chap06 - You plan on purchasing some property that will...

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Unformatted text preview: You plan on purchasing some property that will cost you $10,000 today. You anticipate receiving rent of $2,000 on the property during the year. You also expect to be able to sell the property for $11,000 at the end of the year. What is the capital gain return on the investment? a. 30.00% b. 20.00% c. 10.00% d. zero since the gain is realized status: not answered () correct: c your answer: -------------------------------------------------------------------------------- 2 You look into the market and find that the expected return on a risk-free security (zero standard deviation) is 5% while the expected return of an asset with a standard deviation of 8% is 10%. Immediately afterward, a financial genius tells you that he can completely insure the risky asset for you at a cost. If complete insurance means that he can guarantee a return on an asset, how much of the return on that asset must the genius be charging you for the insurance? a. 10.00% b. 8.00% c. 5.00% d. 2.00% status: not answered () correct: c your answer: -------------------------------------------------------------------------------- 3 One year ago you purchased a 6-year 8% coupon bond (semi-annual payments) with a yield-to-maturity of 8%. Today, the market is giving a yield-to-maturity on this bond of 7%. What is the capital gain return on this bond? Round to the nearest one-hundredth of a percent. a. 4.10% b. 4.16% c. 12.10% d. 12.16% status: not answered () correct: b your answer: -------------------------------------------------------------------------------- 4 You purchased a stock for $110 one year ago and the stock generated a 20% total return during the year. If you received a dividend of $20 on the stock then what is the current price of the stock? a. $132.00 b. $120.00 c. $112.00 d. $110.00 status: not answered () correct: c your answer: -------------------------------------------------------------------------------- 5 Stocks A, B, and C have systematic risk of 3 units, 4 units, and 5 units while they have total risk units of 20 units, 15 units, and 10 units, respectively. If all three assets are expected to generate the same level of cash flow in the future, then which asset should have the lowest price today? a. A b. B c. C d. there is not enough information to decide status: not answered () correct: c your answer: -------------------------------------------------------------------------------- 6 Asset A has generated returns of 10%, 30%, 50%, and 70% over the last four years. What is the standard deviation of the returns of Asset A? a. .2582 b. .2000 c. .1000 d. .0667 status: not answered () correct: a your answer: -------------------------------------------------------------------------------- 7 If you assume a normal distribution, what is the probability that the return in any given year will be less than the expected return? a. 34% b. 50% c. 66% d. 95% status: not answered () correct: b your answer: -------------------------------------------------------------------------------- 8 Asset A has generated returns of 10%, 30%, 50%, and 70% over the last four years. What is the expected return of Asset A? a. .60 b. .40 c. .36 d. .16 status: not answered () correct: b your answer: -------------------------------------------------------------------------------- 9 You form a portfolio of less than perfectly correlated stocks that all have a standard deviation of 15%. The expected return of each of the stocks is 5%, 7%, 6%, and 8%. What would you expect the standard deviation of the portfolio to be? a. greater than 15% b. exactly 15% c. less than 15% d. there is not enough information to determine status: not answered () correct: c your answer: -------------------------------------------------------------------------------- 10 You are considering an investment that has an expected return of 30% and a standard deviation of the distribution of returns equal to 20%. If you assume a normal distribution, what is the probability that the investment will have a return greater than 50% in the first year? a. 16% b. 50% c. 66% d. 84% status: not answered () correct: a your answer: -------------------------------------------------------------------------------- 11 If you were to graph the return of different asset classes over time, which asset class would have the most jagged graph? a. U.S. treasuries b. U.S. bonds c. corporate bonds d. commons stocks status: not answered () correct: d your answer: -------------------------------------------------------------------------------- 12 You know that the expected return of an asset is 13% and its standard deviation is 10%. What is the probability of getting a return exactly equal to 13%? a. 50% b. 34% c. 16% d. 0% status: not answered () correct: d your answer: -------------------------------------------------------------------------------- 13 Which of the following is a characteristic of a well diversified portfolio? a. very little systematic risk b. very little unsystematic risk c. no systematic risk d. none of the above status: not answered () correct: b your answer: -------------------------------------------------------------------------------- 14 Based upon the following risk and return characteristics, what best describes the expected return of Stock A: Stock Expected Return Systematic Risk Unsystematic Risk A ? 5 units 5 units B 10% 5 units 10 units a. 20% b. 15% c. 10% d. 5% status: not answered () correct: c your answer: -------------------------------------------------------------------------------- 15 One year ago you purchased a 6-year 8% coupon bond (semi-annual payments) with a yield-to-maturity of 8%. Today, the market is giving a yield-to-maturity of on this bond of 7%. What is your total return on this bond? Round to the nearest one-hundredth of a percent. a. 4.10% b. 4.16% c. 12.10% d. 12.16% status: not answered () correct: d your answer: -------------------------------------------------------------------------------- 16 Asset A has generated returns of 10%, 30%, 50%, and 70% over the last four years. What is the variance of the returns of Asset A? a. .2582 b. .2000 c. .1000 d. .0667 status: not answered () correct: d your answer: -------------------------------------------------------------------------------- 17 You are given the opportunity to purchase any of 4 securities which will all pay you $100 one year today when they mature. The asset choices are a Treasury Bill, a Treasury Bond, a Corporate Bond, and a Stock. If you purchase any of the securities today, which asset should cost you the most in dollars? a. Treasury Bill b. Treasury Bond c. Corporate Bond d. Stock status: not answered () correct: a your answer: -------------------------------------------------------------------------------- 18 You plan on purchasing some property that will cost you $10,000 today. You anticipate receiving rent of $2,000 on the property during the year. You also expect to be able to sell the property for $11,000 at the end of the year. What is the income related return on the investment? a. 30.00% b. 20.00% c. 10.00% d. zero since the gain is realized status: not answered () correct: b your answer: -------------------------------------------------------------------------------- 19 You are looking at the historical distribution of returns on a particular asset. You find that the expected return on the asset is .07 and the variance is .0036. What return would represent a 95% return for this asset? Assume a normal distribution. a. .07 b. .12 c. .13 d. .19 status: not answered () correct: d your answer: -------------------------------------------------------------------------------- 20 If you were to plot the return on a risky asset class over time in addition to a less risky asset class over time you would expect: a. for the return on the risky asset class to always be above that of the less riskly asset class. b. for the return on the risky asset class to be just about the same as that of the less riskly asset class. c. for the return on the risky asset class to never be above that of the less riskly asset class. d. for the return on the risky asset class to usually but not always be above that of the less riskly asset class. status: not answered () correct: d your answer: -------------------------------------------------------------------------------- 21 You plan on purchasing some property that will cost you $10,000 today. You anticipate receiving rent of $2,000 on the property during the year. You also expect to be able to sell the property for $11,000 at the end of the year. What is the total return on the investment? a. 30.00% b. 20.00% c. 10.00% d. zero since the gain is realized status: not answered () correct: a your answer: -------------------------------------------------------------------------------- 22 Which of the following securities has the greatest financial risk? a. U.S. Treasuries b. corporate bonds c. stocks d. There is not enough information to determine. status: not answered () correct: c your answer: -------------------------------------------------------------------------------- 23 You are looking at the historical distribution of returns on a particular asset. You find that the expected return on the asset is .07 and the variance is .0036. What return would represent a 5% return for this asset? Assume a normal distribution. a. -.07 b. -.05 c. 0.00 d. .06 status: not answered () correct: b your answer: -------------------------------------------------------------------------------- 24 In general terms, variance measures: a. what the probability is of being in a neighborhood of the mean. b. how disperse the mean of a distribution is. c. the dispersion of observations around the mean of the distribution. d. none of the above. status: not answered () correct: c your answer: -------------------------------------------------------------------------------- 25 The precise measure of an investment's performance is called: a. an indexed performance ranking. b. total return. c. capital gain. d. income return. status: not answered () correct: b your answer: -------------------------------------------------------------------------------- 26 From 1900 through 2003, which asset class had the lowest cumulative return? a. equities b. corporate bonds c. U.S. Government bonds d. U.S. Government bills status: not answered () correct: d your answer: -------------------------------------------------------------------------------- 27 The risk premium is defined as: a. the additional return offered by a less risky investment relative to a riskier one. b. the additional return offered by a more risky investment relative to a safer one. c. the additional return offered by a riskless investment relative to inflation. d. none of the above. status: not answered () correct: b your answer: -------------------------------------------------------------------------------- 28 You are considering an investment that has an expected return of 30%, which is also the standard deviation of the distribution of returns. If you assume a normal distribution, what is the probability that the investment will have a return greater than 60% in the first year? a. 16% b. 50% c. 66% d. 84% status: not answered () correct: a your answer: -------------------------------------------------------------------------------- 29 A completely diversified portfolio means that: a. there is no systematic risk in a portfolio. b. there is no unsystematic risk in a portfolio. c. the portfolio replicates the risk-free security. d. none of the above. status: not answered () correct: b your answer: -------------------------------------------------------------------------------- 30 For a stock that does not pay dividends the total return may be estimated by: a. the stock's income return. b. the stock's capital gain. c. the income yield. d. none of the above. status: not answered () correct: b ...
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