Question 1

Assume that long-term corporate bonds had an average return of 6.3 per cent and a standard deviation of 8.3 per cent for a 30-year period.What range of returns would you expect to see on these bonds 68 per cent of the time?

Accepted Answer

A)  -2.0 per cent to 14.6 per cent
B)  -2.0 per cent to 22.9 per cent
C)  -10.3 per cent to 14.6 per cent
D)  -10.3 per cent to 17.4 per cent
E)  -10.3 per cent to 22.9 per centF) C) and E)
G) A) and B) A

Question 2

The standard deviation measures the _____ of a security's returns over time.

Accepted Answer

A)  average value
B)  frequency
C)  volatility
D)  mean
E)  arithmetic averageF) None of the above
G) A) and B) C

Question 3

The mean plus or minus twice the standard deviation for a normal distribution provides a probability range of _____ per cent.

Accepted Answer

A)  66
B)  68
C)  95
D)  97
E)  99F) All of the above
G) B) and C) C

Question 4

Over the past ten years,large-company stocks have returned 11.2 per cent.The risk premium on these stocks was 4.8 per cent and the inflation rate was 3.7 per cent.What was the risk-free rate of return?

Accepted Answer

A)  2.7 per cent
B)  6.4 per cent
C)  7.5 per cent
D)  8.5 per cent
E)  10.1 per centF) All of the above
G) B) and D)

Question 5

Which one of the following is the hypothesis that securities markets are efficient?

Accepted Answer

A)  geometric market hypothesis
B)  standard deviation hypothesis
C)  efficient markets hypothesis
D)  capital market hypothesis
E)  financial markets hypothesisF) A) and C)
G) A) and E)

Question 6

Investors require a 4 per cent return on risk-free investments.On a particular risky investment,investors require an excess return of 7 per cent in addition to the risk-free rate of 4 per cent.What is this excess return called?

Accepted Answer

A)  inflation premium
B)  required return
C)  real return
D)  average return
E)  risk premiumF) A) and C)
G) A) and D)

Question 7

The geometric average return of 8,12,2,and 16 per cent is computed as:

Accepted Answer

A)  (1.08 + 1.12 + 1.02 + 1.16) 1/2 - 1
B)  (1.08 + 1.12 + 1.02 + 1.16) 1/4
C)  (1.08  ×	imes×  1.12  ×	imes×  1.0  ×	imes×  1.16)   ×	imes×  4 - 1
D)  (1.08 + 1.12 + 1.02 + 1.16)   ×	imes×  1/2
E)  (1.08  ×	imes×  1.12  ×	imes×  1.02  ×	imes×  1.16) 1/4 - 1 F) B) and C)
G) None of the above

Question 8

Over the period of 1900-2000,which one of the following investment classes had the highest returns?

Accepted Answer

A)  government bonds
B)  cash on hand
C)  equities (All Ordinaries Index) 
D)  inflation
E)  30 day bank billsF) A) and E)
G) A) and D)

Question 9

If the securities markets are only weak-form efficient,then the price of a stock will:

Accepted Answer

A)  react to new information over a couple of weeks
B)  react slowly to new information concerning the future outlook of the firm
C)  tend to overreact to new information concerning the future plans of the firm
D)  be based solely on historical information
E)  totally reflect the true value of the firmF) B) and C)
G) B) and D)

Question 10

Assume the securities markets are strong-form efficient.Given this assumption,you should expect which one of the following to occur?

Accepted Answer

A)  The risk premium on any security in that market will be zero.
B)  The price of any one security in that market will remain constant at its current level.
C)  Each security in the market will have an annual rate of return equal to the risk-free rate.
D)  The price of each security in that market will frequently fluctuate.
E)  The prices of each security will fall to zero because the net present value of the investments will be zero.F) A) and B)
G) C) and D)

Question 11

If the financial markets are semi-strong form efficient,then:

Accepted Answer

A)  only the most talented analysts can determine the true value of a security
B)  only individuals with private information have a marketplace advantage
C)  technical analysis provides the best tool to use to gain a marketplace advantage
D)  no one individual has an advantage in the marketplace
E)  every security offers the same rate of returnF) None of the above
G) D) and E)

Question 12

The average squared difference between the actual return and the average return is called the:

Accepted Answer

A)  mean
B)  alpha
C)  beta
D)  variance
E)  standard deviationF) B) and D)
G) B) and E)

Question 13

If the financial markets are strong-form efficient,then:

Accepted Answer

A)  only the most talented analysts can determine the true value of a security
B)  only company insiders have a marketplace advantage
C)  technical analysis provides the best tool to use to gain a marketplace advantage
D)  no one person has an advantage in the marketplace
E)  the only true advantage in the marketplace is having insider informationF) B) and E)
G) B) and D)

Question 14

When a financial market reflects all the available information in the prices of the
Securities,the market is referred to as a(n) :

Accepted Answer

A)  normal distribution
B)  primary market
C)  efficient capital market
D)  delayed reaction market
E)  current yield marketF) C) and D)
G) A) and C)

Question 15

The variance is the average squared difference between which of the following?

Accepted Answer

A)  actual return and average return
B)  actual return and (average return / N - 1) 
C)  actual return and the real return
D)  average return and the standard deviation
E)  actual return and the risk-free rateF) B) and E)
G) None of the above

Question 16

One year ago,you bought a share for $36.48 a share.You received a dividend of $1.62 per share last month and sold the share today for $40.18 a share.What is the capital gains yield on this investment?

Accepted Answer

A)  2.86 per cent
B)  3.70 per cent
C)  10.14 per cent
D)  12.29 per cent
E)  14.58 per centF) C) and D)
G) A) and B)

Question 17

Which one of the following is the positive square root of the variance?

Accepted Answer

A)  standard deviation
B)  mean
C)  risk-free rate
D)  average return
E)  real returnF) B) and E)
G) A) and B)

Question 18

A mining share for a company listed on the ASX produced returns of 19 per cent,27 per cent,and -38 per cent over three of the past four years.The arithmetic average for the past four years is 7 per cent.What is the standard deviation of the stock's returns for the four-year period?

Accepted Answer

A)  11.63 per cent
B)  15.94 per cent
C)  19.70 per cent
D)  26.25 per cent
E)  30.21 per centF) D) and E)
G) C) and D)

Question 19

The higher the standard deviation of a security,the _____ the expected rate of return and the _____ the risk.

Accepted Answer

A)  lower;lower
B)  lower;higher
C)  higher;lower
D)  higher;higher
E)  more constant;more constantF) A) and B)
G) A) and C)

Question 20

Based on the following stock price data [in $] for Pi-Omega Corporation,calculate the standard deviation of returns on Pi-Omega.

Accepted Answer

A)  0.0294
B)  0.4436
C)  0.7893
D)  0.0462
E)  0.0863F) A) and D)
G) C) and D)

Exam 10: Some Lessons From Capital Market History

Assume that long-term corporate bonds had an average return of 6.3 per cent and a standard deviation of 8.3 per cent for a 30-year period.What range of returns would you expect to see on these bonds 68 per cent of the time?

Correct AnswerverifiedA

The standard deviation measures the _____ of a security's returns over time.

Correct AnswerverifiedC

The mean plus or minus twice the standard deviation for a normal distribution provides a probability range of _____ per cent.

Correct AnswerverifiedC

Over the past ten years,large-company stocks have returned 11.2 per cent.The risk premium on these stocks was 4.8 per cent and the inflation rate was 3.7 per cent.What was the risk-free rate of return?

Correct AnswerverifiedShow Answer

Which one of the following is the hypothesis that securities markets are efficient?

Correct AnswerverifiedShow Answer

Investors require a 4 per cent return on risk-free investments.On a particular risky investment,investors require an excess return of 7 per cent in addition to the risk-free rate of 4 per cent.What is this excess return called?

Correct AnswerverifiedShow Answer

The geometric average return of 8,12,2,and 16 per cent is computed as:

Correct AnswerverifiedShow Answer

Over the period of 1900-2000,which one of the following investment classes had the highest returns?

Correct AnswerverifiedShow Answer

If the securities markets are only weak-form efficient,then the price of a stock will:

Correct AnswerverifiedShow Answer

Assume the securities markets are strong-form efficient.Given this assumption,you should expect which one of the following to occur?

Correct AnswerverifiedShow Answer

If the financial markets are semi-strong form efficient,then:

Correct AnswerverifiedShow Answer

The average squared difference between the actual return and the average return is called the:

Correct AnswerverifiedShow Answer

If the financial markets are strong-form efficient,then:

Correct AnswerverifiedShow Answer

When a financial market reflects all the available information in the prices of the Securities,the market is referred to as a(n) :

Correct AnswerverifiedShow Answer

The variance is the average squared difference between which of the following?

Correct AnswerverifiedShow Answer

One year ago,you bought a share for $36.48 a share.You received a dividend of $1.62 per share last month and sold the share today for $40.18 a share.What is the capital gains yield on this investment?

Correct AnswerverifiedShow Answer

Which one of the following is the positive square root of the variance?

Correct AnswerverifiedShow Answer

A mining share for a company listed on the ASX produced returns of 19 per cent,27 per cent,and -38 per cent over three of the past four years.The arithmetic average for the past four years is 7 per cent.What is the standard deviation of the stock's returns for the four-year period?

Correct AnswerverifiedShow Answer

The higher the standard deviation of a security,the _____ the expected rate of return and the _____ the risk.

Correct AnswerverifiedShow Answer

Based on the following stock price data [in $] for Pi-Omega Corporation,calculate the standard deviation of returns on Pi-Omega.

Correct AnswerverifiedShow Answer

Correct Answer
verified
A

Correct Answer
verified
C

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The higher the standard deviation of a security,the _ the expected rate of return and the _ the risk.

Correct Answer
verified

Correct Answer
verified