1、Corporate Finance, 3e (Berk/DeMarzo)Chapter 10 Capital Markets and the Pricing of Risk10.1 Risk and Return: Insights from Years of Investor History1) Which of the following investments offered the lowest overall return over the past eighty years?A) Small stocksB) Treasury BillsC) S&P 500D) Corporate
2、 bondsAnswer: BDiff: 1Section: 10.1 A First Look at Risk and ReturnSkill: Definition2) Which of the following investments offered the highest overall return over the past eighty years?A) Treasury BillsB) S&P 500C) Small stocksD) Corporate bondsAnswer: CDiff: 1Section: 10.1 A First Look at Risk and R
3、eturnSkill: Definition3) Which of the following investments had the largest fluctuations overall return over the past eighty years?A) Small stocksB) S&P 500C) Corporate bondsD) Treasury BillsAnswer: ADiff: 1Section: 10.1 A First Look at Risk and ReturnSkill: Definition推荐精选10.2 Common Measures of Ris
4、k and Return1) Which of the following statements is FALSE?A) The variance increases with the magnitude of the deviations from the mean.B) The variance is the expected squared deviation from the mean.C) Two common measures of the risk of a probability distribution are its variance and standard deviat
5、ion. D) If the return is riskless and never deviates from its mean, the variance is equal to one.Answer: DExplanation: D) If the return is riskless and never deviates from its mean, the variance is equal to zero.Diff: 1Section: 10.2 Common Measures of Risk and ReturnSkill: Conceptual2) Which of the
6、following statements is FALSE?A) When an investment is risky, there are different returns it may earn.B) In finance, the variance of a return is also referred to as its volatility.C) The expected or mean return is calculated as a weighted average of the possible returns, where the weights correspond
7、 to the probabilities.D) The variance is a measure of how spread out the distribution of the return is.Answer: BExplanation: B) In finance, the standard deviation of a return is also referred to as its volatility.Diff: 1Section: 10.2 Common Measures of Risk and ReturnSkill: Conceptual3) Which of the
8、 following statements is FALSE?A) The standard deviation is the square root of the variance.B) Because investors dislike only negative resolutions of uncertainty, alternative measures that focus solely on downside risk have been developed, such as the semi-variance and the expected tail loss.C) Whil
9、e the variance and the standard deviation are the most common measures of risk, they do not differentiate between upside and downside risk.D) While the variance and the standard deviation both measure the variability of the returns, the variance is easier to interpret because it is in the same units
10、 as the returns themselves.Answer: DExplanation: D) While the variance and the standard deviation both measure the variability of the returns, the standard deviation is easier to interpret because it is in the same units as the returns themselves.推荐精选Diff: 2Section: 10.2 Common Measures of Risk and
11、ReturnSkill: Conceptual推荐精选4) Which of the following equations is INCORRECT?A) Var(R) = B) SD(R) = C) Var(R) = PR (R - ER)2D) ER = PR RAnswer: AExplanation: A) SD(R) = Diff: 2Section: 10.2 Common Measures of Risk and ReturnSkill: ConceptualUse the table for the question(s) below.Consider the followi
12、ng probability distribution of returns for Alpha Corporation:Current Stock Price ($)Stock Price in One Year ($)Return RProbability PR$35 40%25%$25 $25 0%50%$20 -20%25%5) The expected return for Alpha Corporation is closest to:A) 6.67%B) 5.00%C) 10%D) 0.00%Answer: BExplanation: B) ER = PR R = .25(40%
13、) + .50(0%) + .25(-20%) = 5%Diff: 1Section: 10.2 Common Measures of Risk and ReturnSkill: Analytical6) The variance of the return on Alpha Corporation is closest to:A) 5.00%B) 4.75%C) 3.625%D) 3.75%Answer: BExplanation: B) ER = PR R = .25(40%) + .50(0%) + .25(-20%) = 5%推荐精选Var(R) = PR (R - ER)2 = .2
14、5(.40 - .05)2 + .50(.00 - .05)2 + .25(-20 - .05)2 = .0475 or 4.75%Diff: 2Section: 10.2 Common Measures of Risk and ReturnSkill: Analytical7) The standard deviation of the return on Alpha Corporation is closest to:A) 22.4%B) 19.0%C) 21.8%D) 19.4%Answer: CExplanation: C) ER = PR R = .25(40%) + .50(0%)
15、 + .25(-20%) = 5%Var(R) = PR (R - ER)2 = .25(.40 - .05)2 + .50(.00 - .05)2 + .25(-20 - .05)2 = .0475 or 4.75%SD(R) = = = .2179 or 21.79%Diff: 3Section: 10.2 Common Measures of Risk and ReturnSkill: Analytical8) Suppose an investment is equally likely to have a 35% return or a - 20% return. The expec
16、ted return for this investment is closest to:A) 7.5%B) 15%C) 5%D) 10%Answer: AExplanation: A) ER = PR R = .50(35%) + .50(-20%) = 7.5%Diff: 1Section: 10.2 Common Measures of Risk and ReturnSkill: Analytical9) Suppose an investment is equally likely to have a 35% return or a - 20% return. The variance
17、 on the return for this investment is closest to:A) .151B) .0378C) 0D) .075Answer: DExplanation: D) ER = PR R = .50(35%) + .50(-20%) = 7.5%Var(R) = PR (R - ER)2 = .50(.35 - .075)2 + .50(-.20 - .075)2 = .07563推荐精选Diff: 2Section: 10.2 Common Measures of Risk and ReturnSkill: Analytical推荐精选10) Suppose
18、an investment is equally likely to have a 35% return or a -20% return. The standard deviation on the return for this investment is closest to:A) 38.9%B) 0%C) 19.4%D) 27.5%Answer: DExplanation: D) ER = PR R = .50(35%) + .50(-20%) = 7.5%Var(R) = PR (R - ER)2 = .50(.35 - .075)2 + .50(-.20 - .075)2 = .0
19、7563Sdev = .07563(1/2) = .2750Diff: 2Section: 10.2 Common Measures of Risk and ReturnSkill: Analytical10.3 Historical Returns of Stocks and Bonds1) Which of the following statements is FALSE?A) The expected return is the return is the return that actually occurs over a particular time period.B) If y
20、ou hold the stock beyond the date of the first dividend, then to compute you return you must specify how you invest any dividends you receive in the interim. C) The average annual return of an investment during some historical period is simply the average of the realized returns for each year.D) The
21、 realized return is the total return we earn from dividends and capital gains, expressed as a percentage of the initial stock price.Answer: ADiff: 1Section: 10.3 Historical Returns of Stocks and BondsSkill: Definition2) Which of the following statements is FALSE?A) We measure the degree of estimatio
22、n error statistically through the standard error of the estimate.B) When focusing on the returns of a single security, its common practice to assume that all dividends are immediately invested at the risk-free rate.C) We estimate the standard deviation or volatility as the square root of the varianc
23、e.D) We estimate the variance by computing the average squared deviation from the average realized return.推荐精选Answer: BDiff: 2Section: 10.3 Historical Returns of Stocks and BondsSkill: Conceptual推荐精选3) Which of the following statements is FALSE?A) The standard error provides an indication of how far
24、 the sample average might deviate from the expected return.B) The 95% confidence interval for the expected return is defined as the Historical Average Return plus or minus three standard errors.C) We can use a securitys historical average return to estimate its actual expected return.D) The standard
25、 error is the standard deviation of the average return.Answer: BExplanation: B) The 95% confidence interval for the expected return is defined as the Historical Average Return plus or minus two standard errors.Diff: 2Section: 10.3 Historical Returns of Stocks and BondsSkill: Conceptual4) Which of th
26、e following statements is FALSE?A) The compounded geometric average return is most often used for comparative purposes.B) We should use the arithmetic average return when we are trying to estimate an investments expected return over a future horizon based on its past performance.C) The geometric ave
27、rage return will always be above the arithmetic average return and the difference grows with the volatility of the annual returns.D) The geometric average return is a better description of the long-run historical performance of an investment.Answer: CExplanation: C) The geometric average return will
28、 always be below the arithmetic average return and the difference grows with the volatility of the annual returns.Diff: 3Section: 10.3 Historical Returns of Stocks and BondsSkill: Conceptual5) If a stock pays dividends at the end of each quarter, with realized returns of R1, R2, R3, and R4 each quar
29、ter, then the annual realized return is calculated as:A) Rannual = B) Rannual = (1 + R1)(1 + R2)(1 + R3)(1 + R4)C) Rannual = (1 + R1)(1 + R2)(1 + R3)(1 + R4) - 1D) Rannual = R1 + R2 + R3 + R4Answer: C推荐精选Diff: 2Section: 10.3 Historical Returns of Stocks and BondsSkill: Analytical推荐精选Use the table fo
30、r the question(s) below.Consider the following Price and Dividend data for General Electric Company:DatePrice ($)Dividend ($)December 31, 2008$14.64January 26, 2009$13.35$0.10April 28, 2009$9.14$0.10July 29, 2009$10.74$0.10October 28, 2009$8.02$0.10December 30, 2009$7.726) Assume that you purchased
31、General Electric Company stock at the closing price on December 31, 2008 and sold it after the dividend had been paid at the closing price on January 26, 2009. Your dividend yield for this period is closest to:A) -8.15%B) 0.75%C) 0.70%D) -8.80%Answer: CExplanation: C) = div/P0 = .10/14.64 = .0068Dif
32、f: 2Section: 10.3 Historical Returns of Stocks and BondsSkill: Analytical7) Assume that you purchased General Electric Company stock at the closing price on December 31, 2008 and sold it after the dividend had been paid at the closing price on January 26, 2009. Your capital gains rate (yield) for th
33、is period is closest to:A) 0.75%B) 0.70%C) -8.80%D) -8.15%Answer: CExplanation: C) = (P1 - P0)/P0 = (13.35 - 14.64)/14.64 = -.088115Diff: 2Section: 10.3 Historical Returns of Stocks and BondsSkill: Analytical推荐精选推荐精选8) Assume that you purchased General Electric Company stock at the closing price on
34、December 31, 2008 and sold it after the dividend had been paid at the closing price on January 26, 2009. Your total return rate (yield) for this period is closest to:A) 0.75%B) -8.80%C) 0.70%D) -8.15%Answer: DExplanation: D) = (P1 + D1 - P0)/P0 = (13.35 + .10 - 14.64)/14.64 = -.08128Diff: 2Section:
35、10.3 Historical Returns of Stocks and BondsSkill: Analytical9) Assume that you purchased Ford Motor Company stock at the closing price on December 31, 2008 and sold it at the closing price on December 30, 2009. Your realized annual return for the year 2009 is closest to:A) -45.1%B) -44.5%C) -48.5%D)
36、 -47.3%Answer: AExplanation: A) DatePrice ($)Dividend ($)Return(1 + return)December 31, 2008$14.6411January 26, 2009$13.35$0.10-8.13%0.9187160.918716April 28, 2009$9.14$0.10-30.79%0.6921350.635875July 29, 2009$10.74$0.1018.60%1.1859960.754145October 28, 2009$8.02$0.10-24.39%0.7560520.570173December
37、30, 2009$7.72-3.74%0.9625940.548845The Product of (1 + returns) - 1 =-0.45116The last column in the table contains the cumulative product of (1 + returns)Diff: 3Section: 10.3 Historical Returns of Stocks and Bonds推荐精选Skill: Analytical推荐精选Use the table for the question(s) below.Consider the following
38、 realized annual returns:Year EndIndex Realized ReturnStock A Realized Return200023.6%46.3%200124.7%26.7%200230.5%86.9%20039.0%23.1%2004-2.0%0.2%2005-17.3%-3.2%2006-24.3%-27.0%200732.2%27.9%20084.4%-5.1%20097.4%-11.3%10) The average annual return on the Index from 2000 to 2009 is closest to:A) 7.10%
39、B) 4.00%C) 9.75%D) 8.75%Answer: DExplanation: D) Rannual = = = = 8.82%Diff: 1Section: 10.3 Historical Returns of Stocks and BondsSkill: Analytical11) The average annual return on Stock A from 2000 to 2009 is closest to:A) 29.9%B) 16.40%C) 18.2%D) 18.7%Answer: BExplanation: B) Rannual = = = = 16.45%D
40、iff: 1Section: 10.3 Historical Returns of Stocks and BondsSkill: Analytical推荐精选12) The variance of the returns on the Index from 2000 to 2009 is closest to:A) .0450B) .3400C) .1935D) .0375Answer: DExplanation: D) Rannual = = = = 8.8%Year EndIndexRealized Return(R - R)(R - R)2200023.6%14.78%0.0218448
41、200124.7%15.88%0.0252174200230.5%21.68%0.047002220039.0%0.18%3.24E-062004-2.0%-10.82%0.01170722005-17.3%-26.12%0.06822542006-24.3%-33.12%0.1096934200732.2%23.38%0.054662420084.4%-4.42%0.001953620097.4%-1.42%0.0002016Variance = SUM of (R - R)2/T - 1 = 0.3405116/9 = 0.0378346Diff: 2Section: 10.3 Histo
42、rical Returns of Stocks and BondsSkill: Analytical推荐精选13) The variance of the returns on Stock A from 2000 to 2009 is closest to:A) .3145B) .0990C) .1100D) .9890Answer: CExplanation: C) Rannual = = = 16.45%Year EndStock ARealized Return(R - R)(R - R)2200046.3%29.85%0.0891023200126.7%10.25%0.01050632
43、00286.9%70.45%0.4963203200323.1%6.65%0.004422320040.2%-16.25%0.02640632005-3.2%-19.65%0.03861232006-27.0%-43.45%0.1887903200727.9%11.45%0.01311032008-5.1%-21.55%0.04644032009-11.3%-27.75%0.0770063Variance = SUM of (R - R)2/T - 1 = 0.9907165/9 = 0.1100796Diff: 2Section: 10.3 Historical Returns of Sto
44、cks and BondsSkill: Analytical推荐精选14) The standard deviation of the returns on the Index from 2000 to 2009 is closest to:A) 19.5%B) 20.5%C) 3.8%D) 8.8%Answer: AExplanation: A) Rannual = = = = 8.8%Year EndIndex Realized Return(R - R)(R - R)2200023.6%14.78%0.0218448200124.7%15.88%0.0252174200230.5%21.
45、68%0.047002220039.0%0.18%3.24E-062004-2.0%-10.82%0.01170722005-17.3%-26.12%0.06822542006-24.3%-33.12%0.1096934200732.2%23.38%0.054662420084.4%-4.42%0.001953620097.4%-1.42%0.0002016Variance = SUM of (R - R)2/T - 1 = 0.3405116/9 = 0.0378346Standard deviation = = = 0.1945112Diff: 2Section: 10.3 Historical Returns of Stocks and BondsSkill: Analytical
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