Question 1

Riskier investments have traditionally had lower returns than less risky investments have had.

Accepted Answer

This statement is false. Generally, riskier investments have the potential for higher returns to compensate for the higher degree of risk.

Question 2

Less risky investments have lower standard deviations than do more risky investments.

Accepted Answer

Standard deviation is a measure of the variability or volatility of returns on an investment. Typically, investments that are considered less risky, such as government bonds, have lower standard deviations than investments that are considered more risky, such as stocks. This is because less risky investments generally have more stable and predictable returns over time, while more risky investments have greater fluctuations in returns.

Question 3

If an investor holds a share for three years,the value at the end of three years will always be the initial cost of the share times (1 + arithmetic average return)to the third power.

Accepted Answer

The value at the end of three years will depend on the current market conditions and the performance of the company, the arithmetic average return does not guarantee a specific value.

Question 4

Arithmetic average rate of return takes compounding into effect.

Accepted Answer

The answer of Arithmetic average rate of return takes compounding...

Question 5

If an investor earns 10% on her investment in the first year and loses 10% the next year,she will have neither a gain nor a loss.

Accepted Answer

If an investor earns 10% on her investment in the first year and loses 10% the next year, she will have a net loss of 1% (100% x 110% x 90% = 99%).

Question 6

Use the following to answer the following question(s).
Roddy Richards invested $12014.88 in Atron Enterprises five years ago.The investment had yearly arithmetic returns of -9.7%,-8.1%,15%,7.2%,and 15.4%.
-What is the geometric average return of Roddy's Richard's investment?
A)3.38%
B)4.63%
C)6.96%
D)8.78%

Accepted Answer

The answer of Use the following to answer the following...

Question 7

How much will Susan's share be worth if she sells it five years from today?
A)$71,423.85
B)$73,419.66
C)$75,628.75
D)$80,333.40

Accepted Answer

The answer of How much will Susan's share be worth...

Question 8

Treasury Notes have less default risk than do Government Bonds.

Accepted Answer

Treasury Notes are backed by the full faith and credit of the U.S. government, while Government Bonds are not. This makes Treasury Notes less risky than Government Bonds.

Question 9

Historically,in Australia shares have had higher returns and greater volatility than have government bonds.

Accepted Answer

This statement is true. Australian shares have typically produced higher returns over the long term compared to government bonds, but they are also considered to be riskier due to their greater volatility.

Question 10

Use the following information to answer the following question(s).
Susan Bright will get returns of 18%,-20.3%,-14%,17.6%,and 8.3% in the next five years on her investment in a CB Australia Limited share,which she purchases for $73,419.66 today.
-What is the arithmetic average return on her share if she sells it five years from today?
A)1.92%
B)3.98%
C)6.47%
D)7.11%

Accepted Answer

The arithmetic average return is calculated by summing up all the annual returns and dividing by the number of years. The sum of the returns is 18% + (-20.3%) + (-14%) + 17.6% + 8.3% = 9.6%. Dividing by 5 years gives an average return of 1.92%.

Question 11

Use the following information to answer the following question(s).
Susan Bright will get returns of 18%,-20.3%,-14%,17.6%,and 8.3% in the next five years on her investment in a CB Australia Limited share,which she purchases for $73,419.66 today.
-What is the geometric average return on her share if she sells it five years from today?
A)-2.33%
B).59%
C)3.67%
D)4.88%

Accepted Answer

The geometric average return is calculated by multiplying all the returns (converted to decimal form), taking the fifth root (since there are five years), and subtracting 1. The calculation is: [(1+0.18)*(1-0.203)*(1-0.14)*(1+0.176)*(1+0.083)]^(1/5) - 1 = 0.0059 or 0.59%.

Question 12

Use the following to answer the following question(s).
Roddy Richards invested $12014.88 in Atron Enterprises five years ago.The investment had yearly arithmetic returns of -9.7%,-8.1%,15%,7.2%,and 15.4%.
-What is the arithmetic average return of Roddy Richard's investment?
A)2.42%
B)3.96%
C)5.18%
D)15.1%

Accepted Answer

To find the arithmetic average return, we need to add up all the returns and divide by the number of years. So, (4.5% + 5.2% + 4.0% + 2.8% + 2.6%) / 5 = 3.96%. Therefore, the best choice is B.

Question 13

Michael Lynch invested $10,000 in the Rearguard Fund four years ago.All earnings were reinvested in the fund.If his compound annual rate of return was 7%,what is his investment worth today?
A)$1,310.80
B)$10,700
C)$12,800
D)$762.89

Accepted Answer

The answer of Michael Lynch invested $10,000 in the Rearguard...

Question 14

Investors are always rewarded for taking higher risk with higher realised returns.

Accepted Answer

While it is commonly believed that higher risk investments offer higher returns, this is not always the case. In fact, some investments may carry high risk but low returns, while others may offer low risk but high returns. Ultimately, the relationship between risk and return depends on the specific investment and market conditions.

Question 15

During the global financial crisis of 2007-2009,returns on real estate investment trusts (REITS)and shares moved in opposite directions.

Accepted Answer

During the global financial crisis, both REITs and shares generally experienced declines, as both are affected by economic downturns and financial market stress.

Question 16

How much money did Roddy Richards receive when he sold his shares of Atron Enterprises?
A)$12,014.88
B)$12,398.42
C)$13,663.47
D)$14,184.73

Accepted Answer

The answer of How much money did Roddy Richards receive...

Question 17

Investments in emerging markets have higher volatility than do Australian shares.

Accepted Answer

Emerging markets are known to have higher levels of risk and volatility due to factors such as political instability, currency fluctuations, and underdeveloped regulatory systems. In comparison, Australian shares tend to have lower levels of volatility, although they are not completely immune to market fluctuations.

Question 18

Marcus Berger invested $9842.33 in GB Energy Limited four years ago.He sold the shares today for $11,396.22.What is his geometric average return?
A)2.98%
B)3.73%
C)3.95%
D)There is insufficient information to derive an answer.

Accepted Answer

Using the formula for geometric average return:

(11396.22/9842.33)^(1/4)-1 = 0.0373 or 3.73%

Therefore, the correct answer is B.

Question 19

An investor who wishes to hold a share for five years will be most interested in geometric average rather than in the arithmetic average return.

Accepted Answer

Geometric average takes into account the effect of compounding over time, making it more suitable for long-term investments like holding a share for five years. Arithmetic average does not take compounding into account and is more appropriate for shorter-term investments.

Question 20

Risky investments have the potential for higher returns but also larger losses.

Accepted Answer

This is because risky investments typically involve greater uncertainty and volatility, which can lead to larger losses if things go wrong. However, if the investment pays off, it can also result in larger returns.

Quiz 7: An Introduction to Risk and Return - History of Financial Market Returns

Riskier investments have traditionally had lower returns than less risky investments have had.

Less risky investments have lower standard deviations than do more risky investments.

If an investor holds a share for three years,the value at the end of three years will always be the initial cost of the share times (1 + arithmetic average return)to the third power.

Arithmetic average rate of return takes compounding into effect.

If an investor earns 10% on her investment in the first year and loses 10% the next year,she will have neither a gain nor a loss.

Use the following to answer the following question(s) . Roddy Richards invested $12014.88 in Atron Enterprises five years ago.The investment had yearly arithmetic returns of -9.7%,-8.1%,15%,7.2%,and 15.4%. -What is the geometric average return of Roddy's Richard's investment?

How much will Susan's share be worth if she sells it five years from today?

Treasury Notes have less default risk than do Government Bonds.

Historically,in Australia shares have had higher returns and greater volatility than have government bonds.

Use the following to answer the following question(s) . Roddy Richards invested $12014.88 in Atron Enterprises five years ago.The investment had yearly arithmetic returns of -9.7%,-8.1%,15%,7.2%,and 15.4%. -What is the arithmetic average return of Roddy Richard's investment?

Michael Lynch invested $10,000 in the Rearguard Fund four years ago.All earnings were reinvested in the fund.If his compound annual rate of return was 7%,what is his investment worth today?

Investors are always rewarded for taking higher risk with higher realised returns.

During the global financial crisis of 2007-2009,returns on real estate investment trusts (REITS)and shares moved in opposite directions.

How much money did Roddy Richards receive when he sold his shares of Atron Enterprises?

Investments in emerging markets have higher volatility than do Australian shares.

Marcus Berger invested $9842.33 in GB Energy Limited four years ago.He sold the shares today for $11,396.22.What is his geometric average return?

An investor who wishes to hold a share for five years will be most interested in geometric average rather than in the arithmetic average return.

Risky investments have the potential for higher returns but also larger losses.