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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

IV. T-bills

I. Small stocks

II. Long term bonds

III. Large stocks

IV. T-bills

I, III, II, IV

What is the geometric average return of the following quarterly returns: 3%, 5%, 4%, and 7%, respectively?

4.74%

The excess return is the _________

rate of return in excess of the Treasury bill rate

Asset allocation refers to the _________

allocation of the investment portfolio across broad asset classes

____ is not a derivative security

A share of common stock

The buyer of a new home is quoted a mortgage rate of 0.5% per month. What is the APR on the loan?

6%

_____ 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 _________

$2.00

Historical returns have generally been __________ for stocks of small firms as/than for stocks of large firms.

higher

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?

13.17%

The market risk premium is defined as __________.

the difference between the return on an index fund and the return on Treasury bills

The arithmetic average of -11%, 15% and 20% is ________.

8%

An example of a real asset is _________.

I. a college education

II. customer goodwill

III. a patent

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 _________.

investment banks

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?

8.74%

Securitization refers to the creation of new securities by _________.

taking an illiquid asset and converting it into a marketable security

Which of the following is not a money market security?

Common stock

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?

9.2%

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 ____.

11%