1.Over the period of 1955-2006:
- long-term government bonds underperformed large corporate stocks.
- small-company stocks underperformed large-company stocks.
- inflation exceeded the rate of return on U.S. Treasury bills.
- U.S. Treasury bills outperformed long-term government bonds.
2.Which of the following is true regarding the efficient market hypothesis? )
- It argues that efficient markets are not volatile throughout a trading day.
- It suggests that an efficient market can only consider historical information when determining current security prices.
- It proves that market inefficiencies do not exist in either the short-run or the long-run.
- It implies that all investments in an efficient market have a net present value of zero.
3.Which of the following factors will affect the expected rate of return on a security? Select all that apply:
- multiple states of the economy
- probability of occurrence for any one economic state
- market rate of return given a particular economic state
- security beta
4.Assume a project that has the following returns for years 1 to 5: 15%, 4%, -13%, 34%, and 17%. What is the approximate variance of this investment? Show calculations please
5. Assume you are considering investing in two stocks, A & B. Stock A has an expected return of 16% and Stock B has an expected return of 9.5%. Your goal is to create a two-security portfolio that will have an expected return of 12%. If you have $250,000 to invest today, approximately how much would you invest in Stock A?
Show calculations please
- $96,000
- $150,000
- $75,000
- More than $200,000
8.Which statements are true regarding risk? Select all that apply:
- The expected return is usually the same as the actual return
- A key to assessing risk is determining how much risk an investment adds to a portfolio
- Risks can always be decreased or mitigated by the financial manager
- The higher the risk, the higher the return investors require for the investment