Fundamentals of Investments: Valuation and Management 9th Edition by Bradford Jordan test bank
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 1 Easy Section: 1.5 More on
Average Returns
84.
Award: 1.00 point
A stock produced annual returns of 8.3, −21, 12, 42, and 9 percent over the past five years,
respectively. What is the geometric average return?
5.78%
6.03%
6.34%
7.21%
8.20%
Geometric average = [(1 + .083)(1 − .21)(1 + .12)(1 + .42)(1 + .09)] 1 / 5 −
1 = .0820, or 8.20%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 1 Easy Section: 1.5 More on
Average Returns
85.
Award: 1.00 point
Over the past five years, an investment produced annual returns of 16.5, 21, −18, 4, and 17 percent,
respectively. What is the geometric average return?
6.42%
7.06%
8.00%
15.60%
16.00%
Geometric average = [(1 + .165)(1 + .21)(1 − .18)(1 + .04)(1 + .17)] 1 / 5 −
1 = .0706, or 7.06%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 1 Easy Section: 1.5 More on
Average Returns
86.
Award: 1.00 point
A portfolio had an original value of $7,400 seven years ago. The current value of the portfolio is
$11,898. What is the average geometric return on this portfolio?
7.02%
7.47%
7.59%
7.67%
7.88%
$7,400 (1 + R) 7 = $11,898; R = 7.02%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 1 Easy Section: 1.5 More on
Average Returns
87.
Award: 1.00 point
An initial investment of $40,000 fifty years ago is worth $1,822,222 today. What is the geometric
average return on this investment?
7.47%
7.94%
9.25%
9.50%
11.08%
$40,000(1 + R) 50 = $1,822,222; R = 7.94%
N = 50; PV = −$40,000, PMT = 0, FV = $1,822,222; I / y = 7.94%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 1 Easy Section: 1.5 More on
Average Returns
88.
Award: 1.00 point
A stock had year-end prices of $24, $27, $32, and $26 over the past four years, respectively. What
is the geometric average return?
2.02%
2.18%
2.55%
2.70%
2.81%
($26 / $24) 1/3 − 1 = .0270, or 2.70%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 1 Easy Section: 1.5 More on
Average Returns
89.
Award: 1.00 point
The geometric return on a stock over the past 10 years was 7.9 percent. The arithmetic return over
the same period was 8.8 percent. What is the best estimate of the average return on this stock over
the next 5 years?
8.40%
9.05%
9.08%
9.13%
9.47%
Projected return = {[(5 − 1) / (10 − 1)] × .0790} + {[(10 − 5) / (10 − 1)] × .0880} = .0840, or 8.40%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 2
Medium
Section: 1.5 More on
Average Returns
90.
Award: 1.00 point
The geometric return on an asset over the past 12 years has been 14.50 percent. The arithmetic
return over the same period was 14.96 percent. What is the best estimate of the average return on
this asset over the next 5 years?
14.47%
14.67%
14.79%
14.88%
14.86%
Projected return = {[(5 鈭� 1) / (12 鈭� 1)] 脳 .1450} + {[(12 鈭� 5) / (12 鈭� 1)] 脳 .1496} = .1479, or
14.79%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 2
Medium
Section: 1.5 More on
Average Returns
91.
Award: 1.00 point
A stock has an average arithmetic return of 10.55 percent and an average geometric return of 10.41
percent based on the annual returns for the last 15 years. What is projected average annual return