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Exam 7: An Introduction to Risk and Return-History of Financial Market Returns

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Question 21

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Investment variances may be either positive or negative.

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Question 22

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What is the arithmetic average return of Roddy Richard's investment?

A) 2.42%
B) 3.96%
C) 5.18%
D) 15.1%

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Question 23

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What is the geometric average return on her stock if she sells it five years from today?

The difference between returns on stocks and government bonds is known as

Each of the following would tend to weaken the semi-strong form Efficient Market Hypothesis EXCEPT:

You purchased the stock of Sargent Motors at a price of $75.75 one year ago today. If you sell the stock today for $89.00, what is your rate of return?

Once market inefficiencies become known, they will be exploited by traders until they disappear.

Even though an investor expects a positive rate of return, it is possible that the actual return will be negative.

What is the arithmetic average return on her stock if she sells it five years from today?

Treasury Bills have less default risk than do Government Bonds.

An emerging market is

If markets are efficient, stock prices go up when there is positive information about a company, and go down when there is negative information about the company.

The arithmetic average rate of return takes compounding into effect.

Over the period 1995-2015, which pair of investments does not perfectly fit the "higher risk, higher return" pattern?

The risk-return tradeoff tells us that expected returns should be higher on investments that have higher risk.

You are considering investing in a project with the following possible outcomes: Probability of Investment States Occurrence Returns State 1: Economic boom 15% 16% State 2: Economic growth 45% 12% State 3: Economic decline 25% 5% State 4: Depression 15% -5% Calculate the expected rate of return for this investment.

Risky investments have the potential for higher returns, but also larger losses.

During the period 1995 to 2015, gold has underperformed both REITS and Equities.

Riskier investments have traditionally had lower returns than less risky investments have had.

Using the following information for McDonovan, Inc.'s stock, calculate their expected return and standard deviation. State Probability Return Boom 20% 40% Normal 60% 15% Recession 20% (20%)