Rank the following from highest average historical standard deviation to lowest average historical standard deviation from 1926-2008.
I. Small stocks
II. Long term bonds
III. Large stocks
I, III, II, IV
What is the geometric average return of the following quarterly returns: 3%, 5%, 4%, and 7%, respectively?
Asset allocation refers to the _________
allocation of the investment portfolio across broad asset classes
The buyer of a new home is quoted a mortgage rate of 0.5% per month. What is the APR on the loan?
_____ is a mechanism to mitigate potential agency problems.
Tying income of managers to success of the firm
The holding period return on a stock was 25%. Its ending price was $18 and its beginning price was $16. Its cash dividend must have been _________
Historical returns have generally been __________ for stocks of small firms as/than for stocks of large firms.
Suppose you pay $9,400 for a $10,000 par Treasury bill maturing in six months. What is the effective annual rate of return for this investment?
The market risk premium is defined as __________.
the difference between the return on an index fund and the return on Treasury bills
An example of a real asset is _________.
I. a college education
II. customer goodwill
III. a patent
I, II, and III
Financial markets allow for all but which one of the following?
Allow most participants to routinely earn high returns with low risk
Annual percentage rates can be converted to effective annual rates by means of the following formula:
(1 + (APR/n))^n - 1
Firms that specialize in helping companies raise capital by selling securities to the public are called _________.
If you are promised a nominal return of 12% on a one year investment, and you expect the rate of inflation to be 3%, what real rate do you expect to earn?
Securitization refers to the creation of new securities by _________.
taking an illiquid asset and converting it into a marketable security
You have calculated the historical dollar weighted return, annual geometric average return and annual arithmetic average return. You always reinvest your dividends and interest earned on the portfolio. Which method provides the best measure of the actual average historical performance of the investments you have chosen?
Geometric average return
Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of earning a 10% rate of return and a 30% chance of losing 6%. What is your expected return on this investment?