# Investment Test Questions

At least 50 percent of exam-1

Will come from this study guide

Chapters 1-4

Student: ___________________________________________________________________________ 1. The largest one-day percentage decline in the Dow-Jones Industrial Average during the period 1926-2006 occurred on: A. October 19, 1987.

B. October 28, 1929.

C. September 17, 2001.

D. November 6, 1929.

E. July 19, 2002.

2. Based on the period 1926-2006, the risk premium for U.S. Treasury bills was: A. 0.0 percent.

B. 1.2 percent.

C. 2.0 percent.

D. 2.4 percent.

E. 2.7 percent.

3. Which one of the following had the smallest standard deviation of returns for the period 1926-2006? A. large-company stocks

B. small-company stocks

C. long-term government bonds

D. intermediate-term government bonds

E. long-term corporate bonds

4. Blume's formula is used to:

A. predict future rates of return.

B. convert an arithmetic average return into a geometric average return. C. convert a geometric average return into an arithmetic average return. D. measure past performance in a consistent manner.

E. compute the historical mean return over a multi-year period of time.

5. You purchased a stock for $46.70 a share and resold it one year later. Your total return for the year was 11.2 percent and the dividend yield was 2.8 percent. At what price did you resell the stock? A. $42.78

B. $50.62

C. $51.93

D. $52.08

E. $57.54

6. One year ago, you purchased 400 shares of Southern Cotton at $38.40 a share. During the past year, you received a total of $480 in dividends. Today, you sold your shares for $42.10 a share. What is your total return on this investment? A. 8.79 percent

B. 9.64 percent

C. 10.98 percent

D. 11.64 percent

E. 12.76 percent

7. Which one of the following should be used to compare the overall performance of three different investments? A. holding period dollar return

B. capital gains yield

C. dividend yield

D. holding period percentage return

E. effective annual return

8. An asset had annual returns of 15, 12, -18, 2, and 37 percent, respectively, for the past five years. What is the standard deviation of these returns? A. 8.96 percent

B. 16.05 percent

C. 17.92 percent

D. 18.58 percent

E. 20.03 percent

9. Scott purchased 200 shares of Frozen Foods stock for $48 a share. Four months later, he received a dividend of $0.22 a share and also sold the shares for $42 each. What was his annualized rate of return on this investment? A. -44.69 percent

B. -40.14 percent

C. -33.00 percent

D. -31.95 percent

E. -28.07 percent

10. An asset had annual returns of 12, 18, 6, -9, and 5 percent, respectively, for the last five years. What is the variance of these returns? A. .00810

B. .01013

C. .01065

D. .02038

E. .04052

11. You have owned a stock for seven years. The geometric average return on this investment for those seven years is positive even though the annual rates of return have varied significantly. Given this, you know the arithmetic average return for the period is: A. positive but less than the geometric average return.

B. less than the geometric return and could be negative, zero, or positive. C. equal to the geometric average return.

D. either equal to or greater than the geometric average return. E. greater than the geometric average return.

12. 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? A. 7.02 percent

B. 7.47 percent

C. 7.59 percent

D. 7.67 percent

E. 7.88 percent

13. If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's: A. equity ratio.

B. total book value.

C. market share.

D. market capitalization.

E. time value.

14. Elise just sold a stock and realized a 6.2 percent return for a 4-month holding period. What was her annualized rate of return? A. 11.98 percent...

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