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Investment Management Final Ch. 5
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Terms in this set (18)
Which one of the following measures time-weighted returns and allows for compounding?
A. Geometric average return
Rank the following from highest average historical return to lowest average historical return from 1926 to 2010.
I. Small stocks
II. Long-term bonds
III. Large stocks
IV. T-bills
C. I, III, II, IV
Rank the following from highest average historical standard deviation to lowest average historical standard deviation from 1926 to 2010.
I. Small stocks
II. Long-term bonds
III. Large stocks
IV. T-bills
C. I, III, II, IV
The complete portfolio refers to the investment in _________.
C. the risk-free asset and the risky portfolio combined
The holding period return on a stock is equal to _________.
B. the capital gain yield over the period plus the dividend yield
Your timing was good last year. You invested more in your portfolio right before prices went up, and you sold right before prices went down. In calculating historical performance measures, which one of the following will be the largest?
A. Dollar-weighted return
The arithmetic average of -11%, 15%, and 20% is ________.
B. 8%
The geometric average of -12%, 20%, and 25% is _________.
C. 9.7%
The dollar-weighted return is the _________.
D. internal rate of return
The market risk premium is defined as __________.
A. the difference between the return on an index fund and the return on Treasury bills
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.
B. Treasury bills; risky assets
The reward-to-volatility ratio is given by _________.
A. the slope of the capital allocation line
During the 1926-2010 period the Sharpe ratio was greatest for which of the following asset classes?
B. Large U.S. stocks
During the 1985-2010 period the Sharpe ratio was lowest for which of the following asset classes?
C. Long-term U.S. Treasury bonds
In the mean standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called the _________.
S. capital allocation line
You invest all of your money in 1-year T-bills. Which of the following statements is (are) correct?
I. Your nominal return on the T-bills is riskless.
II. Your real return on the T-bills is riskless.
III. Your nominal Sharpe ratio is zero
B. I and III only
The CAL provided by combinations of 1-month T-bills and a broad index of common stocks is called the ______.
C. CML
Which of the following arguments supporting passive investment strategies is (are) correct?
I. Active trading strategies may not guarantee higher returns but guarantee higher costs.
II. Passive investors can free-ride on the activity of knowledge investors whose trades force prices to reflect currently available information.
III. Passive investors are guaranteed to earn higher rates of return than active investors over sufficiently long time horizons.
B. I and II only
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