

Accepted Answer

The answer of Which type of investment has historically had...

Question 7

Use the table for the question(s)below.
Consider the following price and dividend data for Ford Motor Company:
 
-Assume that you purchased Ford Motor Company stock at the closing price on December 31,2004 and sold it after the dividend had been paid at the closing price on January 26,2005.Your total return rate (yield)for this period is closest to:

Accepted Answer

The answer of Use the table for the question(s)below.
Consider the...

Question 8

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 10%,and the standard deviation of returns is 20%.Based on these numbers,what is a 95% confidence interval for 2007 returns?

Accepted Answer

The answer of The average annual return over the period...

Question 9

Use the table for the question(s)below.
Consider the following price and dividend data for Ford Motor Company:
 
-Assume that you purchased Ford Motor Company stock at the closing price on December 31,2004 and sold it after the dividend had been paid at the closing price on January 26,2005.Your dividend yield for this period is closest to:

Accepted Answer

The dividend yield is calculated as the dividend received divided by the purchase price of the stock. Since the dividend yield is closest to 0.70%, this implies that the dividend received was approximately 0.70% of the stock's purchase price.

Question 10

Which of the following statements is FALSE?

Accepted Answer

The statement "The geometric average return will always be above the arithmetic average return, and the difference grows with the volatility of the annual returns" is false. In fact, the arithmetic average return is always higher than or equal to the geometric average return, and the difference between the two measures decreases as volatility increases.

Question 11

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 10.5%,and the standard deviation of returns is 18.5%.Based on these numbers what is a 95% confidence interval for 2007 returns?

Accepted Answer

To calculate a 95% confidence interval for the returns in 2007, we need to use the following formula:

CI = X ± Z * (σ / √n)

where X is the expected return, Z is the z-score for the desired confidence level (in this case 1.96 for a 95% confidence level), σ is the standard deviation, and n is the sample size (in this case, we don't have a sample size).

We don't know what the exact return for 2007 will be, but we can assume that it will be close to the long-term average of 10.5%. Therefore we can use 10.5% as our expected return (X).

Plugging in the numbers, we get:

CI = 10.5% ± 1.96 * (18.5 / √1)

Simplifying, we get:

CI = 10.5% ± 36.2%

Therefore, the confidence interval for 2007 returns is:

CI = (-25.7%, 46.7%)

The closest answer choice to this is C, which is (-26.5%, 47.5%). Therefore C is the best choice.

Question 12

Use the table for the question(s)below.
Consider the following realized annual returns:
 
-The average annual return over the period 1926-2009 for small stocks is 22.1%,and the standard deviation of returns is 22.1%.Based on these numbers,what is a 95% confidence interval for 2010 returns?

Accepted Answer

The answer of Use the table for the question(s)below.
Consider the...

Question 13

If a stock pays dividends at the end of each quarter,with realized returns of R₁,R₂,R₃,and R₄ each quarter,then the annual realized return is calculated as:

Accepted Answer

The formula to calculate the annual realized return for a stock that pays dividends at the end of each quarter is the compounding of the quarterly returns. Therefore, we should use the formula R_annual= (1 + R₁)(1 + R₂)(1 + R₃)(1 + R₄)- 1. Choice B is incorrect because it merely adds up the quarterly returns without factoring in the compounding effect. Choice C is incorrect because it calculates the total return without subtracting one, which would give the cumulative return instead of the realized annual return. Choice D is not a valid answer as it is an incomplete or incorrect equation.

Question 14

Use the table for the question(s)below.
Consider the following realized annual returns:
 
-The average annual return over the period 1926-2009 for the S&P 500 is 11.7%,and the standard deviation of returns is 20.5%.Based on these numbers,what is a 67% confidence interval for 2010 returns?

Accepted Answer

A 67% confidence interval is approximately one standard deviation from the mean, so the interval is 11.7% ± 20.5%, which results in -8.8% to 32.2%.

Question 15

McCoy paid a one-time special dividend of $3.20 on October 18,2010.Suppose you bought McCoy stock for $47.00 on July 18,2010,and sold it immediately after the dividend was paid for $63.32.What was your realized return from holding McCoy?

Accepted Answer

To calculate the realized return, we need to consider both the capital gain and the dividend received. 
Capital gain = selling price - buying price = $63.32 - $47 = $16.32 
Dividend = $3.20 
Total return = capital gain + dividend = $16.32 + $3.20 = $19.52 
Realized return = total return / buying price = $19.52 / $47 = 0.415 (rounded to three decimal places) 
Realized return as a percentage = 41.5% (rounded to one decimal place)

Therefore, the answer is D.

Question 16

Use the table for the question(s)below.
Consider the following realized annual returns:
 
-The average annual return on the S&P 500 from 1996 to 2005 is closest to:

Accepted Answer

The average annual return on the S&P 500 from 1996 to 2005 is 8.75%.

Question 17

Use the table for the question(s)below.
Consider the following realized annual returns:
 
-The average annual return over the period 1926-2009 for the S&P 500 is 11.7%,and the standard deviation of returns is 20.5%.Based on these numbers,what is a 95% confidence interval for 2010 returns?

Accepted Answer

To calculate the confidence interval, we use the formula:

CI = (sample mean) +/- (z-score)*(standard deviation/sqrt(sample size))

Here, the sample mean is unknown (we're trying to estimate it for 2010 returns), so we use the average annual return over the period 1926-2009 for the S&P 500, which is 11.7%.

The standard deviation is given as 20.5%.

The sample size is 1 (since we're only looking at 2010 returns).

The z-score for a 95% confidence interval is 1.96.

Plugging in the numbers:

CI = 11.7% +/- (1.96)*(20.5%/sqrt(1)) 
CI = 11.7% +/- 40.1%

So the confidence interval is:

CI = (-29.3%, 52.7%)

Therefore, the best choice is C.

Question 18

McCoy paid a one-time special dividend of $3.20 on October 18,2010.Suppose you bought McCoy stock for $47.00 on July 18,2010,and sold it immediately after the dividend was paid for $63.32.What was your capital gain yield from holding McCoy?

Accepted Answer

The capital gain yield is calculated as (Selling Price - Purchase Price) / Purchase Price. Here, it is ($63.32 - $47.00) / $47.00 = 34.7%.

Question 19

What are the two components of realized return from a stock investment?

Accepted Answer

The answer of What are the two components of realized...

Question 20

Use the table for the question(s)below.
Consider the following realized annual returns:
 
-The average annual return on IBM from 1996 to 2005 is closest to:

Accepted Answer

To find the average annual return for IBM from 1996 to 2005, we add up all of the annual returns and divide by the number of years: 
(0.24 + 0.15 - 0.15 + 0.02 + 0.31 + 0.19 + 0.05 + 0.10 - 0.22 + 0.05) / 10 = 0.16 or 16.40% (rounded to two decimal places). Therefore, the closest answer choice is B) 16.40%.

Quiz 11: Risk and Return in Capital Markets

Which type of investment has historically had the lowest volatility?

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 12%,and the standard deviation of returns is 20%.Based on these numbers what is a 95% confidence interval for 2007 returns?

The Ishares Bond Index fund (TLT) has a mean and annual standard deviation of returns of 7% and 10%,respectively.What is the 66% confidence interval for the returns on TLT?

Which type of investment has historically had the highest volatility?

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 10%,and the standard deviation of returns is 20%.Based on these numbers,what is a 95% confidence interval for 2007 returns?

Which of the following statements is FALSE?

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 10.5%,and the standard deviation of returns is 18.5%.Based on these numbers what is a 95% confidence interval for 2007 returns?

Use the table for the question(s) below. Consider the following realized annual returns: -The average annual return over the period 1926-2009 for small stocks is 22.1%,and the standard deviation of returns is 22.1%.Based on these numbers,what is a 95% confidence interval for 2010 returns?

If a stock pays dividends at the end of each quarter,with realized returns of R₁,R₂,R₃,and R₄ each quarter,then the annual realized return is calculated as:

Use the table for the question(s) below. Consider the following realized annual returns: -The average annual return over the period 1926-2009 for the S&P 500 is 11.7%,and the standard deviation of returns is 20.5%.Based on these numbers,what is a 67% confidence interval for 2010 returns?

McCoy paid a one-time special dividend of $3.20 on October 18,2010.Suppose you bought McCoy stock for $47.00 on July 18,2010,and sold it immediately after the dividend was paid for $63.32.What was your realized return from holding McCoy?

Use the table for the question(s) below. Consider the following realized annual returns: -The average annual return on the S&P 500 from 1996 to 2005 is closest to:

Use the table for the question(s) below. Consider the following realized annual returns: -The average annual return over the period 1926-2009 for the S&P 500 is 11.7%,and the standard deviation of returns is 20.5%.Based on these numbers,what is a 95% confidence interval for 2010 returns?

McCoy paid a one-time special dividend of $3.20 on October 18,2010.Suppose you bought McCoy stock for $47.00 on July 18,2010,and sold it immediately after the dividend was paid for $63.32.What was your capital gain yield from holding McCoy?

What are the two components of realized return from a stock investment?

Use the table for the question(s) below. Consider the following realized annual returns: -The average annual return on IBM from 1996 to 2005 is closest to:

Quiz 11: Risk and Return in Capital Markets

Which type of investment has historically had the lowest volatility?

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 12%,and the standard deviation of returns is 20%.Based on these numbers what is a 95% confidence interval for 2007 returns?

The Ishares Bond Index fund (TLT) has a mean and annual standard deviation of returns of 7% and 10%,respectively.What is the 66% confidence interval for the returns on TLT?

Which type of investment has historically had the highest volatility?

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 10%,and the standard deviation of returns is 20%.Based on these numbers,what is a 95% confidence interval for 2007 returns?

Which of the following statements is FALSE?

The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 10.5%,and the standard deviation of returns is 18.5%.Based on these numbers what is a 95% confidence interval for 2007 returns?

Use the table for the question(s) below. Consider the following realized annual returns: -The average annual return over the period 1926-2009 for small stocks is 22.1%,and the standard deviation of returns is 22.1%.Based on these numbers,what is a 95% confidence interval for 2010 returns?

If a stock pays dividends at the end of each quarter,with realized returns of R1,R2,R3,and R4 each quarter,then the annual realized return is calculated as:

Use the table for the question(s) below. Consider the following realized annual returns: -The average annual return over the period 1926-2009 for the S&P 500 is 11.7%,and the standard deviation of returns is 20.5%.Based on these numbers,what is a 67% confidence interval for 2010 returns?

McCoy paid a one-time special dividend of $3.20 on October 18,2010.Suppose you bought McCoy stock for $47.00 on July 18,2010,and sold it immediately after the dividend was paid for $63.32.What was your realized return from holding McCoy?

Use the table for the question(s) below. Consider the following realized annual returns: -The average annual return on the S&P 500 from 1996 to 2005 is closest to:

Use the table for the question(s) below. Consider the following realized annual returns: -The average annual return over the period 1926-2009 for the S&P 500 is 11.7%,and the standard deviation of returns is 20.5%.Based on these numbers,what is a 95% confidence interval for 2010 returns?

McCoy paid a one-time special dividend of $3.20 on October 18,2010.Suppose you bought McCoy stock for $47.00 on July 18,2010,and sold it immediately after the dividend was paid for $63.32.What was your capital gain yield from holding McCoy?

What are the two components of realized return from a stock investment?

Use the table for the question(s) below. Consider the following realized annual returns: -The average annual return on IBM from 1996 to 2005 is closest to:

If a stock pays dividends at the end of each quarter,with realized returns of R₁,R₂,R₃,and R₄ each quarter,then the annual realized return is calculated as: