Fundamentals of Investments: Valuation and Management 9th Edition by Bradford Jordan test bank

investment?
17.00%
21.45%
25.50%
26.55%
28.00%
HPR = ($31.59 − $27) / $27 = .17
Annualized rate of return = (1 + .17) 12 / 8 − 1 = .2655, or 26.55%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 2
Medium
Section: 1.1 Returns
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 57.
Award: 1.00 point
Jack owned a stock for five months and earned an annualized rate of return of 6 percent. What was
the holding period return?
2.37%
2.42%
2.46%
2.64%
2.72%
Annualized return = (1 + x) 12 / 5 − 1 = .06; x = 1.06 5 / 12 − 1; x = HPR = 2.46 percent
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 2
Medium
Section: 1.1 Returns
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 58.
Award: 1.00 point
Scott purchased 200 shares of Frozen Foods stock for $48 a share. Four months later, he received
a dividend of $.22 a share and also sold the shares for $42 each. What was his annualized rate of
return on this investment?
−44.69%
−40.14%
−33.00%
−31.95%
−28.07%
HPR = ($42 − $48 + $.22) / $48 = −.120417
Annualized return = (1 − .120417) 12/4 − 1 = −.3195, or −31.95%
References
Multiple Choice Learning Objective:
01-01 How to
calculate the return
on an investment
using different
methods.
Difficulty: 2
Medium
Section: 1.1 Returns
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 59.
Award: 1.00 point
A stock has an average historical risk premium of 6.1 percent. The expected risk-free rate for next
year is 2.2 percent. What is the expected rate of return on this stock for next year?
6.50%
7.53%
8.00%
8.30%
9.34%
Expected return = 6.1% + 2.2% = 8.3%
References
Multiple Choice Learning Objective:
01-03 The historical
risks on various
important types of
investments.
Difficulty: 1 Easy Section: 1.3 Average
Returns: The First
Lesson
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 60.
Award: 1.00 point
Last year, ABC stock returned 12.6 percent, the risk-free rate was 4.0 percent, and the inflation rate
was 2.5 percent. What was the risk premium on ABC stock?
8.20%
8.43%
8.60%
8.88%
8.97%
Risk premium = 12.60% − 4.00% = 8.60%
References
Multiple Choice Learning Objective:
01-03 The historical
risks on various
important types of
investments.
Difficulty: 1 Easy Section: 1.3 Average
Returns: The First
Lesson
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 61.
Award: 1.00 point
Over the past four years, Jellystone Quarry stock produced returns of 12.5, 15.1, 8.7, and 2.6 percent,
respectively. For the same time period, the risk-free rate 4.7, 5.3, 3.9, and 3.4 percent each year,
respectively. What is the arithmetic average risk premium on this stock during these four years?
5.13%
5.25%
5.40%
5.83%
5.97%
Average risk premium = [(.125 鈭� .047) + (.151 鈭� .053) + (.087 鈭� .039) + (.026 鈭� .034)] / 4 =
.540, or 5.40%
References
Multiple Choice Learning Objective:
01-03 The historical
risks on various
important types of
investments.
Difficulty: 1 Easy Section: 1.3 Average
Returns: The First
Lesson
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 62.
Award: 1.00 point
Over the past five years, Teen Clothing stock produced returns of 18.7, 5.8, 7.9, 10.8, and 11.6
percent, respectively. For the same five years, the risk-free rate was 5.2, 3.4, 2.8, 3.4, and 3.9
percent, respectively. What is the arithmetic average risk premium on Teen Clothing stock for this
time period?
6.89%
7.01%
7.22%
7.34%
7.57%
Average risk premium = [(.187 − .052) + (.058 − .034) + (.079 − .028) + (.108 − .034) + (.116 − .039)] / 5 =
.0722, or 7.22%
References
Multiple Choice Learning Objective:
01-03 The historical
risks on various
important types of
investments.
Difficulty: 1 Easy Section: 1.3 Average
Returns: The First
Lesson
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 63.
Award: 1.00 point
Over the past ten years, large-company stocks have returned an average of 8.7 percent annually,
long-term corporate bonds have earned 4.1 percent annually, and U.S. Treasury bills have returned
2.5 percent annually. How much additional risk premium would you have earned if you had invested