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Exam 5: Risk and Return: Past and Prologue

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Question 1

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The ________ measure of returns ignores compounding.

A) geometric average
B) arithmetic average
C) IRR
D) dollar-weighted

E) A) and B)
F) A) and C)

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Question 2

Multiple Choice

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You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR was ________.

A) 4.00%
B) 3.50%
C) 7.00%
D) 11.00%

E) B) and C)
F) None of the above

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Question 3

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An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5% and she puts 30% in a Treasury bond that pays 5%. Her portfolio's expected rate of return and standard deviation are ________ and ________ respectively.

The Manhawkin Fund has an expected return of 16% and a standard deviation of 20%. The risk-free rate is 4%. What is the reward-to-volatility ratio for the Manhawkin Fund?

The price of a share is $55 at the beginning of the year and $50 at the end of the year. If the share paid a $3 dividend and inflation was 3%, what is the real holding period return for the year?

The holding period return on a share is equal to ________.

Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: An investor with a risk aversion of A = 3 would find that ________ on a risk-return basis.

Suppose you pay $9400 for a $10 000 par Treasury bond maturing in six months. What is the effective annual rate of return for this investment?

The reward/variability ratio is given by ________.

If you require a real growth in the purchasing power of your investment of 8%, and you expect the rate of inflation over the next year to be 3%, what is the lowest nominal return that you would be satisfied with?

The complete portfolio refers to the investment in ________.

You have the following rates of return for a risky portfolio for several recent years: If you invested $1 000 at the beginning of 2005 your investment at the end of 2008 would be worth ________.

In the mean-standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called ________.

When calculating the variance of a portfolio's returns, squaring the deviations from the mean results in ________. I. preventing the sum of the deviations from always equaling zero II. exaggerating the effects of large positive and negative deviations III. a number in units of percentage of returns

You purchased a share for $29. One year later you received $2.25 as dividend and sold the share for $28. Your holding-period return was ________.

Both investors and gamblers take on risk. The difference between an investor and a gambler is that an investor ________.

You have an APR of 7.5% with continuous compounding. The EAR is ________.

Published data on past returns earned by managed funds are required to be ________.

You invest $10 000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 15% and a standard deviation of 21% and a Treasury bond with a rate of return of 5%. How much money should be invested in the risky asset to form a portfolio with an expected return of 11%?

The formula is used to calculate the ________.