Financial Investment Short MC

You purchased a share of stock for $30. One year later you received $1.50 as a dividend and sold the share for $32.25. What was your holding-period return?

A. 12.5%

B. 12.0%

C. 13.6%

D. 11.8%

E. none of the above

A. 12.5 % ($1.5 + $32.25 - $30)/$30 = 0.125, or 12.5%.

The holding-period return (HPR) on a share of stock is equal to

A. the capital gain yield during the period, plus the inflation rate.

B. the capital gain yield during the period, plus the dividend yield.

C. the current yield, plus the dividend yield.

D. the dividend yield, plus the risk premium. E. the change in stock price.

B. the capital gain yield during the period, plus the dividend yield.

Historical records regarding return on stocks, Treasury bonds, and Treasury bills between 1926 and 2009 show that

A. stocks offered investors greater rates of return than bonds and bills.

B. stock returns were less volatile than those of bonds and bills.

C. bonds offered investors greater rates of return than stocks and bills.

D. bills outperformed stocks and bonds. E. treasury bills always offered a rate of return greater than inflation.

A. stocks offered investors greater rates of return than bonds and bills.

The historical data show that, as expected, stocks offer a greater return and greater volatility than the other investment alternatives. Inflation sometimes exceeded the T-bill return. You have been given this probability distribution for the holding-period return for KMP stock:

State of the Economy Probability HPR

Boom .30 18%

Normal Growth .50 12%

Recession .20 -5%

What is the variance for KMP stock? The mean HPR is 10.4% (= .30 x 18 + .50 x 12 + .20 x (-5)).

A. 0.6604%

B. 0.6996%

C. 0.7704%

D. 0.6372%

E. 0.7845%

A. 0.6604% variance = [.30 (18 - 10.4)2 + .50 (12 - 10.4)2 + .20 (-5 - 10.4)2 ] = 66.04 / 100 = 0.6604%

You purchase a share of Boeing stock for $90. One year later, after receiving a dividend of $3, you sell the stock for $92. What was your holding-period return?

A. 4.44%

B. 2.22%

C. 3.33%

D. 5.56%

E. none of the above

D. 5.56% HPR = (92 - 90 + 3) / 90 = 5.56

If a portfolio had a return of 10%, the risk free asset return was 4%, and the standard deviation of the portfolio's excess returns was 25%, the risk premium would be _____.

A. 14%

B. 6%

C. 35%

D. 21%

E. 29%

B. 6%