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# Quiz 1 - When the total return on an investment is...

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Quiz Historically, if the federal reserve wanted to stimulate the economic growth it lowers the fed funds rate If the federal Reserve wants to stimulate economic growth it lowers the Fed Fund rate The Federal Reserve Bank is privately owned by member banks. You purchased a stock five months ago for \$40 a share. Today, you sold that stock for \$45 a shore, the stock pays no dividends. What is your annualized return. ? (45-40)/45 = 12.5% (1+12.5%) ^ (12/5) = 32.67% Eight months ago your purchased 300 shares of a non dividend paying stock for \$27 a share. Today you sold those shares for \$31.59 a share. What was your annualized rate of return on this investment? (31.59-27)/27 = 17% (1+.17)^ (12/8) 26.55% The average compound return earned per year over a multi year period is called the geometric average return. The total dollare return on a share of a stock is defined as the capital gain or loss plus any dividend income
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Unformatted text preview: When the total return on an investment is expressed on a per year basis it is called the : effective annual return The dividend yield is defined as the annual dividend expressed as a percentage of the initial price Which one of the following should be used to compare the overall performance fo the three different investments effective annual return Increase volatility recently has caused market participants to question the reliability of the normal distribution for extreme moves. This is called Fat Tails A frequency distribution which is completely defined by its average and standard deviation is referred to as a normal distribution The rate of return earned on a US Treasury bill is referred to as the risk free rate. Value at risk has come under pressure as a model because it understates the risk associated with fat tails LTCM stands for Long Term Capital Management...
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