投资学 chapter 5.doc

 Sample question:
 You have the following rates of return for a risky portfolio for several recent years:

1. If you invested $1,000 at the beginning of 2005 your investment at the end of 2008 would be worth ___________. 
A. $2,176.60
B. $1,785.56
C. $1,645.53
D. $1,247.87
If you invest 1,000, at the end of year one, you will have 1000*(1+35.23%),
At the end of year 2, you will have 1000*(1+35.23%)*(1+18.67%), do the same work for year 3 and 4, then
 $1000(1+35.23%)(1+18.67%)(1 -9.87%)(1+23.45%) = $1785.56

2. The annualized average return on this investment is 
A. 16.15%
B. 16.87%
C. 21.32%
D. 15.60%
Because geometric average rate of return is more accurate, we will use geometric average rate of return here.
Geometric average rate of return=((1+r_1)(1+r_2)*…(1+r_n))^(1/n)-1, then we have

Hint: we have already calculated  1000(1+35.23%)(1+18.67%)(1 -9.87%)(1+23.45%) = $1785.56, thus (1+35.23%)(1+18.67%)(1 -9.87%)(1+23.45%)=1.7856.

1. 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 _D___. 
A. 4.00%
B. 3.50%
C. 7.00%
D. 11.00%
2. The geometric average of -12%, 20% and 25% is _____C____. 
A. 8.42%
B. 11.00%
C. 9.70%
D. 18.88%
3. The excess return is the ____B_____. 
A. rate of return that can be earned with certainty
B. rate of return in excess of the Treasury bill rate
C. rate of return to risk aversion
D. index return

4. 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 D return on this investment? D
A. 12.8%
B. 11.0%
C. 8.9%
D. 9.2%
5. Your investment has a 40% chance of earning a 15% rate of return, a 50% chance of earning a 10% rate of return and a 10% chance of losing 3%. What is the standard deviation of this investment? 10.7% A
A. 5.14%
B. 7.59%
C. 9.29%
D. 8.43%
6. Both investors and gamblers take on risk. The difference between an investor and a gambler is that an investor ____B___. 
A. is normally risk neutral
B. requires a risk premium to take on the risk
C. knows he or she will not lose money
D. knows the outcomes at the beginning of the holding period
7. Treasury bills are paying a 4% rate of return. A risk averse investor with a risk aversion of A = 3 should invest in a risky portfolio with a standard deviation of 24% only if the risky portfolio's expected return is at least __C____. 
A. 8.67%
B. 9.84%
C. 12.64%
D. 14.68%
8. Two assets have the following expected returns and standard deviations when the risk-free rate is 5%:11 15.9

An investor with a risk aversion of A = 3 would find that ________C_________ on a risk return basis. 
A. only Asset A is acceptable
B. only Asset B is acceptable
C. neither Asset A nor Asset B is acceptable
D. both Asset A and Asset B are acceptable
9. You purchased a share of stock for $29. One year later you received $2.25 as dividend and sold the share for $28. Your holding-period return was ______C___. 
A. -3.57%
B. - 3.45%
C. 4.31%
D. 8.03%
10. 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 ___C______. 
A. $0.25
B. $1.00
C. $2.00
D. $4.00
11. An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5% and she puts 30% in a Treasury bill that pays 5%. Her portfolio's expected rate of return and standard deviation are _______C___ and __________ respectively. 
A. 10.0%, 6.7%
B. 12.0%, 22.4%
C. 12.0%, 15.7%
D. 10.0%, 35.0%
12. Consider the following two investment alternatives. First, a risky portfolio that pays 15% rate of return with a probability of 40% or 5% with a probability of 60%. Second, a treasury bill that pays 6%. The risk premium on the risky investment is ____B_____. 
A. 1%
B. 3%
C. 6%
D. 9%
13. What is the geometric average return of the following quarterly returns: 3%, 5%, 4%, and 7%, respectively? C
A. 3.72%
B. 4.23%
C. 4.74%
D. 4.90%
 You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends

14. What is the geometric average return for the period? C
A. 2.87%
B. 0.74%
C. 2.60%
D. 2.21%

15. What is the dollar weighted return over the entire time period? B
A. 2.87%
B. 0.74%
C. 2.60%
D. 2.21%