Fundamentals of Investments: Valuation and Management 9th Edition by Bradford Jordan test bank
01-03 The historical
risks on various
important types of
investments.
Difficulty: 1 Easy Section: 1.4 Return
Variability: The
Second Lesson
70.
Award: 1.00 point
An asset has an average annual historical return of 11.6 percent and a standard deviation of 17.8
percent. What range of returns would you expect to see 95 percent of the time?
−41.8% to + 65.0%
−34.4% to + 53.6%
−24.0% to + 47.2%
−6.2% to + 29.4%
−5.4% to + 41.0%
Range = 11.6% ± 2(17.8%) = −24.0% to + 47.2%
References
Multiple Choice Learning Objective:
01-04 The
relationship
between risk and
return.
Difficulty: 2
Medium
Section: 1.4 Return
Variability: The
Second Lesson
71.
Award: 1.00 point
A stock has an average historical return of 10.7 percent and a standard deviation of 19.3 percent.
Which range of returns would you expect to see approximately two-thirds of the time?
8.6% to + 30.0%
+4.6% to + 33.8%
鈭�8.6% to + 30.0%
鈭�3.9% to + 32.5%
鈭�8.9% to + 31.5%
Range = 10.7% ⻧ 19.3% = 鈭�8.6% to + 30.0%
References
Multiple Choice Learning Objective:
01-04 The
relationship
between risk and
return.
Difficulty: 2
Medium
Section: 1.4 Return
Variability: The
Second Lesson
72.
Award: 1.00 point
An asset has an average historical rate of return of 13 percent and a variance of .0106. What range
of returns would you expect to see approximately two-thirds of the time?
鈭�2.28% to + 24.48%
鈭�6.52% to + 32.92%
鈭�9.58% to + 38.8%
+2.70% to + 23.30%
+13.1% to + 13.3%
Range = .13 ⻧ 鈭�(.0106) = + 2.70% to + 23.30%
References
Multiple Choice Learning Objective:
01-04 The
relationship
between risk and
return.
Difficulty: 2
Medium
Section: 1.4 Return
Variability: The
Second Lesson
73.
Award: 1.00 point
Jeremy owns a stock that has historically returned 7.5 percent annually with a standard deviation of
10.2 percent. There is only a .5 percent chance that the stock will produce a return greater than
________ percent in any one year.
20.9
22.9
32.2
38.1
54.8
Return = 7.5% + 3(10.2%) = 38.1%
References
Multiple Choice Learning Objective:
01-04 The
relationship
between risk and
return.
Difficulty: 2
Medium
Section: 1.4 Return
Variability: The
Second Lesson
74.
Award: 1.00 point
Jefferson Mills stock produced returns of 14.8, 22.6, 5.9, and 9.7 percent, respectively, over the past
four years. During those same years, U.S. Treasury bills returned 3.8, 4.6, 4.8, and 4.0 percent,
respectively. What is the variance of the risk premiums on Jefferson Mills stock for these four years?
.00298
.00196
.00396
.00478
.00528
Annual risk premiums are 11.0, 18.0, 1.1, and 5.7 percent, respectively.
Mean = (.11 + .18 + .011 + .057) / 4 = .0895
Var = [(.11 − .0895) 2 + (.18 − .0895) 2 + (.011 − .0895) 2 + (.057 −
.0895) 2 ] / (4 − 1) = .00528
References
Multiple Choice Learning Objective:
01-03 The historical
risks on various
important types of
investments.
Difficulty: 2
Medium
Section: 1.4 Return
Variability: The
Second Lesson
75.
Award: 1.00 point
Over the past four years, the common stock of Jess Electronics Co. produced annual returns of 7.2,
5.8, 11.2, and 13.6 percent, respectively. Treasury bills produced returns of 3.4, 3.3, 4.1, and 4.0
percent, respectively over the same period. What is the standard deviation of the risk premium on
Jess Electronics Co. stock for this time period?
2.23%
2.86%
3.22%
4.46%
4.61%
Annual risk premiums are 3.8, 2.5, 7.1, and 9.6 percent, respectively.
Mean = (.038 + .025 + .071 + .096) / 4 = .0575
Var = [(.038 − .0575) 2 + (.025 − .0575) 2 + (.071 − .0575) 2 + (.096 −
.0575) 2 ] / (4 − 1) = .001034
Std Dev = √ (.001034) = .0322, or 3.22%
References
Multiple Choice Learning Objective:
01-03 The historical
risks on various
important types of
investments.
Difficulty: 2
Medium
Section: 1.4 Return
Variability: The
Second Lesson
76.