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FNCE 3050 CHAPTER 9 CHARACTERIZING RISK AND RETURN EXAM
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FNCE 3050 CHAPTER 9 CHARACTERIZING RISK ANDRETURN EXAM 2024-2025
The S&P 500 had the highest decade average return for which period? - ANSWER
1950s
Which of the following are examples of diversifiable risk? Select all that apply. -
ANSWER Decreased demand for electric cars; Fraud committed by company
management
Which statement is true? (S&P 500) - ANSWER Investing in a single stock is
generally riskier than investing in the S&P 500.
Which of these correctly describes the returns on long-term Treasury bonds for the
period 1950-2012? Select all that apply. - ANSWER More volatile than T-bill
returns on an annual basis; Higher returns than T-bill returns over the period
Which of these statements regarding the standard deviation formula is correct?
Select all that apply. - ANSWER (N-1) is used when computing historical standard
deviations; The average return is an arithmetic average; N is the total number of
returns
The annual returns on a stock for the past four years are 5.2 percent, -16.8 percent,
22.1 percent, and 11.4 percent. What is the geometric mean return? - ANSWER
4.46 percent
[(1.052)(0.832)(1.221)(1.114)]^1/4-1=0.0446=4.46%
How is correlation defined? - ANSWER Measure of the co-movement between the
returns on two variables
An arithmetic average return can be which of these? Select all that apply. -
ANSWER Dollar return; Return for any period; Percentage return
How is the capital gain or loss on a stock investment computed? - ANSWER
Ending stock value - Beginning stock value
, A stock returned 13 percent, 8 percent, -16 percent, and 1 percent annually for the
past four years, respectively. What is the arithmetic average return? - ANSWER
1.50 percent
(13%+8%-16%+1%)/4=1.5%
What type of risk exists in a fully diversified portfolio? - ANSWER Market risk
only
How is market risk defined? - ANSWER The portion of total risk that is
attributable to overall economic factors
How can firm-specific risk be defined? - ANSWER Risk that can be reduced by
diversification
Which statement(s) is (are) correct from 1950 to 2015? Select all that apply. -
ANSWER The S&P 500 had a positive average rate of return for the six decades
starting with the 1950s; The S&P 500 outperformed long-term Treasury bonds by
about 6 percent
Maria bought a stock one year ago for $16 a share. The stock pays quarterly
dividends of $0.12 and is currently valued at $17 a share. How is the percentage
return computed? - ANSWER [$17-$16+(4x$0.12)]/$16
Based on annual standard deviation of returns for the years 2000-2009, which one
of the following exhibited the greatest risk? - ANSWER Stocks
The percentage total return on a stock investment is expressed as a percentage of
what? - ANSWER Initial investment
Lew has a portfolio comprised of $3,000 of stock A, $5,000 of stock B, and $2,000
of stock C. How is the portfolio weight of stock C computed? - ANSWER
$2,000/($3,000+$5,000+$2,000)
Which of these represents an optimal portfolio comprised of two stocks? Select all
that apply. - ANSWER 14.3 percent return, 24.8 percent standard deviation; 14.9
percent return, 25.4 standard deviation
The dollar return on a stock investment includes which of these? - ANSWER
Dividend income and capital gains or losses
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