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Investments Ch 5

Terms in this set (15)

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
11.00%
Rank the following from highest average historical return to lowest average historical return from 1926-2008.
I. Small stocks
II. Long term bonds
III. Large stocks
IV. T-bills
I, III, II, IV
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%
Historical returns have generally been __________ for stocks of small firms as/than for stocks of large firms
higher
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
I and II only
A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe measure of __
0.42
The holding period return on a stock was 32%. Its beginning price was $25 and its cash dividend was $1.50. Its ending price must have been
$31.50
You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a treasury bill with a rate of return of 6%.

__________ of your complete portfolio should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 9%
45%
You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a treasury bill with a rate of return of 6%.

The slope of the capital allocation line formed with the risky asset and the risk-free asset is ________
0.50
The return on the risky portfolio is 15%. The risk-free rate as well as the investor's borrowing rate is 10%. The standard deviation of return on the risky portfolio is 20%. If the standard deviation on the complete portfolio is 25%, the expected return on the complete portfolio is ______
16.25%
You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of treasury bills that pay 5% and a risky portfolio, P, constructed with 2 risky securities X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate of return of 14% and Y has an expected rate of return of 10%.

To form a complete portfolio with an expected rate of return of 8%, you should invest approximately __________ in the risky portfolio. This will mean you will also invest approximately __________ and __________ of your complete portfolio in security X and Y respectively
40%, 24%, 16%
What is the geometric average return of the following quarterly returns: 3%, 5%, 4%, and 7%, respectively?
4.74%
During the 1926 to 2008 period which one of the following asset classes provided the lowest real return?
Long-Term U.S. Treasury Bonds
The rate of return on _____ is known at the beginning of the holding period while the rate of return on ____ is not known until the end of the holding period
Treasury bills, risky assets
The market risk premium is defined as ___
the difference between the return on an index fund and the return on Treasury bills
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