FIN 300 TESTED EXAM QUESTIONS
AND CORRECT ANSWERS
A stock has returns for five years of 14 percent, -16 percent, 12 percent, 23 percent,
and 4 percent, respectively. The stock has an average return of ______ percent and a
standard deviation of _____ percent. - Answer- 7.40; 14.72
You bought a share of 7.5 percent preferred stock for $91.60 last year. The market price
for your stock is now $89.10. What is your total return to date on this investment? -
Answer- 5.46%
Assume that long-term corporate bonds had an average return of 6.4 percent and a
standard deviation of 2.9 percent for a 50-year period. What range of returns would you
expect to see on these bonds 68 percent of the time? - Answer- 3.5% to 9.3%
Assume that large-company stocks had an average return of 12.1 percent and a
standard deviation of 19.6 percent for a 40-year period. What range of returns would
you expect to see on these stocks 95 percent of the time? - Answer- -27.1% to 51.3%
A stock has had returns of 14 percent, -18 percent, 2 percent, 33 percent, 27 percent,
and 6 percent over the last six years, respectively. What is the geometric return for this
stock? - Answer- 9.32%
Stock A comprises 28 percent of Susan's portfolio. Which one of the following terms
applies to the 28 percent? - Answer- Portfolio weight
Home Grown Tomatoes stock returned 11.6 percent, 3.2 percent, 8.1 percent, 14.2, and
9.8 percent over the past five years, respectively. What is the arithmetic average return
for this period? - Answer- 9.38 %
You purchased 400 shares of KNO stock five years ago and have earned annual
returns of 8.3 percent, 9.6 percent, 18.25 percent, -7.7 percent, and 1.8 percent,
respectively. What is your arithmetic average return? - Answer- 6.05%
Over the last four years, the common stock of Plymouth Shippers has had an arithmetic
average return of 10.4 percent. Three of those four years produced returns of 16.1
percent, 15.6 percent, and 9.4 percent, respectively. What is the geometric average
return for this four-year period? - Answer- 10.22%
Over the last four years, a stock has had an arithmetic average return of 12.8 percent.
Three of those four years produced returns of 22.6 percent, 15.2 percent, and -24.1
, percent, respectively. What is the geometric average return for this four-year period? -
Answer- 10.18%
Suppose a stock had an initial price of $36 per share, paid a dividend of $.42 per share
during the year, and had an ending share price of $34. What was the capital gains
yield? - Answer- -5.56%
Systematic risk is defined as: - Answer- any risk that affects a large number of assets
Unsystematic risk can be defined by all of the following except: - Answer- market risk
The amount of systematic risk present in a particular risky asset relative to that in an
average risky asset is measured by the: - Answer- beta coefficient
The security market line is a linear function that is graphed by plotting data points based
on the relationship between the: - Answer- expected return and beta
The security market line is defined as a positively sloped straight line that displays the
relationship between the: - Answer- expected return and beta of either a security or
portfolio
A stock is expected to return 13 percent in an economic boom, 10 percent in a normal
economy, and 3 percent in a recessionary economy. Which one of the following will
lower the overall expected rate of return on this stock? - Answer- A decrease in the
probability of an economic boom
A company originally issued bonds that were rated investment grade. These bonds
have now been downgraded to junk status. These bonds are referred to as: - Answer-
fallen angels
The price at which a dealer will purchase a bond is referred to as the ______ price. -
Answer- bid
The price at which an investor can purchase in the bond market is called the _______
price. - Answer- asked
A bond trader just purchased and resold a bond. The amount of profit earned by the
trader from this purchase and resale is referred to as the: - Answer- bid-ask spread
Which of the following is the quoted price of a bond? - Answer- clean price
A real rate of return is defined as a rate that has been adjusted for which one of the
following? - Answer- Inflation
The inflation premium - Answer- compensates investors for expected price increases
AND CORRECT ANSWERS
A stock has returns for five years of 14 percent, -16 percent, 12 percent, 23 percent,
and 4 percent, respectively. The stock has an average return of ______ percent and a
standard deviation of _____ percent. - Answer- 7.40; 14.72
You bought a share of 7.5 percent preferred stock for $91.60 last year. The market price
for your stock is now $89.10. What is your total return to date on this investment? -
Answer- 5.46%
Assume that long-term corporate bonds had an average return of 6.4 percent and a
standard deviation of 2.9 percent for a 50-year period. What range of returns would you
expect to see on these bonds 68 percent of the time? - Answer- 3.5% to 9.3%
Assume that large-company stocks had an average return of 12.1 percent and a
standard deviation of 19.6 percent for a 40-year period. What range of returns would
you expect to see on these stocks 95 percent of the time? - Answer- -27.1% to 51.3%
A stock has had returns of 14 percent, -18 percent, 2 percent, 33 percent, 27 percent,
and 6 percent over the last six years, respectively. What is the geometric return for this
stock? - Answer- 9.32%
Stock A comprises 28 percent of Susan's portfolio. Which one of the following terms
applies to the 28 percent? - Answer- Portfolio weight
Home Grown Tomatoes stock returned 11.6 percent, 3.2 percent, 8.1 percent, 14.2, and
9.8 percent over the past five years, respectively. What is the arithmetic average return
for this period? - Answer- 9.38 %
You purchased 400 shares of KNO stock five years ago and have earned annual
returns of 8.3 percent, 9.6 percent, 18.25 percent, -7.7 percent, and 1.8 percent,
respectively. What is your arithmetic average return? - Answer- 6.05%
Over the last four years, the common stock of Plymouth Shippers has had an arithmetic
average return of 10.4 percent. Three of those four years produced returns of 16.1
percent, 15.6 percent, and 9.4 percent, respectively. What is the geometric average
return for this four-year period? - Answer- 10.22%
Over the last four years, a stock has had an arithmetic average return of 12.8 percent.
Three of those four years produced returns of 22.6 percent, 15.2 percent, and -24.1
, percent, respectively. What is the geometric average return for this four-year period? -
Answer- 10.18%
Suppose a stock had an initial price of $36 per share, paid a dividend of $.42 per share
during the year, and had an ending share price of $34. What was the capital gains
yield? - Answer- -5.56%
Systematic risk is defined as: - Answer- any risk that affects a large number of assets
Unsystematic risk can be defined by all of the following except: - Answer- market risk
The amount of systematic risk present in a particular risky asset relative to that in an
average risky asset is measured by the: - Answer- beta coefficient
The security market line is a linear function that is graphed by plotting data points based
on the relationship between the: - Answer- expected return and beta
The security market line is defined as a positively sloped straight line that displays the
relationship between the: - Answer- expected return and beta of either a security or
portfolio
A stock is expected to return 13 percent in an economic boom, 10 percent in a normal
economy, and 3 percent in a recessionary economy. Which one of the following will
lower the overall expected rate of return on this stock? - Answer- A decrease in the
probability of an economic boom
A company originally issued bonds that were rated investment grade. These bonds
have now been downgraded to junk status. These bonds are referred to as: - Answer-
fallen angels
The price at which a dealer will purchase a bond is referred to as the ______ price. -
Answer- bid
The price at which an investor can purchase in the bond market is called the _______
price. - Answer- asked
A bond trader just purchased and resold a bond. The amount of profit earned by the
trader from this purchase and resale is referred to as the: - Answer- bid-ask spread
Which of the following is the quoted price of a bond? - Answer- clean price
A real rate of return is defined as a rate that has been adjusted for which one of the
following? - Answer- Inflation
The inflation premium - Answer- compensates investors for expected price increases
